IN RE CORMEDIX INC. SECURITIES LITIGATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Lead Plaintiff John C. LEVON, individually

and on behalf of all others similarly situated, Civil Action No. 21-14020 (JXN) (CLW)

Plaintiffs,

OPINION

CORMEDIX INC., KHOSO BALUCH,

ROBERT COOK, MATTHEW DAVID,

PHOEBE MOUNTS, JOHN L,

ARMSTRONG, and JOSEPH TODISCO,

Defendants.

NEALS, District Judge:

Before the Court is Defendants CorMedix Inc., Khoso Baluch, Robert Cook, Matthew

David, Phoebe Mounts, John L. Armstrong, and Joseph Todisco’s (collectively, “Defendants”)

Motion to Dismiss the Third Amended Consolidated Class Action Complaint (“TAC”), pursuant

to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and the Private Securities Litigation Reform

Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4 (ECF No. 104); Plaintiff's opposition (ECF No, 106);

and Defendants’ Reply (ECF No. 107). Jurisdiction is proper under 28 U.S.C. § 1331. Venue is

proper under 28 ULS.C. § 1391(b). The Court has carefully considered the parties’ written

submissions and decides this matter without oral argument pursuant to Federal Rule of Civil

Procedure 78(b) and Local Civil Rule 78.1(b). For the reasons stated below, Defendants’ motion

to dismiss is DENIED.

I. BACKGROUND AND PROCEDURAL HISTORY!

Plaintiff John C. Levon brings this putative securities class action on behalf of himself, and

all others similarly situated who purchased or otherwise acquired common stock of CotMedix Inc.

(“CorMedix” or the “Company”’) between October 16, 2019, and August 8, 2022 (the “Class

Period”), and who were damaged thereby. (TAC 9§ 1, 19, ECF No. 97). CorMedix is a

biopharmaceutical company headquartered in New Jersey, focused on the development and

commercialization of products for the prevention and treatment of infectious diseases. Its lead

product candidate, DefenCath (formerly known as Neutrolin), is a catheter lock solution designed

to prevent bloodstream infections in patients undergoing hemodialysis. Ud. ¥§ 2, 47).

The action arises out of CorMedix’s efforts to obtain U.S. Food and Drug Administration

(“FDA”) approval of its New Drug Application (*NDA”) for DefenCath. Plaintiff alleges that

throughout the Class Period, Defendants made materially false and misleading statements and

omissions concerning the Company’s ability to secure FDA approval. (Ud. 3-5). Specifically,

Plaintiff contends that Defendants misrepresented the regulatory readiness and compliance of

CorMedix’s third-party manufacturing organization, ROVI Contract Manufacturing, S.L.

(“ROVI”), and a key active pharmaceutical ingredient (“API”) supplier. Ud. 3-5, 80-87).

According to Plaintiff, an internal audit conducted in 2018, concluded that ROVI would not pass

an FDA inspection due to systemic manufacturing deficiencies, yet Defendants allegedly

concealed these findings while repeatedly assuring investors that all manufacturing issues had

been resolved. Ud. Ff] 81-87, 104-08, 112). Plaintiff further alleges that Defendants raised over

$60 million in capital during the Class Period through public offerings, while continuing to

' The following factual allegations are taken from Plaintiffs’ Third Amended Complaint, which are accepted as □□□□□

Sheridan v. NGK Metals Corp,, 609 F.3d 239, 262 0.27 (3d Cir, 2010).

mislead investors about DefenCath’s regulatory prospects. Ud. 9] 16-17, 89, 102-03, 139-41).

On February 26, 2021, the FDA issued a Complete Response Letter (“CRL”) identifying

multiple deficiencies at ROVI, including issues involving aseptic process validation, quality

assurance, and data integrity, which prevented approval of the NDA. (Ud. JJ 20, 178-83).

CorMedix publicly disclosed the FDA’s rejection on March 1, 2021, causing a decline in its stock

price. (Ud. | 21). Defendants subsequently announced that they would work with ROVI to address

the FDA’s concerns. (/d. § 22). CorMedix resubmitted the NDA on February 28, 2022, (Ud. { 144).

However, the FDA issued a second CRL on August 4, 2022, citing unresolved deficiencies at both

ROVI and the API supplier, including a failure to ensure cGMP (current Good Manufacturing

Practice) compliance. (/d. Jf 33, 193-217). The Company disclosed this second CRL on August

8, 2022, prompting another drop in its share price. Ud, { 36). Plaintiff alleges that both the first

and second CRLs stemmed from the same core issues identified in the 2018 audit, which

Defendants never disclosed. (ld. J] 81-87, 178-217).

On July 22, 2021, Plaintiff filed the initial class action complaint. (ECF No. i). On

December 14, 2021, Plaintiff filed the First Amended Complaint, asserting claims under both the

Securities Act of 1933 and the Securities Exchange Act of 1934, (ECF No. 43) (the “First Am.

Comp.”). On March 28, 2022, Defendants moved to dismiss the Consolidated Amended Class

Action Complaint.(ECF No. 57),” On August 30, 2022, the parties entered a stipulation allowing

the filing of a Second Amended Complaint and permitting Defendants to file a motion to dismiss

in response thereto. See ECF No. 75. On December 9, 2022, the Court granted in part and denied

2 On February 21, 2022, Defendants moved to dismiss. (ECF No. 50}. The Court administratively terminated the

motion at ECF No. 50 based on the parties’ joint stipulation amending the briefing schedule. See ECF No. 55, The

motion to dismiss was refiled under ECF No. 57.

in part the motion, dismissing Plaintiff's Securities Act claims with prejudice while allowing

Plaintiff to amend the Exchange Act claims, (ECF Nos. 65-66).

On October 10, 2022, Plaintiff filed a Second Amended Complaint (“SAC”) alleging

claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.

(ECE No. 79). On November 23, 2022, Defendants moved to dismiss the SAC. (ECF No. 86). On

March 21, 2024, the Court denied Defendants’ motion without prejudice and granted Plaintiff

leave to amend, (ECF No. 91).

On April 22, 2024, Plaintiff filed the operative TAC. (ECF No. 97). The TAC again alleges

that Defendants violated Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 by

issuing materially misleading statements concerning the regulatory status and manufacturing

readiness of DefenCath. (TAC 4 5, 40, 80-87, 104-12, 178-217, 293). _

Defendants moved to dismiss the TAC with prejudice on June 6, 2024, (ECF No, 104),

On July 22, 2024, Plaintiff opposed. (ECF No. 106). On August 21, 2024, Defendants replied.

(ECF No. 107). Defendants’ motion to dismiss is now ripe for adjudication.

Il. LEGAL STANDARD

A. Rule 12(b)(6)

Rule 8 requires that a pleading include “a short and plain statement of the claim showing

that the pleader is entitled to relief” and provide the defendant with “fair notice of what the claim

is and the grounds upon which it rests[.[? Bef? Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

(citation and internal quotations and ellipses omitted). On a Rule 12(b)(6) motion, the “facts

alleged must be taken as true” and dismissal is not appropriate where “it appears unlikely that the

plaintiff can prove those facts or will ultimately prevail on the merits.” Phillips v. Cnty. of

Allegheny, 515 F.3d 224, 231 Gd Cir. 2008) (citation omitted), A complaint will survive a motion

to dismiss if it provides a sufficient factual basis to state a facially plausible claim for relief,

Ashcroft v. Igbal, 556 U.S. 662, 678 (2009).

To determine whether a complaint is sufficient, the Third Circuit requires a three-part

inquiry: (1) the court must first recite the elements that must be pled in order to state a claim; (2)

the court must then determine which allegations in the complaint are merely conclusory and

therefore need not be given an assumption of truth; and (3) the court must “assume the[] veracity”

of well-pleaded factual allegations and ascertain whether they plausibly “give rise to an

entitlement for relief.” Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (citations

omitted).

Motions to dismiss in a Section 10(b) action under the Securities Exchange Act, similarly,

follow a three-step process. First, as with any Rule 12(b)(6) motion, courts must “accept all factual

allegations in the complaint as true.” Winer Family Tr. v. Queen, 503 F.3d 319, 327 (3d Cir. 2007).

Second, “courts must consider the complaint in its entirety.” Jd (quoting Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)), Third, in determining whether the pled facts give

rise to a “strong” inference of scienter, the court must take into account plausible opposing

inferences. [d.; Cont’l Gen, ins, Co, v, Olafsson, No. CV 23-3662 (ZNQ) (JBD), 2024 WL

4263211, at *4~-5 (D.NJ. Sept. 23, 2024).

Fraud-based claims brought under the Securities Exchange Act, and alleged as part of a

private securities class action, are additionally subject to the heightened pleading requirements of

both Rule 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. § 78u, ef seg., (the

“PSLRA”). See In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 276-77 (3d Cir. 2006);

see also Inve Rockefeller Ctr. Props., inc. See. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Rule 9(b)

provides that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake.” Fed. R. Civ. P. 9(b); see Frederico v. Home Depot, 507 F.3d 188,

200-02 (3d Cir. 2007) (noting that a court may grant a motion to dismiss a fraud-based claim if

the plaintiff fails to plead with the required particularity). Particularity requires sufficient details

to put the defendant “on notice of the precise misconduct with which [it is] charged.” Jd. at 201

(alteration in original) (quoting Lum v. Bank of Am., 261 F.3d 217, 223-24 (3d Cir. 2004)

(abrogated on other grounds)) (internal quotation marks omitted). A plaintiff must plead “the who,

what, when, where and how” of the alleged fraud. U.S. ex rel. Moore & Co., PA. v. Majestic Blue

Fisheries, LLC, 812 F.3d 294, 307 Gd Cir. 2016).

The PSLRA provides two distinct pleading requirements, both of which must be met for a

securities complaint to survive a motion to dismiss. Institutional Invs. Grp. v. Avaya, Inc., 564

F.3d 242, 252 (3d Cir. 2009). Both provisions of the PSLRA require facts to be pled with

“particularity.” Jd. at 253. A complaint must: (1) “specify each statement alleged to have been

misleading [and] the reason or reasons why the statement is misleading”; and (2) “state with

particularity facts giving rise to a strong inference that the defendant acted with the required state

of mind,” i.¢., scienter. 15 U.S.C. § 78u-4(b)(1)-(2).

B. Rule 9(b) and the PSLRA

The scienter requirement under the PSLRA is satisfied only if the complaint pleads “an

inference of scienter [that] is cogent and at least as compelling as any opposing inference of

nonfraudulent intent.” Tellabs, Inc, 551 U.S. at 314. In the Third Circuit, scienter may be

established by alleging either (1) a motive and opportunity to commit fraud or (2) “circumstantial

evidence of either reckless or conscious behavior.” Just] Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242,

(3d Cir. 2009) (quoting In re Advanta Corp. See. Litig., 180 F.3d 524, 534-35 (3d Cir. 1999).

The Third Circuit has repeatedly held that allegations of recklessness—defined as “highly

unreasonable conduct which is an extreme departure from the standards of ordinary care”—imay

satisfy the scienter requirement for securities fraud. J re Advanta Corp. Sec. Litig., 180 F.3d 524,

535 (3d Cir. 1999),

Iii. DISCUSSION

Defendants contend that the TAC fails to meet any of the required elements of a securities

fraud claim. (Defs.’ Br. at 3). Defendants assert Plaintiff fails to plead facts supporting the

“compelling” inference of scienter required by the PSLRA. (Defs.’ Br. at 3), Plaintiff asserts to

the contrary that the TAC contains detailed allegations of contemporaneous knowledge, including

confidential witness statements, internal audit reports, and FDA communications known to

Defendants at the time of their alleged misstatements, (Pl.’s Br. at 27).

1, Plaintiffs Adequately Allege Material Misrepresentation

To adequately plead material misrepresentation under the PSLRA, plaintiffs must plead

with particularity each alleged material misstatement, identifying “the reason or reasons why each

flagged statement is false or misleading — or how an omission makes another disclosure false or

misleading.” J re Galena Biopharma, Inc. See. Litig., 336 F. Supp 3d 378, 393 (D.N.J, 2018).

Materiality is determined “if there is a substantial likelihood that [a fact or omission] would have

been viewed by [a] reasonable investor as having significantly altered the ‘total mix’ of

information available to the investor.” In re Celgene Corp. Sec. Litig., No. 18-4772, 2019 WL

6909463, at *11(D.N.J, May 19, 2017), Particularity “requires that plaintiffs plead the ‘who, what,

when, where and how.’” Jn re Galena, 336 F. Supp. 3d at 388. However, “Rule 9(b) and the

PSLRA do not insist upon irrefutable evidence of a statement’s falsity at the pleading stage; rather,

a complaint must contain particularized factual allegations that plausibly allege that a statement

was misleading.” City of Warren Police and Fire Ret. Sys. v. Prudential Fin, Ine., 70 ¥ Ath 668,

681 (3d Cir. 2023). The statement or omissions must also “have been misleading at the time it was

made; liability cannot be imposed on the basis of subsequent events.” Jd. at 693.

Furthermore, “when an allegation of fraud is based upon nondisclosure, there can be no

fraud absent a duty to speak.” Infelligroup Sec, Litig., 527 F. Supp. 2d 262, 281 (D.N.J, 2007).

“(Such a duty to disclose may arise [only] when...[there was] an inaccurate, incomplete or

misleading prior disclosure [requiring] a corrective statement.” /n re Intelligroup Sec. Litig., 527

F. Supp. 2d 262, 281 (D.N.J. 2007). “Disclosure is required under § 10(b) and Rule 10b-5 when

‘necessary to make ... statements made, in light of the circumstances under which they were made,

not misleading.” Jn re Amarin Corp. PLC See. Litig., No. 21-2071, 2022 WL 2128560, at *3 (3d

Cir, June 14, 2022). Otherwise put, “there is no affirmative duty to disclose all material

information, but such a duty may arise when a company chooses ‘to speak about a material subject

to investors.’” Id.

Defendants categorize the alleged material misrepresentations into four groups: (1) true

statements before the first CRL; (2) true statements after the first CRL; (3) forward-looking

statements; and (4) opinion/non-actionable statements. (Defs.’ Br. at 19, 21, 24, 26),

Plaintiff categorizes Defendants’ alleged misstatements and omissions into four groups:

(1) those about the then-current state of manufacturing deficiencies; (2) those about being on track;

(3) those claiming FDA support; and (4) those about non-manufacturing-related risks. (Pl.’s Br. at

14, 17, 19, 20). Plaintiff also contends that Defendants’ misstatements and omissions are not

protected opinions or forward-looking statements. (/d. at 22).

The Court adopts three of Defendants’ categories for the purpose of its analysis,

i. True Statements before the first CRL

First, Defendants state that because “virtually none” of the true statements made before the

first CRL amount to “‘affirmative characterizations’ regarding the likelihood of FDA ‘approval’”

that the statements do not put “in play” allegedly omitted information. (Defs.’ Br. at 19), “Virtually

none” is not “none,” though. Defendants note a statement Defendants made on March 16, 2020,

that “fits CMO] may not be able to comply with the applicable FDA regulatory requirements,

which .,. could prevent [Defendants] from ultimately receiving product marketing approval.”

(Defs.’ Br. at 19). By making such a statement, Defendants had a duty to disclose any material

information relating to that material subject. Ja re Amarin Corp. PLC Sec. Litig., No. 21-2071,

2022 WL 2128560, at *3 (3d Cir. June 14, 2022) (holding that “there is no affirmative duty to

disclose all material information, but such a duty may arise when a company ‘chooses to speak

about a material subject to investors.’”). Yet, Defendants still allegedly failed to disclose the 2018

Audit, which states that the CMO should not be used because it would not be able to pass an FDA

inspection. (TAC { 5). Plaintiff specifically alleges the same in the TAC: that the statement is

materially false or misleading because CorMedix omitted material, adverse facts about

CorMedix’s operations, particularly the deficiencies revealed by the 2018 Audit. (TAC 193).

Additionally, Defendants’ argument—that the 2018 Audit does not contradict any of their pre-

CRL statements as Defendants do not speak to the CMO’s ability to pass FDA inspection—is

unpersuasive at this stage of the proceedings. (Defs.’ Br. at 21).

Defendants next allege that Plaintiff did not plead any concerns raised by the FDA prior to

the First CRL. (Defs.’ Br. at 20). Specifically, Defendants claim that the FDA’s additional records

request did not indicate that the FDA was “concerned” but was instead a part of an ongoing

dialogue between Defendants and the FDA. (dd. at 20). Defendant, citing Bauer v. Eagle Pharms.

Inc., No. 16-3091, 2017 WL 2213147, at *9 (D.N.J. May 19, 2017), contends that such a dialogue

cannot give rise to an inference that the FDA expressed concerns. (/d. at 20). However, Bauer held

that “because the Court finds that Plaintiff has not pled falsity as to [certain] statements, there is

no basis from which to conclude that the Company’s on-going discussions with the FDA, coupled

with the core operations doctrine, supports an inference that Defendants knew that the Product’s

NDA would not be approved.” Jd. at *11, Bauer essentially held that because falsity was not

adequately pled, dialogue with the FDA cannot support scienter. /d.

Here, Plaintiff alleges the falsity of Defendants’ statements based on the ongoing dialogue

between the FDA and Defendants, specifically Defendants’ failure to disclose the FDA’s concerns

about records submitted during the NDA, which allegedly prompted an additional records request.

(TAC JJ 205, 208, 213). Plaintiff alleges that the severity of the FDA’s concerns (established

through records review and this “ongoing dialogue”) was not conveyed to the public, despite

Defendant’s public statements about the FDA’s records review and this “ongoing dialogue.” (TAC

{ 103). Defendants had a duty to disclose the FDA’s concerns stemming from its review of records

submitted with the NDA when Defendants stated that additional records were requested by the

FDA; Defendants commented on a material subject and had a duty to disclose other material

information available. Ja re Amarin Corp. PLC See. Litig., No. 21-2071, 2022 WL 2128560, at *3

(3d Cir, June 14, 2022). Relatedly, Plaintiff alleges that Defendants “failed to inform investors

that the request for additional information was based on identified deficiencies in the

manufacturing process, in addition to mounting deficiencies at the CMO’s manufacturing

facilities.” (TAC { 103). Moreover, Plaintiff pleads with particularity that Defendants misled

Plaintiff and the public by failing to disclose that the request for additional information was based

on deficiencies at the CMO. (TAC 205, 208, 213).

10

ii. True Statements after the first CRE

Defendants first argue that they had no duty to disclose material adverse facts about the

likelihood of success of the NDA because, “for the most part,” Defendants do not comment on

this. (Defs.’ Br. at 22), Defendants argue that if they had a duty to disclose material adverse facts

about the likelihood of success of the NDA, Plaintiff fails to allege the facts that Defendants failed

to disclose. (id. at 22). However, Plaintiff does allege that Defendants had a duty but still failed to

disclose that its CMO manufactured contaminated vials of Moderna vaccine due to protocols

relating to changeover of manufacturing lines at the facility. (TAC 260). Defendants contend

that because the FDA gave no indication that the Moderna contamination would impact its NDA

approval, they had no duty to disclose that information. (Defs.’ Br. at 22), To support their

arguinent, Defendants cite Jn re Genzyme Corp. See. Litig,, 754 F.3d 31, 43 (ist Cir. 2014), which

held that its defendant had no obligation to disclose bioreactor failures at one plant where failures

“bore no relation to FDA approval of [the NDA]” at another plant and where FDA had not given

“any indication that the bioreactor failures would hinder approval” of the NDA. (/d.). However,

Genzyme is not instructive here. There is one glaring difference between the present issue and

Genzyme: the contaminated Moderna vaccines were being manufactured at the same facility that

CorMedix contracted to manufacture DefenCath. (TAC ¥ 163). Plaintiff alleges, based on cGMP

and Defendants’ dialogue with the FDA, that Defendants were responsible for ensuring processes

were in place to assure the control of outsourced activities and quality of purchased

substances. (TAC 17). Plaintiff also alleges that:

[Slince the CMO manufactured multiple different drug products,

Defendants also knew or reckfessly ignored that they needed to

ensure that its protocols relating to changeover of manufacturing

lines... met cGMP standards and that deficient protocois relating

to changeover of manufacturing lines . . . could and would cause

contaminated vials, which would delay the CMO’s ability to obtain

11

the data requested by the FDA relating to the qualification of the

filling operation.

(TAC 4 118).

Plaintiff adequately pleads with particularity that Defendants’ post-CRL statements are

misleading because Plaintiff alleges that Defendants, despite having a duty, failed to disclose

material adverse facts regarding the Moderna contamination.

iii. Forward looking statements

A “safe harbor,” as afforded under the PSLRA, “immunizes liability from any forward-

looking statement[s], provided that: the statement[s] fare] identified as such and accompanied by

meaningful cautionary language; or [are] immaterial; or the plaintiff fails to show the statement[s]

{were] made with actual knowledge of [their] falsehood.” Jnstitutional Invs, Group v. Avaya, Inc.,

564 F.3d 242, 254 (Gd Cir. 2009), Cautionary statements are “meaningful” when they are

“substantive and tailored to the specific future projections, estimates or opinions in the

[documents] which the plaintiffs challenge.” OFT Asset Mgmt v. Cooper Tire & Rubber, 834 F.3d

481, 491 (d Cir. 2016). Cautionary statements are tailored when they “[identify] important

factors that could cause actual results to differ materially from those in the forward-looking

statement.” Nat'l Junior Baseball League v. Pharmanet, 720 F. Supp. 2d 517, 530 (D.N.J. 2010).

Boilerplate disclaimers that warn of general risks that accompany investments are not sufficient

to immunize a defendant from liability. OFT Asset Mgmt, 834 F.3d at 491, Rather, cautionary

statements must be “substantive and tailored” and “extensive and specific.” /nstitutional Invs.

Group, 564 F.3d at 257. Defendants claim that some of the alleged misstatements are forward-

looking (“AFL”) and accompanied by an adequate cautionary statement, so Defendants are

immunized by the PSLRA’s safe harbor. (Defs.’ Br. at 24). Plaintiff, though, contends that because

Defendants failed to disclose adverse events and risks that had already occurred or were occurring,

12

the AFL are neither truly forward-looking nor supported by truly cautionary language and thus,

are not immunized. (P1.’s Br. at 22-24), Plaintiff alleges in the TAC that the AFL are misleading

not because they fail to “correctly predict that the FDA would not approve DefenCath[,]” but

because Defendants concealed events that had occurred or were occurring. (PI.’s Br. at 22).

This Court is not persuaded by Defendants’ argument; the AFL cannot be protected by the

PSLRA’s safe harbor. Defendants liken their statements to cases that found similar statements

regarding FDA to be forward-looking. (Defs.’ Br. at 24-25), But central to this issue is not what

the AFL state, but rather what the AFL fai/ to caution. Put otherwise, Plaintiff does not allege that

the AFL are misleading because their predictions are incorrect but instead alleges that the AFL are

misleading because adverse events and risks underlying their predictions were not disclosed. (PL’s

Br. at 22), Cautionary statements are not truly cautionary when the defendant knows that an

identified risk has or will occur. In re Bristol-Myers Squibb Sec. Litig., No. 00-1990, 2005 WL

2007004, *51-52 (D.NJ. Aug. 17, 2005). The Court in Bristol-Myers found that “even though

statements [were] forward-looking ..., and even if these statements were accompanied by adequate -

cautionary language, [the] [p]laintiff adequately alleges that [the] [d]efendants had enough

information ... to know that this status would not be attained.” Jd. Essentially, “safe harbor...

provides no protection to someone who warns his hiking companion to walk slowly because there

might be a ditch ahead when he knows with near certainty that the Grand Canyon is one foot

away.” Id. For the AFL made before the first CRL, Plaintiff adequately alleges that Defendants

failed to disclose concerns that the FDA raised (those which prompted an additional records

request as discussed above) and deficiencies at the CMO, which make the AFL misleading. (TAC

205, 208, 213). For the AFL made after the first CRL, Plaintiff adequately alleges in the TAC

that Defendants failed to disclose various events and risks that affected the CMO’s ability to

13

address the deficiencies identified in the first CRL that make the AFL misleading. (TAC { 228).

Defendants’ cautionary statements do not disclose, (and, allegedly, Defendants did not generally

disclose) that these events and risks had occurred or were occurring; they state, in one instance,

that “[their] CMO may not be able to comply with the applicable FDA regulatory requirements,

which could result in delays” while allegedly concealing information related to their CMO’s

ability to comply with the applicable FDA regulatory requirements. (Defs.’ Br. at 25).

2. Plaintiffs Adequately Allege Scienter

To plead scienter, the PSLRA requires a plaintiff to allege facts which give rise to a strong

inference that the defendant acted with the required state of mind in making misleading statements

and/or omissions. 15 U.S.C. §78u-4(b)(2). In the Third Circuit, scienter is sufficiently alleged

when the allegations give rise to a strong inference of “either reckless or conscious behavior.” See

In re Advanta Corp. Sec. Litig., 180 F.3d 524, 534-35 (3d Cir, 1999), Recklessness encompasses

“an extreme departure from the standards of ordinary care, and which presents a danger of

misleading buyers or sellers that is either known to the defendant or is so obvious that the actor

must have been aware of it.” Avaya, 564 F.3d at 280 (quoting Advanta, 180 F.3d at 535), Conscious

behavior, meanwhile, exists where a plaintiff “specifically allege{s] defendants’ knowledge of

facts or access to information contradicting their public statements.” Jn re Campbell Soup Co, Sec.

Litig., 145 F, Supp. 2d 574, 599 (D.N.J. 2001).

In analyzing scienter, a court must determine “[w]hen the allegations are accepted as true

and taken collectively, would a reasonable person deem the inference of scienter at least as strong

as any opposing inference?” Tellabs, 551 U.S. at 326. That inference “need not be itrefutable, 7e.,

of the ‘smoking-gun’ genre.” Jd. at 326. The analysis must be “case specific” and should

“ultimately rest not on the presence or absence of certain types of allegations but on a practical

14

judgment about whether, accepting the whole factual picture painted by the Complaint, it is at least

as likely as not that defendants acted with scienter.” Avaya, 564 F.3d at 269. The Complaint is

clear that Defendants either knew of, or recklessly disregarded, the truth when making their false

and misleading statements to investors during the Class Period.

i. Defendants’ Public Representations of Expertise and Direct Oversight

Support a Strong Interference of Scienter

The Court finds that the Individual Defendants repeated public representations of their

regulatory expertise, technical manufacturing experience, and direct oversight over CorMedix’s

core FDA approval process for DefenCath support a strong inference of scienter. These statements,

which Plaintiff alleges falsely reassured investors about compliance and manufacturing readiness,

are contradicted by allegations that Defendants had access to internal information detailing

ROVI’s manufacturing deficiencies and regulatory noncompliance. As such, Plaintiffs have

sufficiently alleged that Defendants either knew of or recklessly disregarded material facts

undermining their public assurances. To plead scienter under the Private Securities Litigation

Reform Act (“PSLRA”), a plaintiff must allege facts giving rise to a “strong inference” that the

defendant acted either with intent to deceive, manipulate, or defraud, or at least with

recklessness—‘“an extreme departure from the standards of ordinary care.” Jn re Hertz Glob.

Holdings Inc., 905 F.3d 106, 114 Gd Cir, 2018). The inference “must be mote than merely

plausible or reasonable—it must be cogent and at least as compelling as any opposing inference

of nonfraudulent intent.” Tellabs, Inc., 551 U.S. at 314. Courts in this Circuit have repeatedly

found a strong inference of scienter where executives make public statements asserting regulatory

expertise or direct oversight, which are later contradicted by internal reports or known

deficiencies. See, e.g., Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335, 349 (E.D. Pa.

2014) (finding scienter where executives’ public statements about FDA compliance were

15

contradicted by internal findings); SEB Inv. Mgmt. AB y. Endo Int'l PLC, 351 F. Supp. 3d 874,

905 (E.D. Pa. 2018) (finding scienter where executives made public statements contradicting

information from internal meetings); City of Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108,

2024 WL 3219616, at *8 (D.N.J. June 28, 2024) (holding that public misstatements concerning a

flagship product support a strong inference of scienter where the product is critical to the

company’s core operations and financial viability).

Here, Plaintiffs adequately allege that Defendants Joseph Todisco and John Armstrong

made repeated public representations about their direct involvement in the DefenCath regulatory

process—particularly regarding manufacturing readiness—while possessing or recklessly

disregarding information that contradicted those statements. During the Class Period, Todisco

publicly stated that CorMedix was “on track” with the FDA and had “resolved all issues related to

manufacturing.” (TAC 4 6). Similarly, Armstrong told investors in August 2019, that his team had

“carried out technical transfer and validation of the manufacturing process,” and had submitted

multiple NDAs that were ultimately approved. (id), These were not vague expressions of

optimism. but detailed assurances asserting personal knowledge and technical mastery. Similarly,

CorMedix issued statements in October 2019, that the FDA was “supportive” of the manufacturing

program and that the company had “all necessary controls and processes in place for approval.”

(TAC ¥ 7). The Complaint alleges, however, that Defendants had access to a 2018 audit warning

that CorMedix’s contract manufacturing organization (ROVI) would likely fail an FDA

inspection. (Compl. {{] 5, 40, 79-84). According to former employees, this audit recommended

that ROVI not be used. Nonetheless, Defendants continued to reassure investors that

manufacturing issues had been resolved. Like the executives in Frater and SEB, who spoke as □

authoritative sources while withholding known compliance deficiencies, Todisco and Armstrong’s

16

statements suggest either actual knowledge or at least recklessness in failing to disclose these

material issues.

Defendants argue that the 2018 audit should be discounted because it predates the NDA

submission by two years and involves a third-party entity. (Defs.’ Reply Br. at 2-3). But this

ignores that the audit addressed precisely the type of manufacturing deficiencies that later formed

the basis of the FDA’s Complete Response Letters (CRLs). (TAC {J 7, 40). And Defendants’

arguinent that ROV] later passed inspection is irrelevant at the pleading stage, where the question

is whether the Complaint supports a strong inference of scienter at the time of the alleged

misstatements. See Tellabs, Inc., 551 U.S. at 323 (holding that at the pleading stage, courts must

consider whether all allegations “collectively” support a strong inference of scienter and must

assess the defendant’s state of mind “at the time the statements were made,” not in bindsight).

Defendants further assert that the absence of insider stock sales undermines scienter.

(Defs.’ Br. at 11; Defs.’ Reply Br. at 3). But courts have repeatedly rejected that contention. See

City of Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108, 2024 WL 3219616, at *13 (D.N.J. June

28, 2024) (“The absence of insider trading is not dispositive.”); In re Valeant Pharims. Int’l, Ine.

Sec. Litig., No. 15-7658 2017 WL 1658822, at *10 (D.N.J. Apr. 28, 2017). Here, other indicia—

such as direct oversight of a single-product company and repeated reassurances to the market—

tip the balance toward a culpable inference. Tellabs, Inc., 551 U.S, at 314, Indeed, DefenCath was

CorMedix’s only product during the Class Period. (TAC 4 2; Pls.’ Br. at 4). Courts have held that

misrepresentations concerning a flagship product are especially probative of scienter. See City of

Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024)

(“The importance of the product to the company’s financial success supports the inference of

scienter.”). Because the FDA approval of DefenCath was core to CorMedix’s operations, Todisco

17

and Armstrong~~who held themselves out as experts in FDA compliance—are presumed to have

known about the company’s regulatory and manufacturing failures. Ja re Viropharma Inc. Sec.

Litig., 21 F, Supp. 3d 458, 472-73 CE.D, Pa, 2014).

Defendants attempt to characterize their statements as permissible corporate optimism, but

these were not vague generalities. They were concrete, repeated assertions about resolved

manufacturing issues and regulatory readiness—amade by senior executives who portrayed

themselves as having firsthand knowledge. (TAC § 6-7). Such statements are actionable when

contradicted by internal documents, audit findings, and regulatory correspondence. See Wu v. □□□

Techedu Inc., No. 20-4457, 2024 WL 3163219 (D.N.J. June 25, 2024); Dang v. Amarin Corp.

PLC, 750 F. Supp. 3d at 467-469 (D.N.J. 2024).

Accordingly, the Court finds that Plaintiffs have adequately alleged a strong inference of

scienter based on Defendants’ public representations of their regulatory expertise and direct

oversight, which were materially contradicted by internal warnings and adverse regulatory

feedback.

ii. Defendants’ Access to Contradictory Information Supports a Strong

Interference of Scienter

The Court finds that Plaintiffs have adequately pled scienter by alleging that CorMedix

executives had access to internal audit findings and other contradictory information concerning

serious manufacturing deficiencies that were not disclosed to investors. Under the PSLRA,

plaintiffs must allege facts that give rise to a “strong inference” of scienter, meaning a mental state

embracing intent to deceive or at least severe recklessness. See Teflabs, Inc., 551 U.S. at 314; 15

U.S.C. § 78u-4(b)(2). In the Third Circuit, a strong inference may arise where a plaintiff pleads

that executives had access to internal documents that directly contradicted their public statements.

See Institutional Inv’rs Grp. v. Avaya Inc., 564 F.3d 242, 259-60 (3d Cir. 2009).

18

In Avaya, the Third Circuit held that internal reports containing negative data can support

scienter when executives make contrary public statements, particularly where confidential

witnesses corroborate the executives’ access to such information. Courts applying Avaya have

consistently found scienter adequately alleged when internal audits or internal data—known to

executives—contradict positive public messaging. See, e.g., SEB Inv. Mgmt. AB v. Endo Int'l,

PLC, 351 F, Supp. 3d 874, 904-06 (E.D, Pa. 2018); fn re Campbell Soup Co. Sec, Litig., 145 F.

Supp. 2d 574, 599 (D.N.J. 2001); Wu v. GSX Techedu Inc, No. 20-4457, 2024 WL 3163219

(D.N.J. June 25, 2024). In Wu, the court credited specific and corroborated confidential witness

accounts that executives had access to internal reports contradicting the company’s public

financial disclosures. Similarly, in Stichting Pensioenfonds Metaal en Techniek v. Verizon

Comme ns Inc., No. 23-05218, 2021 WL 3540968, at *15-17 (S.D.N.Y. Aug, 10, 2021), access

to internal emails and memos warning about inaccuracies supported a finding of scienter.

Here, Plaintiffs allege that Defendants Todisco and Armstrong had access to a 2018

- internal audit that warned CorMedix’s contract manufacturer, ROVI, was likely to fail FDA

inspection due to systemic deficiencies (TAC ff 79-84). According to two confidential witnesses

(FEI and FE2), this audit was known to senior executives, including Armstrong, and its findings

were not disclosed to the public. (See Pl.’s Br. at 4-5). Yet throughout the Class Period, Defendants

repeatedly reassured investors that manufacturing issues had been “resolved” and the NDA was

“on track.” (See Pl.’s Br, at 6-8), This internal audit directly contradicted Defendants’ public

statements and fits squarely within the scienter framework articulated in Avaya and its progeny.

In SEB, for instance, scienter was found where executives attended meetings discussing negative

trial data while publicly issuing optimistic statements.? Likewise, in Campbell Soup,’ weekly

3351 F. Supp. 34 874.

4145 F, Supp. 2d 574, 599.

19

internal reports showing poor sales contrasted sharply with public optimism, which the court found

indicative of recklessness. Here, Plaintiffs allege no meaningful corrective action was taken in

response to the 2018 audit, and the same deficient manufacturer was used when the NDA was

resubmitted in 2022—only to be rejected again for the same unresolved issues. (TAC ff 2, 5, 40,

84). Defendants’ argument that the audit was outdated lacks merit. (See Defs.’ Reply Br. at 2-3).

As in Dang v. Amarin Corp. PLC, courts recognize that contemporaneous internal documents—

such as Form 483s, audits, or CRLs—contradicting public assurances provide “classic evidence

of scienter.” Dang v. Amarin Corp. PLC, 750 F. Supp, 3d 431, 464-65 (D.N.J. 2024).

The fact that CorMedix re-used the same non-compliant CMO without disclosing the

audit's findings reinforces the inference of deliberate concealment or recklessness. Further, the

reliability of the confidential witness statements is supported by their specificity, consistency, and

corroboration with the audit and CRL history (See Pl.’s Br, at 31-33). FEI allegedly authored the

2018 audit report, and FE2 described its dissemination to Armstrong and other senior staff. These

details, like those credited in Wu, strengthen the inference that CorMedix executives knew of

ROVI’s deficiencies and concealed this knowledge while assuring investors of compliance.

Finally, CorMedix’s business during the Class Period centered exclusively on DefenCath,

heightening the inference that Defendants were closely involved in and knowledgeable about the

FDA approval process. As the court explained in City of Warwick Ret. Sys. v. Catalent, Inc., No.

23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024), statements regarding a comparty’s

core product made with access to contradicting internal data warrant a strong inference of scienter,

even absent a motive such as insider stock sales.

Plaintiffs have adequately alleged that Defendants had access to internal documents and

data that contradicted their public statements and failed to correct them, supporting a strong

20

inference of at least severe recklessness under Tel/labs, Inc.. Thus, the Court finds Plaintiff

adequately pleads scienter in terms of the Defendant’s access to contradictory information.

iii. The Core Operations Theory Supports an Inference of Scienter

The Court further finds that Plaintiffs have sufficiently pleaded a strong inference of

scienter under the core operations doctrine because DefenCath was central to CorMedix’s

business, and the Individual Defendants had direct oversight of the product’s regulatory progress.

These facts support the inference that the Defendants were aware of, or recklessly disregarded, the

serious manufacturing deficiencies that undermined their public assurances. Under the core

operations doctrine, courts may infer scienter when a company’s high-ranking executives make

materially false or misleading statements about issues central to the company’s core business.

While the Third Circuit has not adopted a standalone core operations presumption, it has

recognized that allegations involving a product or issue that is “critical to a company’s core

operations” may contribute to a strong inference of scienter when coupled with individualized

allegations of knowledge or access to contradictory facts. See Institutional Inv'rs Grp. v. Avaya

Inc., 564 F.3d 242, 270 (3d Cir. 2009); Carmignac Gestion, S.A. v. Perrigo Co., No. 17-10467,

2019 WL 3451523, at *16 (D.N.J, July 31, 2019); City of Warwick Ret. Sys. v. Catalent, Inc., No.

23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024).

In Avaya, the Third Circuit acknowledged that a plaintiff may strengthen an inference of

scienter by alleging that executives had access to or oversight over internal facts contradicting

their public statements, particularly where the subject matter involves core operations, Similarly,

Carmignac held that when senior executives made statements concerning a product line that

accounted for 22% of revenue—and were specifically alleged to have reviewed reports showing

declining market share—the scienter requirement was met. Carmignac Gestion, S.A. v. Perrigo

21

Co., No. 17-10467, 2019 WL 3451523, at *16 (D.N.J. July 31, 2019); see also Hall v. Johnson &

Johnson, No. 18-1833, 2019 WL 7207491, at *21 (D.N.J. Dec. 27, 2019) (the court also found

scienter adequately pled where defendants made public misstatements about a “flagship product”

despite internal knowledge of adverse information.).

CorMedix’s case is analogous. DefenCath was the company’s only commercial product,

and its approval was critical to CorMedix’s viability. (See TAC §f 5, 40, 293). The Individual

Defendants— including Armstrong, the EVP of Technical Operations, and Baluch, the CEO—held

themselves out as possessing direct oversight of DefenCath’s NDA process and manufacturing

readiness. (TAC { 52). As in Catalent, scienter can be inferred not just from the product’s

centrality, but also from the Defendants’ public representations of their personal knowledge, City

of Warwick Ret. Sys. v. Catalent, Inc., No. 23-737, 2024 WL 3219616, at *13 (D.N.J. June 28,

2024). Courts have rejected scienter arguments where executives were removed from the subject

matter, or the product was peripheral to operations. See, e.g., Hoey v. Insmed Inc., No. 16-4323,

2018 WL 902266, at *23 (D.N.J. Feb. 15, 2018). But those facts are not present here. Plaintiffs

have alleged that Armstrong and Baluch were not only deeply involved in the NDA process but

also received internal audit findings and FDA feedback identifying manufacturing deficiencies

that contradicted their public statements. (See TAC 9 5, 40, 85-87, 104, 112). These allegations

go beyond mere titles or positions; they demonstrate contemporaneous awareness and direct

involvement—key factors that distinguish this case from those where core operations allegations

were deemed insufficient.

In Dang v. Amarin Corp. PLC, the court applied the core operations doctrine where

executives made misleading statements about Vascepa, the company’s only product, while

ignoring FDA Form 483s and audits identifying significant regulatory risks, Dang v. Amarin Corp.

22

PLC, 750 E. Supp. 3d at 471-472 (D.N.J. 2024). Here, Plaintiffs similarly allege that CorMedix

executives knew of a 2018 audit warning that ROVI was unlikely to pass FDA inspection but

proceeded to submit the NDA without switching CMOs or disclosing the risk. As in Dang, the

executives’ active roles and knowledge of serious compliance deficiencies support scienter under

both the core operations doctrine and the general PSLRA standard. Defendants argue that because

ROVI was a third-party CMO, CorMedix cannot be held responsible for its compliance issues.

(See Defs.’ Reply at 2-3). But the FDA regulations clearly place the burden of ensuring CMO

compliance on the NDA sponsor, See 21 C.F.R. §§ 211.1, 314.50(d)(1)@). As such, CorMedix

could not disclaim responsibility for ROVI’s deficiencies. The Individual Defendants repeated

public assurances that manufacturing issues had been resolved, in light of contrary internal

findings, were misleading and material.

Finally, CorMedix’s post-Class Period statements reinforce the inference of scienter. In its

March 2023 announcement, the company admitted it did not have “the right team” to address

manufacturing deficiencies—an implicit acknowledgment that Armstrong and Baluch had failed

in their oversight roles. (See P1.’s Br. at 6). This admission underscores their centrality to the NDA

process and supports the conclusion that they were aware of the underlying issues at the time their

public statements were made. Because DefenCath was central to CorMedix’s operations and the

Individual Defendants repeatedly emphasized their expertise and personal oversight, the Court

finds that Plaintiffs have adequately pled scienter under the core operations doctrine.

iv. SOX Certifications and Resubmission Efforts Further Support Scienter

The Court finds that Plaintiffs have sufficiently pled a strong inference of scienter based

on Defendants’ Sarbanes-Oxley (“SOX”) certifications and their decision to resubmit the NDA

despite their alleged awareness of persistent regulatory deficiencies. These actions support the

23

inference that Defendants either knew or recklessly disregarded that their public statements were

misleading, which is sufficient to survive a motion to dismiss under the PSLRA. To plead scienter

under the PSLRA, a plaintiff must allege facts giving rise to a “strong inference” that the defendant

acted with the intent to déceive, manipulate, or defraud investors. This inference must be “cogent

and at least as compelling as any opposing inference one could draw from the facts alleged.”

Tellabs, Inc., 551 U.S. at 324. Courts have repeatedly held that SOX certifications can support a

strong inference of scienter when executives certify internal controls while aware of or recklessly

disregarding serious deficiencies, especially when the issues pertain to core operations. See Jn re

Intelligroup Sec. Litig., 527 F. Supp. 2d 262, 348-49 (D.N.J. 2007); In re Toronto-Dominion Bank

Sec. Litig., No. 17-1665, 2018 WL 6381882, at *19 (D.N.J. Dec. 6, 2018); Zn re Celgene Corp.

Sec. Litig., No. 18-4772, 2019 WL 6909463, at *22 (D.N.J. Dec, 19, 2019).

In Jntelligroup, the court found that certifying executives made actionable misstatements

by signing SOX certifications despite knowledge of serious internal control failures. The

certifications became “false statements in their own right” where executives were aware of red

flags or contradictory information. Ud. at 348). Similarly, in Toronto-Dominion Bank, the court

conchided that a strong inference of scienter existed where certifiers failed to disclose known

deficiencies despite signing SOX certifications that affirmed the accuracy of financial statements.

In re Toronto-Dominion Bank Sec. Litig., No. 17-1665, 2018 WL 6381882, at *19 (DNL. Dec. 6,

2018), And in Celgene, the court denied a motion to dismiss where defendants certified regulatory

compliance despite undisclosed adverse FDA communications related to drug approvals—

circumstances comparable to those in this case. In re Celgene Corp. Sec. Litig., No. 18-4772, 2019

WL 6909463, at *22 (D.NJ. Dec. 19, 2019).

24

Here, the scienter allegations are at least as compelling, Defendants Armstrong and Baluch

signed SOX certifications throughout the Class Period attesting to the adequacy of CorMedix’s

internal controls, even as they allegedly knew of systemic manufacturing deficiencies at ROVI—

CorMedix’s contract manufacturing organization—dating back to a 2018 audit. These deficiencies

were never remediated and led to repeated Form 483s and Complete Response Letters (CRLs)

from the FDA. Nevertheless, Defendants resubmitted the NDA without addressing the core

deficiencies. This sequence of conduct—certifying internal controls, failing to disclose known

regulatory failures, and proceeding with a flawed NDA—parallels the misconduct that courts in

Intelligroup and Celgene found sufficient to support scienter,

Moreover, Plaintiffs allege that these SOX certifications were not mere formalities.

Defendants repeatedly reassured investors that manufacturing issues were resolved, even as_

internal reports and confidential witness accounts showed otherwise. (See TAC ff 5, 40, 85-87,

104, 112). CorMedix later acknowledged the failure by admitting it lacked the “right team” to

handle regulatory challenges when Armstrong and Baluch resigned following the NDA rejection.

(TAC J 103). These facts further tie Defendants’ SOX certifications to alleged actual knowledge

of material risks, Defendants’ reliance on Jn re Cognizant Tech. Sols. Corp. Sec. Litig., No. 16-

5805, 2018 WL 3772675 (D.N.J. Aug. 9, 2018), is misplaced. In Cognizant, the court declined to

infer scienter because plaintiffs failed to allege concrete knowledge of red flags or internal reports

undermining the SOX certifications. (/d. at 22), In contrast, Plaintiffs here allege specific

documents, meetings, and confidential witness testimony showing that Armstrong and Baluch

were aware of the unresolved regulatory issues at ROVI when they made public assurances and

signed certifications.

25

The inference of scienter is further strengthened by the strategic timing of the NDA

resubmission. Defendants chose to proceed with the same CMO, knowing that FDA observations

and the 2018 audit had flagged ongoing violations. As the Celgene court explained, misleading

the market while withholding adverse regulatory information—particularly when the withheld

issues concern a flagship product—is classic evidence of scienter. Jn re Celgene Corp. Sec. Litig.,

No. 18-4772, 2019 WL 6909463, at *22 (D.N.J, Dec. 19, 2019). Because Defendants knowingly

or recklessly certified internal controls and proceeded with a deficient NDA despite adverse

findings from regulators and internal audits, the Court finds that Plaintiffs have adequately pled a

strong inference of scienter in terms of SOX Certification and Resubmission efforts.

v. The Lack of Any Plausible Nonculpable Explanation Reinforces the Inference

of Scienter

The Court concludes that Plaintiffs have adequately pled a strong inference of scienter

because Defendants have failed to offer any plausible nonculpable explanation for their conduct.

When viewed in conjunction with the repeated regulatory failures, concealment of adverse

manufacturing findings, and pattern of misstatements, the inference of scienter is at least as

compelling as any competing nonfraudulent inference and satisfies the heightened pleading

standard under the PSLRA. Under the PSLRA, plaintiffs must “state with particularity facts giving

rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. §

78u-4(b)(2). Scienter is defined as “a mental state embracing intent to deceive, manipulate, or

defraud,” or at a minimum, “recklessness.” Tellabs, inc., 551 U.S. at 319-20. Courts must consider

all allegations holistically and determine whether “a reasonable person would deem the inference

of scienter at least as strong as any opposing inference.” Id. at 324; Institutional Inv. Grp. v. Avaya,

564 F.3d 242, 267-68 (3d Cir. 2009),

26

A recognized factor in favor of scienter is the absence of a plausible, nonculpable

explanation. Courts in this District have emphasized that when plaintiffs offer a coherent and

factually supported theory of fraud, and defendants fail to identify any comparably plausible

innocent explanation, the inference of scienter is strengthened. See Roofer’s Pension Fund v.

Papa, No. 16-2805, 2018 WL 3601229, at *11 (D.N.J. July 27, 2018) (“The lack of any competing

inference that is more plausible than Plaintiffs’ suggested inference... reinforces a strong inference

of scienter.”); Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335, 349 CE.D. Pa, 2014)

(rejecting alternative inferences where plaintiffs plausibly alleged intentional or reckless

deception).

Here, Plaintiffs have pled a plausible and well-supported theory of scienter: Defendants

were aware as early as 2018—based on an internal audit—that ROVI, CorMedix’s contract

manufacturing organization (ROVI), faced serious compliance issues that could preclude FDA

approval. (See TAC {f 20, 88, 178-217). Despite this knowledge and despite receiving a Complete

Response Letter (CRL) in 2021, confirming ROVI’s deficiencies, Defendants reassured investors

that manufacturing issues had been resolved and resubmitted the NDA in 2022, which again failed

for similar reasons. (/d.) Defendants never disclosed the earlier audit or any of the regulatory red

flags to investors.

Defendants’ reply fails to provide any equally compelling nonculpable explanation.

Instead, they offer post hoc assertions that the problems stemmed from a third-party vendor

(ROVD) and that the NDA was eventually approved. (See Defs,” Reply Mem. at 2-3). But courts

routinely reject “fraud by hindsight” defenses where plaintiffs allege contemporaneous knowledge

of red flags. City of Warwick Ret. Sys. v. Catalent, Inc., No, 23-737, 2024 WL 3219616, at *15

27

(D.N.J. June 28, 2024); In re Valeant Pharms. Int'l, Inc. Sec. Litig., No. 15-7658, 2017 WL

1658822, at *15 (D.N.J.Apr.28,2017).

Moreover, the lack of insider trading or direct financial gain does not negate scienter. The

Third Circuit has made clear that “the absence of a motive allegation is not fatal” when the overall

factual context supports fraudulent intent. Avaya, 564 F.3d at 277. Here, CorMedix had a strong

motive to maintain investor confidence and inflated stock prices to facilitate two public offerings

totaling $60 million during the Class Period. (See TAC {J 17, 89, 139-41). Defendants’ suggestion

that they misunderstood the audit’s implications or were unaware of ROVI’s readiness is less

compelling than Plaintiffs’ detailed allegations. Courts do not credit vague or unsupported

alternative explanations, Tellabs, Inc., 551 U.S. at 323-24, Given the absence of any viable

nonculpable inference and the strength of Plaintiffs’ factually supported theory, the Court finds

that the inference of scienter is both cogent and compelling. Dismissal under Rule 12(b)(6) is

therefore unwarranted.

3, Plaintiff adequately alleges loss causation.

To adequately allege loss causation, a plaintiff must plead a causal link between the

disclosure of the alleged fraud and the economic harm that was ultimately suffered by the plaintiff.

In ve Bradley Pharmaceuticals, Inc. Sec, Litig., 421 F. Supp 2d 822, 828 (D.N.J, 2006). The

plaintiff must plead that the defendant’s “misstatement or omission concealed something from the

market that, when disclosed, negatively affected the value of the security,” which relates to the

plaintiff's economic loss, De Vito y. Liquid Holdings Group, Inc., No, 15-6969, 2018 WL

6891832, at *39 (D.N.J. December 31, 2018), The PSLRA’s and Rule 9(b)’s heightened pleading

requirements, as applied in earlier sections of this opinion, are not applicable to loss causation

analysis; a plaintiff must only satisfy Rule 8(a)(2)’s pleading standard to adequately plead loss

28

causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 US. 336, 346 (2005). Rule 8(a)(2) simply

requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Id.

Loss causation, therefore, is adequately pled when a plaintiff alleges that a defendant’s

misrepresentations “directly or proximately caused, or were a substantial contributing cause of,

the damages sustained by [the] plaintiff.” EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865,

883 (3d Cir. 2000).

The Dura Court noted that pleading requirements are not meant to impose a great burden

on a plaintiff, and function to provide defendants “with some indication of the loss and the causal

connection that [plaintiffs have] in mind.” 544 U.S. at 347, Bradley applied Dura at the motion to

dismiss stage of its litigation when holding that its plaintiffs pled sufficient facts to satisfy the loss

causation requirement by alleging that the price of Defendant-Company’s stocks dropped after the

truth regarding Defendants’ aileged misrepresentation became known, 421 F, Supp 2d at 828.

Plaintiff relies on two theories to plead loss causation: corrective disclosure and

materialization of concealed risk. (PL’s Br. at 38). A “plaintiff may adequately piead loss

causation by alleging either a corrective disclosure of a previously undisclosed truth that causes a

decline in the stock price or the materialization of a concealed risk that causes a stock price

decline.” In re Wilmington Tr. Sec. Litig., 29 F. Supp. 3d 432, 450 (D. Del. 2014). There is dispute

within the District as to whether the Third Circuit has endorsed the materialization of risk theory.

Compare Pharmanet, 720 F. Supp. 2d at 563 (declining to consider the materialization of risk

theory because the Third Circuit has not endorsed it as a way to establish loss causation) and

Glover y. DeLuca, No. 2:03-0288, 2006 WL 2850448, at *33 (W.D. Pa. Sep. 29, 2006)

(acknowledging that the Third Circuit has not explicitly endorsed materialization of risk theory

while still considering (but ultimately rejecting) the merits of Plaintiffs materialization of risk

29

argument) with McCabe v. Ernset & Young, LLP, 494 F.3d 418, 429 (3d Cir, 2007) (finding

materialization of risk is “consistent” with the Third Circuit’s loss causation jurisprudence).

However, as the De Vito Court recognized, “the ultimate loss causation inquiry under either the

corrective disclosure theory or the materialization of a concealed risk theory is the same: whether

a ‘misstatement or omission concealed something from the market that, when disclosed, negatively

affected the value of the security.’” No. 15-6969, 2018 WL 6891832, at *39 (D.N.J. December

31, 2018). This Court will proceed by evaluating the ACDs by addressing “the ultimate loss

causation inquiry” as it relates to this matter. fd.

Plaintiff contends that he adequately pled loss causation by alleging: (1) that on five

occasions throughout the class period ACDs were disclosed to the market; (2) the information that

was provided in each disclosure; and (3) the ways in which each disclosure relates to the

concealment, and 4) that stock prices dropped following each disclosure. (P!.’s Br. at 39).

The first ACD was issued via press release on March 1, 2021, in which CorMedix disclosed

that it recetved its first CRL based on the FDA’s review of records requested from the CMO. (TAC

219). Plaintiff alleges that the first ACD relates to CorMedix’s misrepresentations and omissions

regarding the “true scope” of the CMO’s deficiencies. (TAC [ 221), CorMedix stock price fell

54.4%, purportedly as a result of the first ACD. (TAC {] 220). The second ACD was issued via

press release on April 14, 2021, and stated that, to address the FDA’s concerns about the CMO,

CorMedix may need to make adjustments and generate more data. Plaintiff alleges that the second

ACD relates to CorMedix’s misrepresentations and omission regarding the “true scope” of the

CMO’s deficiencies. (TAC § 237). CorMedix stock price fell 18.36%, purportedly as a result of

the second ACD. (id).

30

The third ACD was issued via press release and the1Q21 call on May 13, 2021, disclosing

that more must be done to address the deficiencies identified by the FDA, specifically process

qualification. (TAC 9] 242, 244, 246). Plaintiff alleges that the third ACD relates to CorMedix’s

misstatements and omissions regarding the “true scope” of the CMO’s deficiencies and the amount

of time to correct the deficiencies. (TAC J 248). CorMedix stock price fell by 19.97%, purportedly

as a result of third ACD. (TAC § 247). The fourth ACD was issued via press release on September

7, 2021, stating that because of delays at the CMO (unrelated to DefenCath) that the timeline to

address FDA concerns is uncertain. (TAC § 261). Plaintiff alleges that the fourth ACD relates to

CorMedix’s misrepresentation of the CMO’s ability to pass an FDA on-site inspection, and the

concealment of ongoing manufacturing issues at the CMO, potential supply chain risks, and

serious, materialized risks about manufacturing deficiencies at their heparin supplier facility.

(TAC 4 265). CorMedix stock price fell by 27.40%, purportedly as a result of the fourth ACD,

(TAC Jf 262-63). The fifth ACD was issued via press release on August 8, 2022, stating that

CorMedix received another CRL based on manufacturing issues at its CMO and that DefenCath

will not be approved until CorMedix satisfactorily resolves the deficiencies with its CMO. (TAC

{4 281-285). Plaintiff alleges that fifth ACD represents “the truth fully emerging.” (TAC § 281).

CorMedix stock price fell by 57.45%, purportedly as a result of the fifth ACD. (TAC 4f 281-285),

Defendants argue that the five ACDs are not “truly corrective of any prior statement.”

(Defs’ Br, at 28), Rather, Defendants contend that the disclosures reveal new information about

the FDA approval process. (/d. at 29). Defendants also argue that Plaintiff never pled that the □

market discovered a fraud, (Defs’ Br. at 28).

The ACDs are allegedly corrective of Defendants’ prior statements and omissions. (TAC

219, 236, 242-46, 261, 281). Bradley notes that Dura only “suggest{s] that the plaintiffs [need]

31

to have alleged in some fashion that ‘the truth became known’ before ‘the share price fell’” and

that Dura does not specify what type of events or disclosures or even how specific any disclosures

or events must be. 421 F. Supp 2d at 828.

Taking Plaintiff's allegations as true, it does appear that Plaintiff alleged that the market

discovered fraud through the ACDs and that it responded accordingly. Defendants are correct in

their analysis of Dura; it does hold that, even when applying the softer Rule 8(a)(2) pleading

requirements, a plaintiff must allege more than purchase price inflation or a stock price drop

following the release of any information. 544 U.S. at 346, The Dura Court held that loss causation

was not adequately alleged because of “the complaint’s failure to claim that [the defendant’s] share

price fell significantly after the truth became known” and consequently the plaintiff's suggestion

“that...the allegation of purchase price inflation alone [was] sufficient.” /d, at 347, However, the

Court disagrees with Defendants’ application of Dura to this matter. Plaintiff does allege multiple

times throughout his complaint that Defendants’ artificially inflated stock price promptly and

drastically fell after each ACD; he submits that each ACD represents the market discovering the

truth (or partial truth) of the fraud, (TAC 9] 286-290) (“The price of CorMedix securities declined

significantly when the misrepresentations made to the market, and/or the information alleged

herein to have been concealed from the market, and/or the effects thereof, were disseminated and

publicly revealed”). Each ACD informed the market that Defendants did or must have previously

misstated or omitted — or both — material facts that artificially inflated the stock price,

Plaintiffs allegations are sufficiently pled to meet the Rule 8(a)(2) standard, as were the

plaintiff's allegations in Bradley, There, the plaintiffs alleged that “the false and misleading

statements in the Third Quarter Press Release and... 10-Q inflated [defendants’] stock price by

$3.50 per share, and that [piaintiffs] suffered actual economic loss .. . when [a] sham transaction,

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which was concealed by defendants’ misrepresentations and omissions was disclosed to the market

causing inflation to be removed from [defendants’] stock price.” Bradley, 421 F. Supp 2d at 828.

Here, Plaintiff alleges that false and misleading statements and omissions inflated

CorMedix’s stock price and that Plaintiff suffered actual economic loss when five press releases

disclosed to the public the truth of CorMedix’s issues with its CMO for DefenCath, causing

inflation to be removed from CorMedix’s stock price. (TAC §ff 219, 236, 242-46, 261, 281).

TV. CONCLUSION

For the reasons set forth above, Defendants’ motion to dismiss (ECF No. 144) is

DENIED. An appropriate Order accompanies this Opinion,

$4

DATED: June 30, 2025 MEN\XA VIER NEALS

frcid tes TAstrict Judge

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