IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
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`C.A. No. 2024-0073-JTL
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`DENNY YOUNG,
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`Plaintiff,
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`v.
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`SEAN P. NOLAN, KAMRAN ALAM,
`PHILLIP B. DONENBERG, PAUL
`MANNING, JOHN A. (SEAN)
`STALFORT III, LAURA SEPP-
`LORENZINO, PH.D., SUKUMAR
`NAGENDRAN, M.D., KATHLEEN
`REAPE, M.D., NOLAN CAPITAL
`LLC, JOHN A. STALFORT III 2018
`IRREVOCABLE TRUST, PAUL B.
`MANNING REVOCABLE TRUST
`DATED MAY 10, 2020, FMR, LLC,
`FIDELITY SELECT PORTFOLIOS:
`BIOTECHNOLOGY PORTFOLIO,
`FIDELITY MT. VERNON STREET
`TRUST: FIDELITY SERIES GROWTH
`COMPANY FUND, FIDELITY MT.
`VERNON STREET TRUST: FIDELITY
`GROWTH COMPANY FUND,
`FIDELITY GROWTH COMPANY
`COMMINGLED POOL, FIDELITY
`MT. VERNON STREET TRUST:
`FIDELITY GROWTH COMPANY K6
`FUND, RA CAPITAL HEALTHCARE
`FUND, L.P., RTW MASTER FUND,
`LTD., RTW INNOVATION MASTER
`FUND, LTD., RTW BIOTECH
`OPPORTUNITIES FUND, LTD,
`VENROCK HEALTHCARE CAPITAL
`PARTNERS EG, L.P., VENROCK
`HEALTHCARE CAPITAL PARTNERS
`III, L.P., VHCP CO-INVESTMENT
`HOLDINGS III, LLC, TCG
`CROSSOVER FUND I, LP, ACUTA
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`Public Version Filed: October
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`30, 2024
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`EFiled: Oct 30 2024 12:59PM EDT
`Transaction ID 74907677
`Case No. 2024-0073-JTL
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`

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`OPPORTUNITY FUND, LP, ACUTA
`CAPITAL FUND, LP, INVUS PUBLIC
`EQUITIES, L.P., KYNAM GLOBAL
`HEALTHCARE MASTER FUND LP,
`OCTAGON INVESTMENTS MASTER
`FUND LP, GORDONMD LONG
`BIASED MASTER FUND LP, SSI
`STRATEGY SIDECAR 1, LLC, SSI
`STRATEGY SIDECAR 2, LLC,
`CRESTLINE SUMMIT MASTER, SPC
`– PEAK SP, CRESTLINE SUMMIT
`MASTER, SPC – CRESTLINE
`SUMMIT APEX SP, CARR FAMILY,
`LLC, B GROUP CAPITAL LLC,
`JAYSON RIEGER, STEVEN M.
`GOLDMAN FAMILY LLC, STEVEN
`M. GOLDMAN, ADAM BURKE, THE
`DON AND JENNA MOSMAN
`REVOCABLE LIVING TRUST,
`DONALD E. MOSMAN, JR., PETER
`R. TAYLOR IRREVOCABLE TRUST,
`DAVID ZAWITZ, TOM SELINGER,
`JOSEPH PEDERSEN, JEFFREY
`KOPOCIS, and DAVID GLOVER,
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`Defendants,
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`-and-
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`TAYSHA GENE THERAPIES, INC.,
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`Nominal Defendant.
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`VERIFIED AMENDED SHAREHOLDER DERIVATIVE COMPLAINT
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`Plaintiff Denny Young (“Plaintiff”), by and through his undersigned counsel,
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`asserts this action on behalf of Taysha Gene Therapies, Inc. (“Taysha” or the
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`“Company”) against (i) Sean P. Nolan (“Nolan”), Taysha’s Chief Executive Officer
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`(“CEO”) and Chairman, and Kamran Alam (“Alam”), Taysha’s Chief Financial
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`Officer (“CFO” and, together with Nolan, the “Officer Defendants”), for breaching
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`their fiduciary duties as officers of Taysha; (ii) Nolan, Phillip B. Donenberg
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`(“Donenberg”), Paul Manning (“Manning”), John A. (Sean) Stalfort III (“Stalfort”),
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`Laura Sepp-Lorenzino, Ph.D. (“Sepp-Lorenzino”), Sukumar Nagendran, M.D.
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`(“Nagendran”), and Kathleen Reape, M.D. (“Reape”) (together with Nolan,
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`Donenberg, Manning, Stalfort, Sepp-Lorenzino, and Nagendran, the “Director
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`Defendants”) for breaching their fiduciary duties as directors of Taysha; (iii) the
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`“Other PIPE Purchasers”1 for aiding and abetting the aforementioned breaches of
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`fiduciary duties; and (iv) Nolan, Donenberg, Stalfort, and the Other PIPE Purchasers
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`1 The “Other PIPE Purchasers” consist of Defendants Nolan Capital LLC; John A. Stalfort
`III 2018 Irrevocable Trust; Paul B. Manning Revocable Trust dated May 10, 2020; FMR,
`LLC; Fidelity Select Portfolios: Biotechnology Portfolio; Fidelity Mt. Vernon Street Trust:
`Fidelity Series Growth Company Fund; Fidelity Mt. Vernon Street Trust: Fidelity Growth
`Company Fund; Fidelity Growth Company Commingled Pool; Fidelity Mt. Vernon Street
`Trust: Fidelity Growth Company K6 Fund; RA Capital Healthcare Fund, L.P.; RTW
`Master Fund, Ltd.; RTW Innovation Master Fund, Ltd.; RTW Biotech Opportunities Fund,
`Ltd; Venrock Healthcare Capital Partners EG, L.P.; Venrock Healthcare Capital Partners
`III, L.P.; VHCP Co-Investment Holdings III, LLC; TCG Crossover Fund I, LP; Acuta
`Opportunity Fund, LP; Acuta Capital Fund, LP; Invus Public Equities, L.P.; Kynam Global
`Healthcare Master Fund LP; Octagon Investments Master Fund LP; GordonMD Long
`Biased Master Fund LP; SSI Strategy Sidecar 1, LLC; SSI Strategy Sidecar 2, LLC;
`Crestline Summit Master, SPC – Peak SP; Crestline Summit Master, SPC – Crestline
`Summit APEX SP; Carr Family, LLC; B Group Capital LLC; Jayson Rieger; Steven M.
`Goldman Family LLC; Steven M. Goldman; Adam Burke; The Don and Jenna Mosman
`Revocable Living Trust; Donald E. Mosman, Jr.; Peter R. Taylor Irrevocable Trust; David
`Zawitz; Tom Selinger; Joseph Pedersen; Jeffrey Kopocis; and David Glover.
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`2
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`for unjust enrichment. The allegations of this Complaint are based upon Plaintiff’s
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`knowledge as to himself, and upon information and belief, including counsel’s
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`investigation and review of publicly available information and of internal books,
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`records, and documents produced by the Company in response to Plaintiff’s demand
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`(the “Demand”) made under 8 Del. C § 220,2 as to all other matters.
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`SUMMARY OF THE ACTION
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`1.
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`On August 14, 2023, Taysha insiders and other select investors
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`purchased Company stock and warrants in a private investment in public equity
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`(“PIPE”) transaction they deliberately priced and timed to capitalize on their access
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`to material non-public information (“MNPI”). The relevant MNPI consisted of
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`positive preliminary data in a clinical trial Taysha is conducting, which demonstrated
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`the transformative potential of one of Taysha’s products to treat a severe genetic
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`disease. Taysha’s insiders knew that when this MNPI was disclosed, Taysha’s stock
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`price would soar. These insiders exploited their knowledge of this MNPI by pricing
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`the PIPE and committing to participate in it themselves before the MNPI became
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`public. Indeed, when Taysha announced both the PIPE and the MNPI at the same
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`time, the Company’s stock price nearly tripled overnight. As a result, the PIPE
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`purchasers realized near-immediate gains of $205 million. Had Taysha’s insiders
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`2 The Company certified that its production in response to the Demand was complete on
`March 14, 2024.
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`3
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`executed the PIPE at market rates the day after the MNPI became public, Taysha—
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`not Defendants—would have realized those gains instead. This action seeks to
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`require Defendants to disgorge their ill-gotten gains to restore those lost PIPE gains
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`to the Company, and to hold Taysha’s directors accountable for approving the PIPE
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`on terms that were unfair to Taysha.
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`2.
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`Taysha is a clinical-stage pharmaceutical company that, among other
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`things, is testing a drug (internally named TSHA-102) as a treatment for Rett
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`syndrome. Rett syndrome is a genetic disease that can cause severe mental and
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`physical disabilities, and TSHA-102 is a gene transfer therapy designed to correct
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`the specific mutation that causes this syndrome. At the time of the PIPE, Taysha
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`was testing TSHA-102’s safety and preliminary efficacy in a Phase 1/2 study called
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`the “REVEAL” trial. Patients in this study receive a single dose of TSHA-102, and
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`are monitored for improvements in various metrics related to, among other things,
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`motor skills, breathing, mood, and communication.
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`3.
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`As a clinical-stage company, Taysha does not earn significant revenue.
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`The Company must therefore fund its operations in other ways, which it has
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`routinely done through equity offerings and loans.
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`4.
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`In early 2023, Taysha projected that it would run out of cash early the
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`following year.
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` Later that month, the Company
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`administered a dose of TSHA-102 to the first patient in the REVEAL study.
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`5.
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`A few weeks later, the REVEAL study showed that TSHA-102 worked.
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` Critically, the REVEAL study’s phenomenal results were
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`far better than the results a rival product had shown in a separate study before it
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`obtained U.S. Food and Drug Administration (the “FDA”) marketing approval.
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` Taysha did not immediately
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`disclose the results from the REVEAL study.
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`6.
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`7.
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`8.
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`Buoyed by the REVEAL study’s results, the Board then moved quickly.
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` In total, the Company would sell approximately
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`122.4 million shares and over 44 million pre-funded warrants in the PIPE.
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`9.
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`The PIPE was priced and timed to allow Taysha insiders to capitalize
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`on their access to MNPI about the REVEAL study. Several Taysha insiders that
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`knew about the REVEAL study’s results participated in the PIPE. Most egregiously,
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`these participating insiders included every member of the Pricing Committee
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`(Defendants Nolan, Stalfort, and Donenberg) that had the exclusive power to
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`determine the size, price, terms, and timing of the PIPE. Other participating insiders
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`included Manning (through his personal trust), who had resigned as a Taysha Board
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`member in June 2023 but who remained as a non-voting Board “observer.” Manning
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`also had extensive ties to Nolan, Stalfort, Donenberg, and another Taysha director,
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`Sukumar Nagendran, M.D., through entities beyond Taysha.
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`10. On August 14, 2023—with the Pricing Committee having used its
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`access to MNPI to price the PIPE before the REVEAL results were announced—
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`Taysha simultaneously announced the PIPE and the clinical data from the first
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`REVEAL patient. Analysts immediately recognized the significance of the data:
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`Wells Fargo noted the potential for a “[p]aradigm [c]hange” in the treatment of Rett
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`syndrome; Needham observed
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`that TSHA-102 could bring “potentially
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`transformative changes” for patients; and Cantor Fitzgerald more than tripled its
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`price target of Taysha stock from $2.00 per share to $7.00 per share.
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`11. Predictably, Taysha’s stock price soared in reaction to the REVEAL
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`patient data. After closing at $0.74 per share on Friday, August 11, 2023, the stock
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`closed at $2.13 per share on Monday, August 14, 2023—a 188% increase in a single
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`trading day. The stock continued to rise dramatically, reaching a peak close of $3.66
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`per share on September 7, 2023, representing almost five times the pre-
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`announcement price.
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`12. Taysha insiders profited handsomely from their PIPE purchases. The
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`Pricing Committee members—Nolan, Stalfort, and Donenberg—collectively
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`purchased more than 1.3 million shares for an overnight gain of more than $1.6
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`million. Their business associate and colleague, Manning, purchased 16,466,667
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`shares through his personal trust for an overnight gain of more than $20 million. RA
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`Capital Management, L.P. (“RA Capital”), which has a history of investing in
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`entities affiliated with Taysha Directors, also invested in the PIPE through its
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`subsidiary RA Capital Healthcare Fund, L.P., purchasing nearly 18.5 million shares
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`and more than 42.6 million pre-funded warrants, for an overnight gain of $75
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`million.
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`13.
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`In all, PIPE purchasers saw a near-instant gain of $205 million, simply
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`because the Pricing Committee priced the PIPE before releasing the transformative
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`REVEAL data in order to favor themselves and their associates. The Board allowed
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`this to happen. Had Taysha’s insiders priced the PIPE at market rates just one day
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`after the REVEAL study data was disclosed, that $205 million in value would have
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`gone to Taysha instead.
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`14. By both structuring and participating in the PIPE while in possession
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`of MNPI (namely, the REVEAL study’s results), Defendants Nolan, Stalfort, and
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`Donenberg exploited their fiduciary status for their own benefit. Further, each of
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`the Other PIPE Purchasers also had access to the same MNPI (i.e., they knew about
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`the REVEAL study’s results) when they chose to participate in the PIPE, and knew
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`(or should have known) about Nolan, Manning, Stalfort, and Donenberg’s mutual
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`participation in the PIPE and their access to this MNPI. This action seeks an order
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`requiring each of these PIPE participants to disgorge the profits they realized as a
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`result of their exploitation of Taysha’s MNPI.
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`15. Beyond breaching their fiduciary duties by trading on MNPI, Taysha’s
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`Pricing Committee and Board also breached their fiduciary duties to the Company
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`by approving the PIPE on terms that were unfair to the Company. Had the Pricing
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`Committee waited to price the PIPE until after the REVEAL study results were
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`disclosed, Taysha could have realized a substantially higher price for the shares and
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`warrants that it sold in the PIPE. But the conflicted Pricing Committee chose to
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`price the PIPE on their cheap for their own gain at Taysha’s expense. Meanwhile,
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`the rest of the Board knowingly allowed the Pricing Committee to continue to
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`possess exclusive authority over the PIPE despite the fact that each of its members
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`were also participating in the PIPE. The Board egregiously failed to take any action
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`at all to safeguard Taysha from this blatant conflict of interest, breaching their
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`fiduciary duties to the Company.
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`JURISDICTION
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`16. This Court has jurisdiction over this action pursuant to 10 Del. C. § 341.
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`17. As directors and officers of a Delaware corporation, the Director
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`Defendants and the Officer Defendants have consented to this Court’s jurisdiction
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`pursuant to 10 Del. C. § 3114.
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`18. This Court has jurisdiction over Taysha pursuant to 10 Del. C. § 3111.
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`19. This Court may exercise personal jurisdiction over the Other PIPE
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`Purchasers under 10 Del. C. § 3104(c)(1) because each of the Other PIPE Purchasers
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`entered into agreements to purchase shares of Taysha, a Delaware corporation, as
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`part of the PIPE. The Other PIPE Purchasers therefore transacted business in
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`Delaware.
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`20. The Court may also exercise personal jurisdiction over the Other PIPE
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`Purchasers under 10 Del. C. § 3104(c)(3) because each of the Other PIPE Purchasers
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`participated in the PIPE while in possession of MNPI belonging to Taysha, a
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`Delaware corporation; and because the participation in the PIPE inflicted harm on a
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`Delaware corporation. The Other PIPE Purchasers therefore caused tortious injury
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`to Taysha.
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`A.
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`PLAINTIFF
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`THE PARTIES
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`21. Plaintiff is and has been, at all relevant times, a beneficial holder of
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`Taysha common stock.
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`B. NOMINAL DEFENDANT
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`22. Nominal Defendant Taysha is a Delaware corporation headquartered in
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`Dallas, Texas. Taysha is a clinical-stage gene therapy company that develops
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`products for the treatment of diseases of the central nervous system. Taysha’s stock
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`trades on the NASDAQ Global Select Market under the ticker symbol “TSHA.” Just
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`before the PIPE, Taysha’s market capitalization was only $47.62 million. On
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`August 14, 2023, the day after the PIPE announcement, Taysha’s market
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`capitalization value was $137.31 million, and grew further to $360.67 million on
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`August 16, 2023 (the day the PIPE closed and the shares and warrants were issued).
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`As of October 22, 2024, Taysha had a market capitalization of approximately $402
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`million.
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`C. DEFENDANTS
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`23. Defendant Nolan is Taysha’s CEO and Chairman. Nolan has served
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`on Taysha’s Board since March 2020 and has served as Taysha’s CEO since
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`December 2022. Nolan was a member of the Pricing Committee which set the price
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`of the PIPE. In those roles, Nolan approved the PIPE and set its price while in
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`possession of MNPI. Nolan also participated in the PIPE while in possession of
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`MNPI, purchasing 444,444 shares for an overnight gain of $546,666. Immediately
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`prior to the PIPE, Nolan owned approximately 1.1 million shares. Nolan’s PIPE
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`purchase thus represented nearly a 40% increase in his Taysha holdings.
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`24. Defendant Alam has been Taysha’s CFO since August 2020.
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` and was aware of the same
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`MNPI improperly used by PIPE purchasers to Taysha’s detriment,
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`25. Defendant Donenberg has served as a Taysha Director since August
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`2020. Defendant Donenberg was a member of the Pricing Committee and the Audit
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`Committee,
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` In those
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`roles, Donenberg approved the PIPE, set its price while in possession of MNPI, and
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`approved the participation of related parties (including himself) in the PIPE. Indeed,
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`Donenberg participated in the PIPE, purchasing 111,111 shares of Taysha common
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`stock for a personal overnight gain of $136,666.53. Prior to this transaction,
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`Donenberg owned less than 4,000 shares of Taysha stock.
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`26. Defendant Manning served as a Taysha Director from March 2020
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`until June 2023, two months before the PIPE closed, and remained a “Board
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`observer” thereafter. Manning resigned in June 2023 to comply with NASDAQ
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`independence standards. Manning founded PBM Capital Group, LLC (“PBM
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`Capital”) in 2010, and serves as its CEO and Chairman of its Board. Moreover,
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`Manning’s personal trust, PBM Trust, was one of the largest investors in the PIPE
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`transaction, purchasing 16,466,667 shares.
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`27. Manning has extensive ties to Taysha insiders even outside the context
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`of his former role at the Company, as explained in more detail below. Stalfort is the
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`current President of Manning’s firm, PBM Capital. PBM Capital and Manning
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`invested in SalioGen Therapeutics (“SalioGen”) where Manning served with
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`12
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`Nagendran on the Board and as interim CEO. Manning also served as a director for
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`AveXis, Inc. (“AveXis”) while Nolan, Nagendran, Donenberg, and Alam were
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`officers of AveXis, and Defendant Stalfort served on AveXis’s board.
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`28. Defendant Stalfort has served as a Taysha Director since June 2023.
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`Stalfort was a member of the Pricing Committee. In those roles, Stalfort approved
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`the PIPE and set its price while in possession of MNPI. Stalfort also purchased
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`shares in the PIPE while in possession of MNPI, purchasing 777,778 shares of
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`Taysha common stock for an overnight gain of $956,666.94.3 This transaction
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`increased Stalfort’s Taysha holdings from approximately 1.1 million to nearly 2
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`million shares.
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`29. Defendant Sepp-Lorenzino, who has served as a Director of Taysha
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`since November 2020, also approved the PIPE. Sepp-Lorenzino not only approved
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`3 There is a discrepancy in Taysha’s and Stalfort’s regulatory filings that leaves some doubt
`as to exactly how many shares Stalfort purchased in the PIPE. According to a September
`11, 2023 prospectus filed by Taysha, Stalfort purchased a total of 827,778 shares in the
`PIPE, consisting of 438,889 shares he purchased directly and 388,889 shares purchased by
`the John A. Stalfort III 2018 Irrevocable Trust. See Taysha Gene Therapies, Inc., Form
`424B3 at p. 17, filed Sept. 11, 2023. By contrast, Stalfort’s August 16, 2023 Form 4 filing
`indicates that he purchased 388,889 shares at the PIPE price in his own name, his
`irrevocable trust purchased another 388,889 shares at the PIPE price, and he received
`another 50,000 shares as a “gift” at no cost to himself with no explicit connection to the
`PIPE. See John A. Stalfort III, Form 4, filed August 16, 2023. Either Stalfort purchased
`827,778 shares or 777,778 shares in the PIPE. We use the lesser number out of an
`abundance of caution.
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`the PIPE but was a member of the Audit Committee that allowed Defendants Nolan,
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`Stalfort, and Donenberg to purchase Taysha shares.
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`30. Defendant Nagendran has been Taysha’s President and Head of
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`Research and Development since December 2022, and a Taysha Director since July
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`2020.
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`31. Defendant Reape served on Taysha’s Board from November 2020
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`until November 2023. As a Taysha Director, Reape was member of the Audit
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`Committee and approved the PIPE. Reape has served as Akouous, Inc.’s Chief
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`Development Officer since May 2021, where lead PIPE-purchaser RA Capital
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`invested.
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`32. The “Other PIPE Purchasers” consist of Defendants Nolan Capital
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`LLC; John A. Stalfort III 2018 Irrevocable Trust; Paul B. Manning Revocable Trust
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`dated May 10, 2020; FMR, LLC; Fidelity Select Portfolios: Biotechnology
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`Portfolio; Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund;
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`Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund; Fidelity Growth
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`Company Commingled Pool; Fidelity Mt. Vernon Street Trust: Fidelity Growth
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`Company K6 Fund; RA Capital Healthcare Fund, L.P.; RTW Master Fund, Ltd.;
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`RTW Innovation Master Fund, Ltd.; RTW Biotech Opportunities Fund, Ltd;
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`Venrock Healthcare Capital Partners EG, L.P.; Venrock Healthcare Capital Partners
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`III, L.P.; VHCP Co-Investment Holdings III, LLC; TCG Crossover Fund I, LP;
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`Acuta Opportunity Fund, LP; Acuta Capital Fund, LP; Invus Public Equities, L.P.;
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`Kynam Global Healthcare Master Fund LP; Octagon Investments Master Fund LP;
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`GordonMD Long Biased Master Fund LP; SSI Strategy Sidecar 1, LLC; SSI
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`Strategy Sidecar 2, LLC; Crestline Summit Master, SPC – Peak SP; Crestline
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`Summit Master, SPC – Crestline Summit APEX SP; Carr Family, LLC; B Group
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`Capital LLC; Jayson Rieger; Steven M. Goldman Family LLC; Steven M. Goldman;
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`Adam Burke; The Don and Jenna Mosman Revocable Living Trust; Donald E.
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`Mosman, Jr.; Peter R. Taylor Irrevocable Trust; David Zawitz; Tom Selinger; Joseph
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`Pedersen; Jeffrey Kopocis; and David Glover. The Other PIPE Purchasers bought
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`the bulk of shares and warrants in the PIPE, and as such realized the great majority
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`of the $205 million in overnight PIPE gains.
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`33. Certain of the Other PIPE Purchasers have ties to Taysha insiders, as
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`follows:
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`
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`Nolan Capital LLC is the investment vehicle through which
`Defendant Nolan purchased in the PIPE. Nolan is the President
`of Nolan Capital LLC and has shared voting and dispositive
`power with respect to the shares held by Nolan Capital LLC, and
`as such Nolan’s knowledge of the MNPI can be imputed to Nolan
`Capital LLC.
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`The John A. Stalfort III 2018 Irrevocable Trust participated in
`the PIPE alongside Stalfort’s direct participation. Gineane Holly
`Stalfort, who on information and belief is Defendant Stalfort’s
`spouse, is the trustee of the John A. Stalfort III 2018 Irrevocable
`Trust and as such Stalfort’s knowledge of the MNPI can be
`imputed to the John A. Stalfort III 2018 Irrevocable Trust.
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`
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`The Paul B. Manning Revocable Trust dated May 10, 2020 (the
`“PBM Trust”) is the investment vehicle through which Manning
`purchased in the PIPE. Manning is the trustee of the PBM Trust
`and has sole voting and dispositive power over the shares held
`by the PBM Trust and as such Manning’s knowledge of the
`MNPI can be imputed to the PBM Trust.
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`D. RELEVANT NON-PARTIES
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`34. Non-party Alison Long currently serves as a Taysha Director, and
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`joined the Board in November 2023.
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`SUBSTANTIVE ALLEGATIONS
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`I.
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`BACKGROUND OF THE COMPANY AND TSHA-102
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`35. Taysha is a clinical-stage gene-therapy company that develops products
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`for the treatment of diseases of the central nervous system. Although Taysha has a
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`handful of product candidates in development, its lead product candidate is TSHA-
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`102, a gene transfer therapy currently being evaluated for the treatment of Rett
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`syndrome.
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`36. Rett syndrome is a rare neurological disorder that almost exclusively
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`affects girls. It is caused by genetic mutations on the X chromosome in the methyl
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`CpG binding protein 2, or “MECP2” gene. The MECP2 gene contains synthesis
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`instructions for a protein necessary for brain development and that acts as one of
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`many “switches” that activate and deactivate gene functions. Although not all
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`MECP2 mutations cause Rett syndrome, individuals with Rett syndrome may have
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`too little of the affected protein, or the protein may not function properly.
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`37. Rett syndrome can cause severe intellectual disability and impacts the
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`ability to eat, speak, walk, sleep, and even breathe, and is marked by constant
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`repetitive hand movements. Patients may suffer the loss of speech, the loss of
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`purposeful use of their hands, seizures, scoliosis, and other symptoms. Symptoms
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`first arise typically after the first six months of life, and the severity of an individual’s
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`symptoms is determined in part by the location and type of the mutation.
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`38. While patients with Rett syndrome can benefit from physical,
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`occupational, and speech therapy, the only FDA-approved treatment for Rett
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`syndrome is Acadia Pharmaceuticals Inc.’s “DAYBUE” (trofinetide). DAYBUE is
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`a synthetic analog of a naturally-occurring molecule, delivered by oral solution. In
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`March 2023, DAYBUE obtained marketing approval for the treatment of Rett
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`syndrome for patients aged two and older. The precise mechanism by which
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`DAYBUE produces a therapeutic effect is unknown.
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`39. TSHA-102 is a gene transfer therapy that uses adeno-associated viruses
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`to mediate levels of MECP2 in the central nervous system on a cell-by-cell basis. It
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`is intrathecally delivered, meaning that it is delivered by way of an injection directly
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`into the spine.
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`40. At the time of the PIPE at issue in this litigation, Taysha was evaluating
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`TSHA-102 in the “REVEAL” Phase 1/2 clinical trial. The purpose of the REVEAL
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`study is to examine the safety and efficacy of TSHA-102 in patients with Rett
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`syndrome. The study was initially limited to adult patients, but in November 2023—
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`in recognition of TSHA-102’s early promise—the Company announced that it had
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`been expanded to include patients aged 12 and older. Patients in the study receive a
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`single injection of TSHA-102 at one of two doses, and are assessed for
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`improvements in areas such as hand function, mobility, seizures, respiration,
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`communication, and various quality-of-life measures.
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`41. As a clinical-stage company, Taysha does not generate substantial
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`revenue and incurs large operating losses in the ordinary course of its business. The
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`Company has historically financed its operations primarily through various stock
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`sales and loans. As is standard with clinical-stage companies, Taysha periodically
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`must raise additional funds in order to continue its operations.
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`II. THE DIRECTOR DEFENDANTS OBTAIN POSITIVE MNPI
`REGARDING THE REVEAL TRIAL AND PREPARE FOR THE
`PIPE
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`42.
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` Raising additional financing was necessary
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`because Taysha expected to deplete its cash reserves in early 2024.
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`43. Taysha had already begun the REVEAL study
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`, and expected the findings from the study to impact the Company’s
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`stock price.
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`44. On May 31, 2023, the first patient in the REVEAL study received a
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`dose of TSHA-102. REVEAL’s first patient is a 20-year-old woman whose Rett
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`syndrome was in Stage 4, which is the final and most severe stage, typically marked
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`by reduced mobility, muscle weakness, joint contractures, and scoliosis. Before
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`treatment, this young patient was hypertonic, had limited body movement, required
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`constant back support, had lost fine and gross motor function, and had regular
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`difficulty sleeping.
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`45. On June 28, 2023, Taysha announced that there were “[e]ncouraging
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`initial clinical observations seen in the first adult patient with Rett syndrome” dosed
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`in the REVEAL study. The Company’s announcement did not include any
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`underlying data quantifying the patient’s progress. Taysha hosted an “R&D Day”
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`presentation that day, during which Nolan said that there were “compelling new
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`findings” in the REVEAL study. Azhar Rana, Taysha’s Head of Medical Affairs,
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`stated that the first patient’s dosing was “successful” and “largely uneventful,” and
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`that the initial clinical observations were “encourag[ing].” As with that day’s press
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`release, no clinical data were provided during the presentation.
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`46.
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`47.
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`48.
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`49. On July 31, 2023, Taysha released another update about the progress of
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`the REVEAL study, stating that it had observed “encouraging initial clinical data
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`from the first adult with Rett syndrome dosed with investigational gene therapy
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`TSHA-102.” Again, the Company did not provide the underlying data in its press
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`release. The Company did, however, disclose that an independent data monitoring
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`committee overseeing the study had “recommended the continuation of the
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`REVEAL Phase 1/2 trial and that dosing of the second patient in the first cohort can
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`proceed.” Nagendran explained that this “recommendation was based on the
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`analysis of initial clinical data from the first adult patient with Rett syndrome to
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`receive TSHA-102.”
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`50.
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`51. Although limited to a single patient, the result was far better than the
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`mere 5.1-point improvement over 12 weeks that rival drug DAYBUE had shown in
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`a study, before going on to become the only FDA-approved treatment for Rett
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`syndrome.
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`52.
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` constituted MNPI because (1) it was not publicly known, and (2) it
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`represented a clinical result that, if replicable, would significantly increase the
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`likelihood that TSHA-102 could obtain marketing approval by the FDA. These early
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`results also indicated that TSHA-102 had the potential to be a far more effective
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`treatment for Rett syndrome than DAYBUE, affording Taysha the opportunity to
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`displace the only rival drug that was publicly available.
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`53.
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`54.
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`+twwwywm
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`on
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`III. THE OTHER PIPE PURCHASERS RECEIVE MNPI IN ADVANCE
`OF THE PIPE
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`56. The Pricing Committee and the other insiders were not the only PIPE
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`participants that knew about the REVEAL results prior to their investment. Taysha
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`deliberately chose to leverage these results by sharing them with each of the Other
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`PIPE Purchasers as a reason to invest in the Company.
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`57. Early in the process of evaluating fundraising options,
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`58.
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`24
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`59. When Taysha later publicly announced the PIPE on August 14, 2023
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`(as discussed further below), Defendant Nolan stated in the Company’s press release
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`that the investment “highlight[ed] the enthusiasm for [Taysha’s] TSHA-102
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`program and the early clinical readout of the first patient treated in the REVEAL
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`trial.” Nolan again echoed that statement during a call with analysts that day, stating
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`that the “support from this prestigious group of [PIPE] investors” “highlight[ed] the
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`enthusiasm for [Taysha’s] TSHA-102 program and the early clinical readout of the
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`first patient treated in [the] REVEAL trial.” Nolan’s statement could only be true if
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`PIPE investors received “the early clinical readout of the first patient treated in [the]
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`REVEAL trial” in advance of the PIPE. Thus, by Defendant Nolan’s own
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`admission, the Other PIPE Purchasers were told that the first patient dosed in the
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`REVEAL study had shown a massive improvement that significantly raised TSHA-
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`102’s prospects as a treatment for Rett syndrome before Taysha disclosed this
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`information to the market.
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`IV. THE DIRECTOR DEFENDANTS COORDINATE THE TIMING OF
`THE PIPE WITH THE ANNOUNCEMENT OF THE MNPI
`REGARDING THE REVEAL TRIAL
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`60. As referenced above, on August 14, 2023, Taysha publicly announced
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`that it had agreed to sell approximately $150 million of common stock and pre-
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`funded warrants to certain purchasers in the PIPE. In the PIPE, which closed two
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`days later, the Company sold (1) 122,412,376 shares of common stock, and (2) pre-
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`25
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`funded warrants to purchase 44,250,978 shares of common stock at prices consistent
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`with the August 11, 2023 authorization. Because Taysha had only 64,465,037 shares
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`outstanding immediately before the PIPE, the PIPE issuance represented a full 72%
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`of the Company’s common equity upon exercise of the warrants.
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`61.
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`In announcing the PIPE, Taysha stated that the PIPE was led by a new
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`investor, RA Capital Management, and included “PBM Capital,4 RTW Investments,
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`LP, Venrock Healthcare Capital Partners, TCGX, Acuta Capital Partners, Kynam
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`Capital Management, LP, Octagon Capital, Invus, GordonMD® Global Investments
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`LP, and B Group Capital.”
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`62. Simultaneously with the announcement of the PIPE, Taysha announced
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`initial data from the first patient dosed in the REVEAL trial. In its press release,
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`Taysha disclosed what the Board and the Other PIPE Investors already knew: the
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`first patie