Denver Lough Motion To Dismiss Class Action Lawsuit

Kenneth B. Black (05588)
ken.black@stoel.com
Michael R. Menssen (15424)
michael.menssen@stoel.com
STOEL RIVES LLP
201 S. Main Street, Suite 1100
Salt Lake City, UT 84111
Telephone: (801) 328-3131
Attorneys for Defendants
PolarityTE, Inc. and Denver Lough
[Additional counsel appear on signature page]
UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
IN RE POLARITYTE, INC. SECURITIES
LITIGATION,
THIS DOCUMENT RELATES TO:
All Actions
DEFENDANTS POLARITYTE, INC.’S
AND DENVER LOUGH’S MOTION
TO DISMISS AMENDED CLASS
ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
Case No. 2:18-cv-00510-JNP-PMW
(Consolidated with 2:18-cv-00541)
The Honorable Jill N. Parrish
Chief Magistrate Judge Paul M. Warner
Case 2:18-cv-00510-JNP-PMW Document 49 Filed 06/03/19 Page 1 of 34

TABLE OF CONTENTS
Page
i
I. Statement of Relief Sought and Grounds Therefore............................................................1
II. Introduction..........................................................................................................................1
III. Factual Background .............................................................................................................4
A. Polarity and the Defendants.....................................................................................4
B. Lough Invents a Novel Way to Heal Patients’ Wounds ..........................................4
C. Lough Obtains Funding ...........................................................................................5
D. The USPTO Issues a “Non-Final” Office Action....................................................5
E. Polarity Becomes Public and Announces Positive Preclinical Results ...................6
F. Polarity Registers SkinTE with the FDA.................................................................7
G. Doctors Begin Treating Patients with SkinTE.........................................................7
H. The USPTO Issues a “Final” Office Action ............................................................7
I. Short Sellers Wage War on Polarity........................................................................8
IV. Argument ...........................................................................................................................10
A. Plaintiff Fails to Allege a Materially False or Misleading Statement....................11
1. The Section-361-Registration Statements Are Not False or
Misleading..................................................................................................11
2. The Manufacturing-Facilities Statements Are Not False or
Misleading..................................................................................................13
3. The Intellectual-Property Statements Are Not False or Misleading..........16
4. The Litigation Disclosure Is Not False or Misleading...............................18
B. Plaintiff Fails to Establish a Strong Inference of Scienter.....................................19
1. The Section-361-Registration Statements Were Not Made with
Scienter ......................................................................................................19
2. The Manufacturing-Facilities Statements Were Not Made with
Scienter ......................................................................................................20
3. The Intellectual-Property Statements Were Not Made with Scienter........20

ii
4. The Litigation Disclosure Was Not Made with Scienter...........................22
5. Plaintiff’s Additional Scienter Allegations Fail.........................................22
C. Plaintiff Fails Adequately to Allege Loss Causation.............................................23
1. The Section-361 Articles Are Not Corrective Disclosures........................23
2. The Intellectual-Property Articles Are Not Corrective Disclosures..........24
3. The Form-483 Articles Are Not Corrective Disclosures ...........................24
4. The Announcement of an SEC Investigation Is Not a Corrective
Disclosure ..................................................................................................25
V. Conclusion .........................................................................................................................25

TABLE OF AUTHORITIES
Page(s)
iii
CASES
Brody v. Transitional Hosps. Corp.,
280 F.3d 997 (9th Cir. 2002)..................................................................................................... 12
Cent. States Se. & Sw. Areas Pension Fund v. Fed. Home Loan Mortg. Corp.,
543 F. App’x 72 (2d Cir. 2013)................................................................................................. 23
Chipman v. Aspenbio Pharma, Inc.,
2012 WL 4069353 (D. Colo. Sept. 17, 2012) ..................................................................... 17, 18
City of Pontiac Gen. Emps. Ret. Sys. v. Stryker Corp.,
865 F. Supp. 2d 811 (W.D. Mich. 2012)................................................................................... 14
Coronel v. Quanta Capital Holdings Ltd.,
2009 WL 174656 (S.D.N.Y. Jan. 26, 2009).............................................................................. 20
Dunn v. Ronbotics Corp.,
2003 WL 23697826 (E.D. Va. Feb. 20, 2003) .......................................................................... 18
Dura Pharms., Inc. v. Broudo,
544 U.S. 336 (2005) .................................................................................................................. 10
Emps. Ret. Sys. of R.I. v. Williams Cos.,
889 F.3d 1153 (10th Cir. 2018)........................................................................................... 15, 16
Fire & Police Pension Ass’n of Colo. v. Abiomed, Inc.,
778 F.3d 228 (1st Cir. 2014)...................................................................................................... 14
Gates Energy Prods., Inc. v. Yuasa Battery Co.,
1985 WL 72668 (D. Colo. July 15, 1985)................................................................................. 17
Home Ins. Co. of Ill. (N.H.) v. Spectrum Info. Techs., Inc.,
930 F. Supp. 825 (E.D.N.Y. 1996)............................................................................................ 18
In re Citigroup, Inc. Sec. Litig.,
330 F. Supp. 2d 367 (S.D.N.Y. 2004) ....................................................................................... 22
In re Express Scripts Holdings Co. Sec. Litig.,
2019 WL 2004302 (2d Cir. May 7, 2019)................................................................................. 17
In re Genzyme Corp. Sec. Litig.,
754 F.3d 31 (1st Cir. 2014).................................................................................................. 14, 20
In re Gold Res. Corp. Sec. Litig.,
776 F.3d 1103 (10th Cir. 2015)................................................................................................. 10

iv
In re Herbalife, Ltd. Sec. Litig.,
2015 WL 1245191 (C.D. Cal. Mar. 16, 2015) .......................................................................... 25
In re Intrexon Corp. Sec. Litig.,
2017 WL 732952 (N.D. Cal. Feb. 24, 2017)............................................................................. 24
In re Lions Gate Entm’t Corp. Sec. Litig.,
165 F. Supp. 3d 1 (S.D.N.Y. 2016) ..................................................................................... 18, 22
In re Lululemon Sec. Litig.,
14 F. Supp. 3d 553 (S.D.N.Y. 2014) ......................................................................................... 14
In re Nuverra Envtl. Sols. Sec. Litig.,
2014 WL 6390322 (D. Ariz. Nov. 17, 2014) ............................................................................ 15
In re Ocular Therapeutix Inc. Sec. Litig.,
2019 WL 1950399 (D. Mass. Apr. 30, 2019)............................................................................ 15
In re Omnicare, Inc. Sec. Litig.,
2013 WL 1248243 (D. Ky. Mar. 27, 2013)......................................................................... 20, 25
In re Omnicom Grp., Inc. Sec. Litig.,
597 F.3d 501 (2d Cir. 2010) ...................................................................................................... 23
In re Williams Sec. Litig.,
558 F.3d 1130 (10th Cir. 2009)........................................................................................... 23, 25
In re Zagg Inc. Sec. Litig.,
797 F.3d 1194 (10th Cir. 2015)........................................................................................... 19, 23
Ind. Elec. Workers’ Pension Tr. Fund IBEW v. Shaw Grp.,
537 F.3d 527 (5th Cir. 2008)..................................................................................................... 20
Irving Firemen’s Relief & Ret. Fund v. Uber Techs., Inc.,
2018 WL 4181954 (N.D. Cal. Aug. 31, 2018) .......................................................................... 12
Kapur v. USANA Health Scis., Inc.,
2008 WL 2901705 (D. Utah July 23, 2008).................................................................. 10, 11, 12
Kessman v. Myriad Genetics,
2019 WL 1330363 (D. Utah Mar. 19, 2019)...................................................................... passim
Loos v. Immersion Corp.,
762 F.3d 880 (9th Cir. 2014)..................................................................................................... 25

v
Magruder v. Halliburton Co.,
2009 WL 854656 (N.D. Tex. Mar. 31, 2009)............................................................................ 25
McClain v. Iradimed Corp.,
111 F. Supp. 3d 1293 (S.D. Fla. 2015)...................................................................................... 14
McDonald v. Kinder-Morgan, Inc.,
287 F. 3d 992 (10th Cir. 2002).................................................................................................. 16
Meyer v. Greene,
710 F.3d 1189 (11th Cir. 2013)................................................................................................. 24
Mikkineni v. Stoll,
410 F. App’x 311 (Fed. Cir. 2010).............................................................................................. 6
Miller v. PCM, Inc.,
2018 WL 5099722 (C.D. Cal. Jan 3, 2018)............................................................................... 23
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund,
135 S. Ct. 1318 (2015) .............................................................................................................. 13
Or. Pub. Emps. Ret. Fund v. Apollo Grp., Inc.,
774 F.3d 598 (9th Cir. 2014)..................................................................................................... 11
Padgett v. RIT Techs., Ltd.,
2019 WL 913154 (D.N.J. Feb. 22, 2019).................................................................................. 15
Ratner v. Ovascience, Inc.,
134 F. Supp. 3d 621 (D. Mass. 2015).................................................................................. 13, 20
Richman v. Goldman Sachs Grp.,
868 F. Supp. 2d 261 (S.D.N.Y. 2012) ................................................................................. 18, 22
ScripsAmerica, Inc. v. Ironridge Global LLC,
119 F. Supp. 3d 1213 (C.D. Cal. 2015)............................................................................... 21, 22
Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308 (2007) ................................................................................................ 10, 11, 19, 21
Turbeville v. JPMorgan Chase Bank,
2011 WL 7163111 (C.D. Cal. Apr. 4, 2011)............................................................................. 13
Waterford Twp. Police v. Mattel, Inc.,
321 F. Supp. 3d 1133 (C.D. Cal. 2018)..................................................................................... 15

vi
Webb v. Solarcity Corp.,
884 F.3d 844 (9th Cir. 2018)..................................................................................................... 21
Zhang v. LifeVantage Corp.,
2017 WL 4142660 (D. Utah Sept. 18, 2017)....................................................................... 19, 21
Zucco Partners, LLC v. Digimarc Corp.,
552 F.3d 981 (9th Cir. 2009)..................................................................................................... 23
STATUTES
15 U.S.C. § 78u-4(b)(1)................................................................................................................ 10
RULES
Fed R. Civ. Proc. 9(b)................................................................................................................... 10
Fed R. Civ. Proc. 12(b)(6) ...............................................................................................................1
REGULATIONS
21 C.F.R. § 1271............................................................................................................................. 7
21 C.F.R. § 1271.10........................................................................................................................ 7
21 C.F.R. § 1271.3.......................................................................................................................... 6
37 C.F.R. § 1.111............................................................................................................................ 6
37 C.F.R. § 1.112............................................................................................................................ 6
37 C.F.R. § 1.113............................................................................................................................ 8
37 C.F.R. § 1.114............................................................................................................................ 8
37 C.F.R. § 1.134............................................................................................................................ 6
37 C.F.R. § 1.135............................................................................................................................ 6
OTHER AUTHORITY
Carley, et al., What is the Probability of Receiving a U.S. Patent, 17 Yale J. Law & Tech. 203
(2015) .............................................................................................................................. 8, 17, 21

vii
GLOSSARY
The following terms are used in this memorandum:
AC or Complaint: Amended Class Action Complaint for Violation of the Federal
Securities Laws, filed April 2, 2019, Dkt. No. 45
App. A: Appendix A, listing the statements challenged by Plaintiff in his
Amended Class Action Complaint for Violation of the Federal
Securities Laws
Class Period: April 7, 2017 through March 15, 2019, inclusive
Company or Polarity: PolarityTE, Inc.
Defendants: PolarityTE, Inc., Denver Lough, and John Stetson
Ex. or Exs.: Exhibit(s), which are attached to the Declaration of Nicholas J.
Siciliano, filed concurrently herewith
FDA: The United States Food & Drug Administration
HCT/P: Human cells, tissues, and cellular and tissue-based products
Majesco: Majesco Entertainment Company
PHSA: Public Health Service Act, 42 U.S.C. § 201, et seq.
Plaintiff: Lead Plaintiff Yedid Lawi
PSLRA: The Private Securities Litigation Reform Act of 1995
SEC: U.S. Securities and Exchange Commission
SOX: The Sarbanes-Oxley Act of 2002
USPTO: The United States Patent and Trademark Office

1
I. STATEMENT OF RELIEF SOUGHT AND GROUNDS THEREFORE
Defendants Polarity and Denver Lough request that the Court dismiss Plaintiff’s Complaint
for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure
Rule 12(b)(6) and the PSLRA.
II. INTRODUCTION
The PSLRA imposes rigorous and heightened pleading standards for securities fraud
claims to deter the knee-jerk filing of class-action lawsuits whenever a company’s stock price falls.
Among other hurdles, a prospective class-action plaintiff must allege particularized facts showing
that the defendants made a materially false or misleading statement of fact. Plaintiff must also
allege particularized facts demonstrating a “strong inference” of scienter—that is, that defendants
made the statements with an intent to deceive, manipulate, or defraud. And a plaintiff must plead
that the stock price fell when the relevant truth about defendants’ fraud became known, and not on
account of speculation or other factors. A complaint must be dismissed if it fails to meet any of
these elements. The Complaint here meets none of them.
Polarity is developing and commercializing technology that has eluded the medical
profession for decades: using a patient’s own tissue to regenerate skin, bone, muscle, cartilage,
fat, blood vessels, and nerves. While the Company’s technology is still in its relative infancy, its
products are promising and have shown potential to save lives. But that has not stopped short
sellers—investors who profit from drops in a company’s share price—from attacking the Company
in the hope that its stock price will fall.
None of these short sellers has questioned whether the Company’s technology works.
Instead, they speculate that Polarity’s FDA registration is improper, or that its technology will not

2
be patented, or that observations from an FDA site visit (which occurs at hundreds of companies
each year) means that the Company’s business is in trouble. Plaintiff has taken those opinions—
all of which are utterly unproven—and tried to turn them into a securities fraud lawsuit.
But Plaintiff has failed to meet the PSLRA’s stringent pleading requirements. To start,
Plaintiff has not properly alleged a materially false or misleading statement of fact. Plaintiff first
opines that one of the Company’s products, SkinTE, does not qualify for registration under Section
361 of the PHSA. But it is undisputed that SkinTE is, in fact, Section 361-registered, and has been
for a year and a half. If the FDA ever rejects the Section-361 registration, Polarity will disclose
that event, but the federal securities laws do not prevent the Company from pursuing an appropriate
and advantageous regulatory path—and they certainly do not require it to agree with Plaintiff’s (or
short-sellers’) self-serving (and speculative) opinions.
Plaintiff also challenges two statements by Denver Lough regarding Polarity’s
manufacturing facility. Plaintiff does not argue that the statements were false. Instead, he says
they were misleading because they did not disclose that an FDA field inspector had issued a “Form
483” to Polarity. But Plaintiff does not explain how the two statements are related to the subject
matter of the FDA communication, much less how it renders them misleading. Nor did Polarity
have a duty to disclose the Form 483, since it does not represent a conclusion that the Company
violated any law or regulation, and Plaintiff does not allege that the FDA ever concluded that
violations occurred. Indeed, the FDA has since closed its inspection.
Plaintiff also attempts to manufacture a “fraud” claim out of routine patent office actions.
It is undisputed that throughout the relevant time period, Polarity repeatedly warned investors that
it had no issued patents and could not ensure that it ever would. Plaintiff nevertheless claims that

3
Polarity should have disclosed more—that it had received “non-final” and “final” office actions
from the USPTO rejecting the claims in one of its pending patent applications. In reality, however,
these types of office actions are a routine part of prosecution before the USPTO. As Plaintiff
admits, many inventors receive patents after the USPTO sends a “final” office action, and
Polarity’s application remains pending today. In any event, Polarity did not have to provide real-
time updates on the status of its public patent applications, particularly when it warned investors
that it may never receive a patent. For similar reasons, stray statements that Polarity had “patented”
technology are not materially false and misleading: Polarity repeatedly told investors it only had
patent applications, and investors like Plaintiff are charged with knowledge of the status of publicly
available patents applications pending before the USPTO.
Plaintiff’s scienter allegations are similarly deficient. Regarding SkinTE’s registration
under Section 361, Plaintiff alleges no facts (much less particularized ones) that Defendants
believed that SkinTE did not meet the requirements and decided to register it anyway. Nor can he
allege any such facts—nearly two years after its initial filing, SkinTE remains registered under
Section 361. Plaintiff also fails to allege any facts suggesting that Lough knew the receipt of a
Form 483 made statements about Polarity’s manufacturing facility somehow misleading. A Form
483 is observational only, and the FDA never pursued regulatory action. Regarding the patent
statements, Plaintiff alleges no facts suggesting that anyone knew that the patent applications were
doomed. On the contrary, those applications remain pending today.
Plaintiff also has not adequately alleged loss causation because he has not identified a
corrective disclosure that revealed any relevant truth. Plaintiff points to short-seller reports that
relied on public information to criticize the Company. But negative journalistic characterizations

4
of public facts are not corrective—at most, they reveal the authors’ opinions, not a previously
hidden truth about supposed fraud. The Form-483 articles similarly are not corrective disclosures
because they described only the FDA field inspector’s observations, not a conclusion that Polarity
had violated any law or regulation. Plaintiff’s Complaint should be dismissed.
III. FACTUAL BACKGROUND
A. Polarity and the Defendants
Polarity is a commercial-stage biotechnology and biomaterials company that designs and
develops regenerative tissue products for use in medicine, biomedical engineering, and material
sciences. AC ¶ 2. The Company was founded in 2016 by Lough and Edward Swanson, physicians
and scientists from the Johns Hopkins University School of Medicine. Id. ¶ 44. Lough is Polarity’s
founder and Chairman of the Board. Id. ¶ 45.1
John Stetson served as the Company’s CFO, then
Chief Investment Officer, from 2016 until September 2018. Id. ¶ 46.
B. Lough Invents a Novel Way to Heal Patients’ Wounds
As part of his practice, Lough saw many patients with significant burns and other tissue
voids. These wounds are usually treated by using split-thickness skin grafting or skin substitute
products (id. ¶ 2)—which provide a “barrier” to prevent infection, but do not replicate the native
skin that existed before the injury. See Ex. A. Lough believed that he could use a patient’s own
tissue to fully reengineer and regenerate native skin. See id. He thus filed a provisional patent
application with the USPTO documenting his invention, and later filed non-provisional patent
application 14/954,335 claiming priority to the provisional application. AC ¶ 258; Ex. A.
1
Swanson is Polarity’s Chief Translational Medicine Officer, but is not a defendant.

5
C. Lough Obtains Funding
In order to turn Lough’s invention into a fully commercialized product, the project would
need to become his (and Swanson’s) sole priority. In 2016, they met Phillip Frost and Barry Honig,
biotech entrepreneurs and investors. See AC ¶¶ 149-50, 159. Frost and Honig proposed a funding
structure whereby Lough and Swanson would obtain capital through a reverse merger with an
already public company, Majesco. Id. ¶¶ 145, 151-52. This structure reduced the cost of capital,
and allowed Lough and Swanson to retain control over their company. Id. ¶¶ 149-52.
On December 1, 2016, Lough assigned his patent applications and all related intellectual
property to the new company, Polarity. See id. ¶¶ 4, 6, 147, 195; Ex. B. That same day, Polarity
and Majesco entered into a merger agreement, pursuant to which Polarity would acquire Majesco
and become public when the deal closed. AC ¶¶ 143-45. In the December 7, 2016 merger
announcement, Majesco explained that Polarity’s technology could “provide medical
professionals with a truly new paradigm in wound healing and reconstructive surgery.” Id. ¶ 143;
Ex. C.
At the same time, Majesco warned that investing in Polarity “involve[d] a high degree of
risk.” Ex. C. For instance, the announcement noted that Polarity’s “business is subject to
continuing regulatory compliance” by the FDA, including the FDA’s “requirements for
registration and listing of products . . . and inspection and enforcement.” Id. It also warned that
the Company’s technology is “not currently protected by issued patents,” and that Polarity “cannot
ensure that any of its pending patent applications will result in issued patents.” Id.
D. The USPTO Issues a “Non-Final” Office Action
On April 7, 2017, the USPTO notified Polarity that it had issued a non-final office action

6
rejecting the pending claims of patent application 14/954,335, which was posted on the USPTO’s
website. AC ¶¶ 6, 49. A rejection of pending claims does not mean the USPTO has stopped
considering the application. Rather, following the receipt of such a notice, the “claims are still
pending,” and the applicant may submit additional information. See Mikkineni v. Stoll, 410 F.
App’x 311, 313 (Fed. Cir. 2010); 37 C.F.R. §§ 1.111, 1.112, 1.134, 1.135. Polarity followed this
process and filed amendments to the pending claims in October 2017. AC ¶ 49; Ex. D.2
E. Polarity Becomes Public and Announces Positive Preclinical Results
On April 7, 2017, the Company announced that the Polarity-Majesco merger had closed,
and Polarity became a public company. Ex. F; AC ¶ 6. In the announcement, Polarity discussed
its first product, SkinTE—an “autologous3
skin regeneration construct” that could “regrow full-
thickness and functional polarized skin, including all layers (dermis & epidermis), hair, and skin
appendages.” Ex. F. Polarity also instructed investors to review the December 7, 2016 filing
announcing the merger, which detailed risks of investing in Polarity stock. Id.
Two months later, Polarity announced positive pre-clinical results for SkinTE and stated
that it “expect[ed] to initiate a human clinical trial evaluating the autologous homologous SkinTE
construct in the third quarter of 2017.” AC ¶ 55; Ex. G. Polarity again directed investors to review
the risks and uncertainties described in its most recent SEC filings. Ex. G; see also Ex. H
(describing risks to investing in Polarity stock).
2
Polarity filed applications for additional patents in July 2017 and October 2018. See Ex. E.
3
Under FDA regulations, a HCT/P like SkinTE is “autologous” where the product uses the
patient’s own tissue, and is “homologous” where it performs the “same basic function” in the
recipient—e.g., skin-for-skin. 21 C.F.R. § 1271.3; AC ¶ 278.

7
F. Polarity Registers SkinTE with the FDA
On October 3, 2017, Polarity announced that it had registered SkinTE with the FDA
pursuant to applicable regulations governing HCT/Ps—specifically Section 361 of the PHSA and
accompanying regulations (21 C.F.R. § 1271). AC ¶ 66. A Section 361 HCT/P can be
manufactured and marketed without FDA approval if it meets four criteria: (1) it must be
minimally manipulated; (2) it must be intended for homologous use as determined by labeling and
advertising; (3) its manufacture cannot involve the combination of the cells or tissues with another
article (with certain exceptions); and (4) either (a) the HCT/P does not have a systemic effect and
is not dependent upon the metabolic activity of living cells for its primary function, or (b) the
HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its
primary function and (i) is for autologous use, (ii) is for allogenic use in a first or second degree
blood relative, or (iii) is for reproductive use. Id. ¶ 249 (citing 21 C.F.R. § 1271.10(a)). The FDA
allows companies to self-designate under Section 361 if they believe the tissue product satisfies
the four criteria—as Polarity did for SkinTE. See id. ¶¶ 77, 253.
G. Doctors Begin Treating Patients with SkinTE
The SkinTE registration “set[] the stage for [its] commercialization,” and allowed the
product to “be made available for appropriate human use in the United States.” Ex. I; AC ¶ 66.
To support a broader product launch, Polarity began to increase its manufacturing capabilities. See
Ex. I. In early 2018, Polarity moved to an approximately 200,000-square-foot facility in Salt Lake
City, Utah. AC ¶ 104.
H. The USPTO Issues a “Final” Office Action
On June 14, 2018, the USPTO sent a final office action, rejecting the then-pending claims

8
in the patent application. See AC ¶¶ 113, 207. As the patent bar is well aware, the term “final” is
a misnomer. After receiving a final office action, the patent process continues. An applicant may:
(1) request the continued examination of the application (an “RCE”); (2) amend and resubmit the
application; or (3) provide new evidence in support of patentability. See 37 C.F.R. §§ 1.113, 1.114;
see also AC ¶ 209 (referencing a “Yale study,” Carley, et al., What is the Probability of Receiving
a U.S. Patent, 17 Yale J. Law & Tech. 203, 209-10 (2015)). Applicants receive patents following
RCEs nearly 70% of the time—in other words, in the vast majority of instances where a “final
rejection” issues but the applicant continues to pursue its claim, a patent is issued. See Carley, 17
Yale J. Law & Tech., at 209-10; see also AC ¶ 115; Ex. J. Polarity filed an RCE in response to
the final office action. See Ex. K.
I. Short Sellers Wage War on Polarity
On October 25, 2017, White Diamond Research published an article about Polarity on the
short-seller sanctuary website Seeking Alpha. Admitting that it had taken a short position in
Polarity’s stock, White Diamond noted that although Lough had remarked in a Fox Business
interview that the Company had “patented technology,” Polarity’s SEC filings “clearly indicate[]
that the company’s asset is a patent application that has not yet been granted by the USPTO.” AC
¶ 111; Ex. L. Eight months later, on June 25, 2018, another short seller, Citron Research, issued
a “report” proclaiming that Polarity had engaged in fraud by not disclosing the second office
action—a fact that was publicly available on the USPTO website. AC ¶ 113; Ex. M. This action
followed the next day.
In the following weeks, other short sellers sought to drive down Polarity’s stock price by
exploiting their unfamiliarity with the regulatory environment in which the Company operated.

9
Less than a month after the Citron report, an anonymous short-seller with the pseudonym Research
Noir published a new article on Seeking Alpha. AC ¶ 117. Research Noir explained that the June
25, 2018 Citron report “greatly exaggerated the significance of the company’s initial patent
application rejection.” Ex. N. Research Noir instead opined that SkinTE violated Section 361’s
“minimal manipulation requirement” and improperly combined tissue with another article. Id.
Research Noir admitted that its conclusion was not based upon “any statements by management”
or the FDA, and cautioned investors “not [to] take our word as gospel,” stating, “[w]e are far from
lawyers or specialists in regenerative medicine.” Id.
Three days later, Ozgur Ogut published a similar article, contending that Polarity’s patent
application “raise[s] the question of how SkinTE meets” the Section-361 criteria. AC ¶ 119; Ex.
O. The two short-seller articles contradicted each other: Research Noir opined that SkinTE
“obviously” is “intended for homologous use only” (Ex. N), while Ozgur Ogut claimed that the
product was not so intended (AC ¶ 119). But neither article contended that the FDA had found
that SkinTE is improperly registered under Section 361 (and Plaintiff here certainly does not so
allege). See Exs. N, O.
On September 25, 2018, another publication, The Capitol Forum, piled on. AC ¶ 123.
This one noted that the FDA had issued a Form 483 to Polarity’s Director of Quality, Andrew D.
West. Id. ¶¶ 123, 225-26. Citron later linked to the full Form 483—which identified the FDA’s
“inspectional observations,” but made clear that it did “not represent a final Agency determination
regarding [the Company’s] compliance” with applicable regulations. Id. ¶ 125; Ex. P. The FDA
invited Polarity to object, or to inform the agency if the Company implemented, or planned to
implement, corrective action. Ex. P. The FDA took no further regulatory action.

10
Following The Capitol Forum article, Polarity announced that it had notified governmental
authorities of “suspected significant illegal trading in the Company’s securities,” which appeared
“to be in strategic coordination with the publication of misleading materials,” including the reports
discussed above. Ex. Q. A few days later, the SEC asked for documents related to the subjects of
these short-seller reports. See AC ¶ 127. On March 1, 2019, the SEC sent a subpoena seeking
additional documents, and soon after, sent the Company the formal order of investigation. Id. The
Company promptly disclosed the investigation, and intends “to fully cooperate with the SEC.” Id.
IV. ARGUMENT
Plaintiff’s fraud claims are subject to the exacting and heightened requirements of Rule
9(b) and the PSLRA. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007);
see also Kapur v. USANA Health Scis., Inc., 2008 WL 2901705, at *10 (D. Utah July 23, 2008).
Under Rule 9(b), Plaintiff must state “all averments of fraud with particularity.” Kapur, 2008 WL
2901705, at *10.4
The PSLRA further heightens Plaintiff’s pleading burden. See In re Gold Res.
Corp. Sec. Litig., 776 F.3d 1103, 1108 (10th Cir. 2015) (a plaintiff bringing a Section 10(b) claim
“bears a heavy burden at the pleading stage”). Plaintiff first must “specify each statement alleged
to have been misleading, the reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on information and belief,” to “state with
particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). Plaintiff also must
state with particularity facts giving rise to a strong—i.e., powerful or cogent—inference of
4
To assert a claim under Section 10(b), Plaintiff must adequately allege six elements: (1) a
material misrepresentation or omission of fact, (2) scienter, (3) a connection with the purchase or
sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6)
loss causation. See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005).

11
scienter. Tellabs, 551 U.S. at 323. This pleading rule is “stringent,” and requires that Plaintiff
plead “particular facts that would convince a reasonable person that a defendant knew a statement
was false or misleading.” Kapur, 2008 WL 2901705, at *11 (citation and quotation omitted).
Although recklessness can satisfy the scienter requirement, the recklessness standard is closer to
one of intent, and “[c]ourts have been cautious about imposing liabilities for securities fraud based
on reckless conduct.” Id. at *11; see also Tellabs, 551 U.S. at 319 (a plaintiff must allege facts
demonstrating that defendants acted with an “intent to deceive, manipulate, or defraud”).
Plaintiff must also plead loss causation—the causal connection between the alleged fraud
and the injury claimed to have been suffered (Kessman v. Myriad Genetics, 2019 WL 1330363, at
*8 (D. Utah Mar. 19, 2019))—with particularity (Or. Pub. Emps. Ret. Fund v. Apollo Grp., Inc.,
774 F.3d 598, 604-05 (9th Cir. 2014)). The Complaint does not meet these exacting requirements.5
A. Plaintiff Fails to Allege a Materially False or Misleading Statement
Plaintiff groups the allegedly false and misleading statements into four categories:
(1) SkinTE’s Section-361 registration (App. A at Nos. 3, 5, 8, 11, 13-15, 17, 19, 21, 22, 24);
(2) Polarity’s manufacturing facilities (App. A at Nos. 25-26); (3) the Company’s intellectual
property (App. A at Nos. 1, 2, 4, 6, 7, 9, 10, 12, 16, 18, 20, 23); and (4) the Company’s legal
proceedings (App. A at No. 27). See also AC ¶¶ 49-110. All should be dismissed.
1. The Section-361-Registration Statements Are Not False or Misleading
Plaintiff takes issue with ten statements regarding SkinTE’s Section-361 registration
because, according to Plaintiff, SkinTE does not meet the Section-361 criteria. AC ¶¶ 66, 72, 77,
5
Because Plaintiff has failed to plead a claim under Section 10(b), he has also failed to establish
control person liability under Section 20(a). See Kessman, 2019 WL 1330363, at *10.

12
79, 81, 85, 90, 96, 98, 102. But the statements are not false—SkinTE is registered under Section
361, and has been for more than eighteen months. Plaintiff does not contend otherwise.6
The statements also are not misleading. To be actionable on this basis, a statement “must
affirmatively create an impression of a state of affairs that differs in a material way from the one
that actually exists.” Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002). In
other words, the statement must affirmatively lead “the plaintiff in a wrong direction.” See, e.g.,
Irving Firemen’s Relief & Ret. Fund v. Uber Techs., Inc., 2018 WL 4181954, at *5 (N.D. Cal.
Aug. 31, 2018). Plaintiff cannot make this showing because the “state of affairs” is exactly as
Polarity described: SkinTE is registered under Section 361 (and has been for nearly two years),
and the FDA has not taken action with respect to that status. See Exs. N, O. At most, Plaintiff’s
allegations establish that he disagrees with the Company’s belief that SkinTE is properly registered
under Section 361.7
See, e.g., AC ¶¶ 85-86 (“We believe that our current product candidates are
properly regulated under Section 361.”). But Polarity is not obligated to disclose “Plaintiff’s
personal opinion.” See Kapur, 2008 WL 2901705, at *8, *13.8
And, in any event, Plaintiff pleads
no particularized facts demonstrating that Defendants do not believe that SkinTE is properly
registered. See, e.g., Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135
6
Polarity’s registration status is “readily obtainable on the Internet” (AC at 1) through the FDA’s
public website (https://www.accessdata.fda.gov/scripts/cber/CFAppsPub/tiss/Index.cfm).
7
In fact, Plaintiff readily admits that he does not know how SkinTE is created. He (and the short-
seller reports from which he cribs) relies primarily on certain embodiments disclosed in a patent
application, and guesses that it “appear[s] to address the technology and purported invention
underlying the SkinTE product.” AC ¶ 258; see also, e.g., id. ¶ 294 (conceding that “marketed
version” of SkinTE is different from the patent application and other documents on which Plaintiff
bases his opinion).
8
Plaintiff’s challenge of two statements describing SkinTE as “autologous” and “homologous”
(AC ¶¶ 55, 59) fails for the same reasons.

13
S. Ct. 1318, 1329 (2015) (opinion statements are misleading only where the speaker does not
actually hold that opinion, or where the statement omits material facts about the speaker’s
knowledge that directly conflict with the statement of opinion); see also Ratner v. Ovascience,
Inc., 134 F. Supp. 3d 621, 627 (D. Mass. 2015) (statements that company believed product was
eligible for Section-361 registration were not misleading). As Plaintiff is well aware, SkinTE
remains Section 361-registered to this day.
Similarly, Plaintiff argues incorrectly that Polarity claimed SkinTE’s Section-361
registration “had been or would be verified by the FDA” after a site inspection. AC ¶ 99. But the
PowerPoint slide on which Plaintiff relies says no such thing. At most, it describes, in general
terms, the various stages of product development. Indeed, and as Plaintiff’s allegations make clear,
Polarity warned repeatedly that it registered SkinTE without the FDA’s “authorization or
approval.” Id. ¶¶ 90, 96. And as noted, Plaintiff concedes that SkinTE is registered under Section
361, even after an FDA site visit. Id. ¶¶ 225, 303.9
2. The Manufacturing-Facilities Statements Are Not False or Misleading
Plaintiff challenges two statements by Lough regarding Polarity’s manufacturing facilities:
(1) the Company moved its “headquarters to a new 200,000-square-foot facility in Salt Lake City”;
and (2) the Company’s manufacturing process uses clean rooms to “maintain the absolute utmost
aseptic technique, [and] the best quality checks.” AC ¶¶ 104-07. Neither is actionable.
To start, Plaintiff does not argue that the statements are false. Plaintiff offers no facts
9
To the extent that Plaintiff is trying to mount a personal challenge to SkinTE’s registration status,
this, too, fails: there is no private right of action under the PHSA. See Turbeville v. JPMorgan
Chase Bank, 2011 WL 7163111, at *5 (C.D. Cal. Apr. 4, 2011).

14
suggesting, for example, that Polarity did not move to a new facility, or that the manufacturing
process Lough described was not followed. See id. In fact, at least one of the statements—that
the Company’s manufacturing processes used the “utmost aseptic technique, [and] the best quality
checks” (AC ¶ 106)—is a non-actionable expression of corporate optimism. See, e.g., In re
Lululemon Sec. Litig., 14 F. Supp. 3d 553, 576 n.15 (S.D.N.Y. 2014) (statement that company was
“committed to best practice[s]” or uses high quality processes not actionable).
Plaintiff instead says that the statements are misleading because Defendants did not
disclose that Polarity had received a Form 483 from the FDA. Id. ¶ 107. But as courts routinely
hold, companies do not have a duty to disclose the receipt of a Form 483 because, at most, it
represents the FDA’s initial observations—not a conclusion that a company violated any law or
regulation. See, e.g., City of Pontiac Gen. Emps. Ret. Sys. v. Stryker Corp., 865 F. Supp. 2d 811,
825 (W.D. Mich. 2012) (there is no requirement that companies disclose receipt of Forms 483);
see also Ex. R (The Capitol Forum explaining the FDA considers multiple inputs, including a
“response[] from the company,” to determine whether “further action is appropriate”). The federal
securities laws do not require companies to speculate and “prematurely disclose that the FDA
might take action”—otherwise, hundreds of companies would have to make such disclosures each
year. McClain v. Iradimed Corp., 111 F. Supp. 3d 1293, 1305 (S.D. Fla. 2015).10
This is
particularly true here, since Plaintiff does not allege that the FDA ever took further action or
10
See also In re Genzyme Corp. Sec. Litig., 754 F.3d 31, 42 (1st Cir. 2014) (no duty to disclose
Form 483); Fire & Police Pension Ass’n of Colo. v. Abiomed, Inc., 778 F.3d 228, 243 n.9, 243-44
(1st Cir. 2014) (same).

15
determined that Polarity violated any laws or regulations.11
Plaintiff also does not allege how the manufacturing-facility statements were inconsistent
with the specific subjects of the Form 483, “let alone why [the Form 483] renders each statement
misleading.” In re Nuverra Envtl. Sols. Sec. Litig., 2014 WL 6390322, at *4 (D. Ariz. Nov. 17,
2014); see also In re Ocular Therapeutix Inc. Sec. Litig., 2019 WL 1950399, at *6 (D. Mass. Apr.
30, 2019) (statements about manufacturing processes were “untethered” from the receipt of Form
483 and were not false or misleading). On the contrary, Plaintiff alleges only that the Form 483
“could threaten the SkinTE launch.” AC ¶¶ 104-07. But neither statement says anything about
the timing of the SkinTE launch, and Plaintiff does not allege any facts demonstrating that the
SkinTE launch was threatened by the Company’s receipt of the Form 483. Plaintiff thus has failed
to “draw a connection between each individual disclosure and the specific facts” supporting his
assertion that the statements were misleading when made, and his claim should be dismissed.
Waterford Twp. Police v. Mattel, Inc., 321 F. Supp. 3d 1133, 1146 (C.D. Cal. 2018); see also
Emps. Ret. Sys. of R.I. v. Williams Cos., 889 F.3d 1153, 1165 (10th Cir. 2018) (dismissing action
where defendants’ statements were not “inconsistent” with the allegedly omitted facts); Padgett v.
RIT Techs., Ltd., 2019 WL 913154, at *6 (D.N.J. Feb. 22, 2019) (a complaint must explain “why
or how” a statement is misleading).
Even assuming the Complaint showed that Lough’s statements were inconsistent with the
11
The FDA closed the inspection with a Voluntary Action Indicated (“VAI”) classification—as is
evident on its website (https://datadashboard.fda.gov/ora/index.htm), which Plaintiff purports to
have consulted prior to filing his Complaint. See AC at 1. The FDA issues a VAI when the
allegedly objectionable conditions “do not meet the threshold of regulatory significance.” See
Sekisui Am. Corp. v. Hart, 15 F. Supp. 3d 359, 364 (S.D.N.Y. 2014).

16
Form-483 observations, Plaintiff fails to allege any facts suggesting that the observations were not
addressed in the two months between the July 2018 site inspection and Lough’s September 2018
statements—i.e., Plaintiff alleges no particularized facts that Lough’s statements were false at the
time he made them. Williams Cos., 889 F.3d at 1172.
3. The Intellectual-Property Statements Are Not False or Misleading
Plaintiff also challenges twelve statements regarding Polarity’s intellectual property and
patent applications. See AC ¶¶ 51, 53, 57, 62, 64, 68, 70, 75, 83, 88, 94, 100. None are actionable.
Polarity repeatedly warned that although it has pending patent applications, it could not
ensure that the applications would result in any issued patents. See AC ¶¶ 62, 64, 70, 75, 83, 100.
Plaintiff says that these admonitions were false and misleading because Polarity had received a
non-final office action for one of its patent applications, and later, a “final” office action. See id.
¶¶ 63, 65, 71, 76, 84, 101. Again, these statements are not false. Polarity has pending patent
applications and cannot assure that patents will issue. See McDonald v. Kinder-Morgan, Inc., 287
F. 3d 992, 994, 998 (10th Cir. 2002) (accurate reports are not actionable).
The statements also are not misleading. Receiving a non-final, or even a final, office action
from the USPTO is not the death knell for a patent application—on the contrary, in a significant
majority of cases following a “final” office action, a patent ultimately issues.12
See supra, section
III.H. As the USPTO has explained, “there is no such thing as a terminal rejection”; “[p]rosecution
terminates with either an issued patent or an abandonment.” Ex. S; see also Gates Energy Prods.,
12
Indeed, the patent application that Plaintiff challenges remains pending. As reflected on its
public website, the USPTO recently issued another “non-final” office action that withdrew the
rejections in the “final” office action—which belies any notion that a “final” office action is, in
fact, final. See https://portal.uspto.gov/pair/PublicPair.

17
Inc. v. Yuasa Battery Co., 1985 WL 72668, at *2 (D. Colo. July 15, 1985) (a “final” rejection is
not final). Plaintiff is the first to admit this, conceding that inventors can obtain patents even after
a final rejection. AC ¶¶ 183, 209; see also Carley, 17 Yale J. Law & Tech. at 209 (applicants filing
RCEs after “final” rejections receive patents a majority of the time); Ex. N (explaining that
concerns about the final rejection were greatly exaggerated). Plaintiff’s allegations are nothing
more than a misrepresentation of the patent process. Even putting that aside, however, Polarity
was not required to give real-time updates on the patent-prosecution process, particularly
considering (i) the information was already available on the USPTO website; and (ii) the
Company warned investors that it may never obtain any patents. See AC ¶ 70, 185.
Plaintiff also challenges four statements that described Polarity’s technology as “patented.”
Id. ¶¶ 51, 53, 57, 68. These statements are not actionable for at least two reasons. First, as Plaintiff
acknowledges and as explained above, Polarity repeatedly told investors that it did not have an
issued patent, and could not ensure that it would ever obtain one. See, e.g., id. ¶ 70. Given this
context, reasonable investors would have viewed any statement calling the technology “patented”
for what it was—a shorthand way to describe technology that Polarity was seeking to patent.
Plaintiff cannot manufacture a “false” statement by placing the meaning of a word or phrase in a
vacuum and ignoring the wealth of other disclosures by the Company that put the phrase in context
and inform its meaning. See In re Express Scripts Holdings Co. Sec. Litig., 2019 WL 2004302, at
*3 (2d Cir. May 7, 2019) (dismissing statements where “no reasonable investor could have found
the statements, in light of the overall context, to be false, misleading, or incomplete”); Chipman v.
Aspenbio Pharma, Inc., 2012 WL 4069353, at *5 (D. Colo. Sept. 17, 2012) (in assessing whether
Plaintiff has adequately alleged a material misstatement, the Court must look at what “information

18
[was] already available to the market”). Second, and relatedly, investors like Plaintiff are “charged
with knowledge of” readily available information, like “the status of patents issued or pending
before the [USPTO].” Dunn v. Ronbotics Corp., 2003 WL 23697826, at *6-7 (E.D. Va. Feb. 20,
2003); Chipman, 2012 WL 4069353, at *6 (investors are “charged with having been aware of
statements contained in . . . publicly available documents”). Whether Polarity has any issued
patents—or pending applications—is easily found on the USPTO website. In fact, that’s precisely
where the short sellers went to research their reports. See, e.g., AC ¶¶ 113, 207.
4. The Litigation Disclosure Is Not False or Misleading
Plaintiff also challenges Polarity’s January 14, 2019 statement that it was not a “party to
any legal or arbitration proceedings” (except as otherwise disclosed), and that no “governmental
proceedings are pending or, to our knowledge, contemplated against us.” AC ¶ 109. Plaintiff says
that this disclosure was misleading because the Company did not disclose that it had previously
received a document request from the SEC (see id. ¶¶ 109-10)—a request that was instituted in
response to the Company’s report to regulatory authorities that it believed third parties were
improperly trying to manipulate its stock price (see supra, section III.I). But requesting that the
Company voluntarily produce documents does “not constitute any type of litigation” or a
“governmental proceeding.” See, e.g., Home Ins. Co. of Ill. (N.H.) v. Spectrum Info. Techs., Inc.,
930 F. Supp. 825, 839 (E.D.N.Y. 1996). Even Plaintiff concedes that the SEC did not initiate a
formal investigation until months after the challenged disclosure. See AC ¶ 127. Polarity had no
duty to disclose proceedings that were not “substantially certain to occur.” See In re Lions Gate
Entm’t Corp. Sec. Litig., 165 F. Supp. 3d 1, 12 (S.D.N.Y. 2016); Richman v. Goldman Sachs Grp.,
868 F. Supp. 2d 261, 273-74 (S.D.N.Y. 2012) (“Wells Notice” did not constitute legal proceeding).

19
B. Plaintiff Fails to Establish a Strong Inference of Scienter
Plaintiff also fails to plead facts that give rise to a strong—i.e., a powerful or cogent—
inference of scienter. See Tellabs, 551 U.S. at 323.
1. The Section-361-Registration Statements Were Not Made with Scienter
Plaintiff states repeatedly that Defendants knew or recklessly disregarded the fact that
SkinTE did not meet any of the Section 361-registration criteria. See, e.g., AC ¶¶ 32, 56, 60, 67,
73, 78, 80, 82, 86, 91, 97, 99, 103. As explained above, this argument fails in the first instance
because it represents Plaintiff’s opinion, not fact. See supra, section IV.A.1. In any event, Plaintiff
offers no particularized facts suggesting that Defendants knew (or were intentionally reckless in
not knowing) that SkinTE did not qualify under Section 361, and decided to register it anyway.
See Kessman, 2019 WL 1330363, at *7 (dismissing claim alleging fraudulent billing practices
where complaint failed to plead particular facts showing that defendants were aware of the alleged
fraud). In fact, Plaintiff does make any allegations regarding Defendants’ state of mind at all. See
Zhang v. LifeVantage Corp., 2017 WL 4142660, at *8 (D. Utah Sept. 18, 2017) (plaintiff must
plead particularized facts regarding defendants’ state of mind).
Absent such allegations, the “more compelling” inference is that “Defendants believed, or
had no reason to doubt” that SkinTE’s registration was proper. See Kessman, 2019 WL 1330363,
at *7; see also In re Zagg Inc. Sec. Litig., 797 F.3d 1194, 1202 (10th Cir. 2015) (“A complaint will
survive . . . only if a reasonable person would deem the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from the facts alleged.”). Plaintiff does not
dispute that SkinTE is registered under Section 361. Nor does he allege that the FDA has taken
any action with respect to the Company’s registration. See Kessman, 2019 WL 1330363, at *7. It

20
thus “was reasonable for [Defendants] to assume that” the Section-361 registration was proper.
See id.; see also Ratner, 134 F. Supp. 3d at 631 (plaintiffs “must establish the requisite strong
inference that the defendants knew the FDA would not grant [the Section-361 designation]”).
2. The Manufacturing-Facilities Statements Were Not Made with
Scienter
Nor has Plaintiff established scienter for the two statements regarding the Company’s
manufacturing facilities. Plaintiff alleges that they were misleading because the Company
received a Form 483 (AC ¶¶104-07), but Plaintiff does not allege that Lough even knew about it.13
Assuming he did, Plaintiff still has not established that Lough made the statements with scienter.
By its terms, the Form 483 did not “represent a final Agency determination regarding” Polarity’s
compliance. See, e.g., In re Omnicare, Inc. Sec. Litig., 2013 WL 1248243, at *12 (D. Ky. Mar.
27, 2013); Ex. P. Even The Capitol Forum article concedes that the Form 483 only contained
observations, not final determinations of anything. See Ex. R. Plaintiff alleges no facts suggesting
that Lough knew about violations in Polarity’s facilities, knew that those violations meant his
statements two months later were false or misleading, and made them anyway. See Genzyme, 754
F.3d at 42 (Forms 483 are observations, not conclusions). Plaintiff does not point to later
communications from the FDA finding violations, nor admissions of compliance problems.
3. The Intellectual-Property Statements Were Not Made with Scienter
Plaintiff also fails to allege that any of the patent-related statements were made with
13
See, e.g., Coronel v. Quanta Capital Holdings Ltd., 2009 WL 174656, at *27 (S.D.N.Y. Jan. 26,
2009) (where the complaint alleges no specific facts demonstrating that defendants knew of
“information contradicting their statements, fraud has not been shown”); Ind. Elec. Workers’
Pension Tr. Fund IBEW v. Shaw Grp., 537 F.3d 527, 533 (5th Cir. 2008) (plaintiff must plead facts
regarding the state of mind of the individuals who make the allegedly false statement).

21
scienter. He first says Polarity’s warnings that its patent applications may not result in issued
patents were knowingly or recklessly false because the USPTO had issued two office actions. See,
e.g., AC ¶¶ 84, 101. As explained above, however, Plaintiff simply is misrepresenting the patent
process—a “final” office action is far from the end of the line. See AC ¶¶ 183, 209; Carley, 17
Yale J. Law & Tech. at 209; see also supra, section IV.A.3. Patent prosecution terminates only
with “an issued patent or an abandonment.” Ex. S. Polarity has not abandoned its applications,
and Plaintiff does not allege any facts suggesting that Lough or anyone else at Polarity interpreted
the office actions as anything other than a normal part of the prosecution process. This is the
opposite of a “powerful” inference of scienter. See LifeVantage, 2017 WL 4142660, at *8.
Plaintiff also fails to plead scienter with respect to the statements referring to Polarity’s
technology as “patented.” Given that the Company contemporaneously disclosed that it had only
patent applications (see, e.g., AC ¶ 83), the more “cogent and compelling” inference is that the
term “patented” simply was used as shorthand, or, at worst, was an “honest mistake.” See Webb
v. Solarcity Corp., 884 F.3d 844, 855-56 (9th Cir. 2018); ScripsAmerica, Inc. v. Ironridge Global
LLC, 119 F. Supp. 3d 1213, 1260, 1264 (C.D. Cal. 2015) (where a company’s disclosures are “at
odds,” the “more compelling inference” is that the statements were not made with scienter); see
also Tellabs, 551 U.S. at 324 (the Court “must consider plausible, nonculpable explanations for
the defendant’s conduct”). Indeed, whether Polarity had any issued patents (or patent applications)
is easily found on the USPTO’s website. Defendants had no incentive to lie about something that
easily could be disproven. Plaintiff concedes as much, citing an October 2017 article (many
months before the end of the Class Period) which stated that Polarity “clearly indicate[d]” that it
only had patent applications. Id. ¶ 111.

22
4. The Litigation Disclosure Was Not Made with Scienter
Plaintiff also has failed to allege particularized facts establishing scienter regarding the
litigation disclosure. Again, Plaintiff does not allege that Lough (who Plaintiff alleges signed the
disclosure, AC ¶ 108) knew about the SEC’s document request, but even if he did, Plaintiff does
not contend that Lough knew the receipt of a document request rendered the litigation disclosure
“improper, let alone fraudulent.” See Kessman, 2019 WL 1330363, at *8. At most, Plaintiff
speculates that Defendants “likely knew that governmental proceedings were contemplated.” AC
¶ 110 (emphasis added). But that is not enough to plead scienter: companies are not required to
“predict[]” litigation stemming from SEC notices. See Goldman, 868 F. Supp. 2d at 273-74 (citing
In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377. (S.D.N.Y. 2004)). Plaintiff pleads no
particularized facts “as to why the [D]efendants would have believed” that the SEC would institute
legal proceedings. See Lions Gate, 165 F. Supp. 3d at 24-25.
5. Plaintiff’s Additional Scienter Allegations Fail
Plaintiff devotes several pages to the SEC enforcement actions against Stetson, Honig, and
Frost. These allegations add nothing to the scienter analysis; even Plaintiff admits that the actions
are “unrelated” to Polarity. See, e.g., AC ¶¶ 3, 17, 134. Although Plaintiff speculates that Polarity
was formed in a similar fashion to “other companies discussed in the SEC [c]omplaints” (AC ¶
133), he concedes that Polarity (and Lough) stated that they have “no knowledge of the activities
at issue” in the SEC matter (AC ¶ 168). For this reason alone, Plaintiff’s conclusory allegations
cannot “support a cogent and compelling inference of scienter.” ScripsAmerica, 119 F. Supp. 3d
at 1260-63 (unrelated SEC action did not support inference of scienter).
Even if the SEC action pertained to Polarity, it could not support an inference of scienter.

23
Only Stetson is named in the action, and he denies the allegations against him. It is “well settled
that allegations from other complaints or documents, which are unproved and are contested, may
not be used to establish facts to demonstrate scienter.” Id. at 1262 (citing cases). Plaintiff’s
“pattern of fraud” allegations thus fail “to support a strong inference of scienter.” Id. at 1263-64.14
C. Plaintiff Fails Adequately to Allege Loss Causation
Plaintiff also has not met his burden to plead loss causation because he has not identified a
“corrective disclosure” that revealed “fraud to the public” and caused Plaintiff’s losses. See In re
Williams Sec. Litig., 558 F.3d 1130, 1136-37 (10th Cir. 2009).
1. The Section-361 Articles Are Not Corrective Disclosures
The July 20, 2018 Seeking Alpha and July 23, 2018 Ozgur Ogut articles regarding SkinTE’s
Section-361 registration are not corrective disclosures because they did not reveal “some then-
undisclosed fact.” See In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 511 (2d Cir. 2010). At
most, they represented the authors’ opinions based upon public information. Third-party articles
(like the ones here) expressing nothing more than “negative opinions . . . based on information that
was already publicly available . . . are not ‘corrective’ for the purpose of pleading loss causation.”
Cent. States, Se. & Sw. Areas Pension Fund v. Fed. Home Loan Mortg. Corp., 543 F. App’x 72,
75 (2d Cir. 2013); Omnicom, 597 F.3d at 512.15
14
If Plaintiff suggests that Defendants acted with scienter because they signed SOX certifications
(see, e.g., AC ¶¶ 61, 64, 74, 83, 100, 108), those allegations also fail. It is well settled that
boilerplate SOX certifications “add nothing substantial to the scienter calculus.” See Zagg, 797
F.3d at 1205 (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1003-04 (9th Cir.
2009)).
15
See also, e.g., Williams, 558 F.3d at 1141 (there is a “difference between public speculation of
potential misrepresentation and insider confirmation”); Miller v. PCM, Inc., 2018 WL 5099722,
at *11-12 (C.D. Cal. Jan 3, 2018) (Seeking Alpha article not a corrective disclosure where it relied

24
2. The Intellectual-Property Articles Are Not Corrective Disclosures
The short-seller articles regarding the status of Polarity’s patent applications are not
corrective disclosures for similar reasons. None of them “revealed” any new information; rather,
they (again) represented negative journalistic characterizations of already public facts. See Meyer
v. Greene, 710 F.3d 1189, 1198 (11th Cir. 2013) (to be corrective, a disclosure “obviously must
disclose new information”). The October 2017 Seeking Alpha article simply parroted information
from Polarity’s SEC filings, including that the Company had a “patent application that has not yet
been granted by the USPTO.” Id. ¶ 111; Ex. L. Likewise, Citron admitted that it “cut and pasted”
the information for its June 25, 2018 article “from the USPTO website.” Ex. M; see also AC ¶ 113
(including a screenshot from the USPTO website); id. ¶ 185 (patent application status is available
on USPTO’s public website). Short-seller spins on public information are not corrective
disclosures, and cannot be used to establish loss causation. See, e.g., Meyer, 710 F.3d at 1198
(where article’s information was “gleaned entirely from public filings and other publicly available
information,” it cannot serve as a corrective disclosure); Kessman, 2019 WL 1330363, at *9 (no
loss causation where the information “was also available to the public”).
3. The Form-483 Articles Are Not Corrective Disclosures
Nor can Plaintiff establish that the September 2018 The Capitol Forum and October 2018
Citron articles regarding the Form 483 are corrective disclosures because he does not explain what
they corrected. See AC ¶¶ 123-26. Polarity never said that it complied with all FDA regulations
or had not received a Form 483. See supra, section IV.A.2; see also Magruder v. Halliburton Co.,
on public information); In re Intrexon Corp. Sec. Litig., 2017 WL 732952, at *7 (N.D. Cal. Feb.
24, 2017) (“The mere repackaging of already-public information by an analyst or short-seller is
simply insufficient to constitute a corrective disclosure”) (internal quotations omitted).

25
2009 WL 854656, at *15 (N.D. Tex. Mar. 31, 2009) (“A corrective disclosure, at a minimum,
requires . . . that the fraud of the prior representation be revealed to the market”).
In any event, Form 483s cannot constitute corrective disclosures because they do not reveal
any “relevant truth.” See Williams, 558 F.3d at 1137. They are observations, not conclusions, and
do not represent a “final word on whether the [Company’s] facility was in compliance with FDA
regulations.” See Omnicare, 2013 WL 1248243, at *12; see also Ex. P. In other words, the
revelation of a Form 483 “does not ‘reveal’ fraudulent practices to the market,” and thus cannot
constitute a corrective disclosure. See Loos v. Immersion Corp., 762 F.3d 880, 890 (9th Cir. 2014).
4. The Announcement of an SEC Investigation Is Not a Corrective
Disclosure
The announcement of an SEC investigation also did not reveal any relevant truth: “at the
moment an investigation is announced, the market cannot possibly know” if the Company engaged
in fraud. Id.; Kessman, 2019 WL 1330363, at *10 (receipt of subpoena “insufficient to reveal
fraud to the market for purposes of showing loss causation”). “While the disclosure of an
investigation is certainly an ominous event, it simply puts investors on notice of a potential future
disclosure of fraudulent conduct.” Loos, 762 F.3d at 890. As a result, “any decline in a
corporation’s share price following the announcement of an investigation can only be attributed to
market speculation about whether fraud has occurred”—which “cannot form the basis of a viable
loss causation theory.” Id.; see also In re Herbalife, Ltd. Sec. Litig., 2015 WL 1245191, at *2
(C.D. Cal. Mar. 16, 2015) (“disclosure that reveals only a risk or potential for widespread
fraudulent conduct does not, in itself, establish loss causation”) (internal quotations omitted).
V. CONCLUSION
For all of the foregoing reasons, Plaintiff’s Complaint should be dismissed.

26
DATED: June 3, 2019 STOEL RIVES LLP
/s/ Kenneth B. Black_____________
Kenneth B. Black
Michael R. Menssen
201 S. Main Street, Suite 1100
Salt Lake City, UT 84111
Tel: (801) 328-3131
Email: ken.black@stoel.com
michael.menssen@stoel.com
Matthew Rawlinson (admitted pro hac vice)
Michele D. Johnson (admitted pro hac vice)
Nicholas J. Siciliano (admitted pro hac vice)
Whitney B. Weber (admitted pro hac vice)
LATHAM & WATKINS LLP
140 Scott Drive
Menlo Park, CA 94025
(801) 463-3076
Email: matt.rawlinson@lw.com
michele.johnson@lw.com
nicholas.siciliano@lw.com
whitney.weber@lw.com
Attorneys for Defendants PolarityTE and
Denver Lough

Denver Lough Motion To Dismiss Class Action Lawsuit

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