|Footnotes for this article are available at the end of this page.
Pleading requirements in federal courts, particularly in securities class action cases, have become increasingly difficult, if not impossible, to satisfy. On December 30, 2020, a U.S. district court in California granted the motion of the biopharmaceutical company, Nektar Therapeutics, Inc. (“Nektar” or “Company”)1 and its named officers (collectively, “Defendants”) to dismiss Plaintiffs’ second-amended securities fraud complaint (“Complaint”) by means of an opinion that stretched, we believe, well beyond the applicable pleading rules and statutes. Being the second dismissal in the case, the court denied Plaintiffs—representatives of a putative class of shareholders of Nektar stock—a third chance to amend their Complaint.2 The case is now on appeal to the U.S. Court of Appeals for the Ninth Circuit.3
The district court dismissed the Complaint because it found Plaintiffs’ primary evidence of misconduct, a short-seller’s report, insufficiently reliable for pleading purposes. Plaintiffs referred to the report in support of the factual allegation that Nektar had misled investors about the “positive” results of the first clinical test of its anti-cancer drug, NKTR-214. Instead of examining the Complaint’s allegations of fact, determining whether they and the narrative they supported were plausible and specific, and treating the allegations and narrative as true for purposes of applying substantive law, the court: (1) peered behind the alleged facts to determine whether the information—effectively, the “evidence”—to which the Complaint referred adequately supported the alleged facts; (2) ruled, albeit implicitly, on the admissibility or credibility and weight of this “evidence” and (3) found—as a matter of fact disguised as a matter of law—that the “evidence” was not sufficiently probative and therefore inadmissible, and even if admissible, not sufficiently creditworthy.
The analysis the court used to dismiss the Complaint is problematic.4 A Rule 12(b)(6) motion to dismiss under Federal Rules of Civil Procedure (“Rules”) challenges the sufficiency of the facts as alleged, yet the court effectively treated the Defendants’ motion as one for summary judgment under Rule 56(c), and ruled as if Defendants—who had not even answered the allegations of the Complaint—had presented evidence sufficient to require Plaintiffs to present evidence to create an issue of fact on the allegations of fraud. In effect, the court found that Plaintiffs had failed to create an issue of fact for the factfinder at trial. The decision went far beyond the required specificity of pleading facts (the motion to dismiss standard), and the standard it unfairly imposed is one akin to the summary judgment requirements for evidence on Plaintiffs who had yet to see an answer.
Netktar’s Anti-Cancer Drug, NKTR-214
NKTR-214 is an immuno-oncology drug and one on which Netktar’s success, in its own words, is “highly dependent.”5 The Company formulated NKTR-214 from the protein Interleukin-2 (“IL-2”), a cancer-fighting cell, but a key problem with IL-2 is that, as the quantity of these cancer-fighting cells increases, the quantity of immune-suppressive cells, called Treg cells, also increases. Thus, the quantities of IL-2 needed to get results in shrinking cancer cells generates large quantities of Treg cells such that the net effect is toxic. Nektar claims to have modified IL-2 so that it produces significant quantities of IL-2 but without generating Treg cells, basically taking the good and eliminating the bad. The question the class action raises is just how candid has Nektar been in its statements concerning the effectiveness of NKTR-214 drug therapy, whether used alone or in conjunction with another therapy?
The Complaint’s Narrative and Theory
The Complaint alleges that on January 10, 2017, Nektar misleadingly reported the results of the first clinical test of NKTR-214, called EXCEL, and manipulated the outcome of the second clinical test, called PIVOT-2.6 This caused buyers of Nektar stock to pay a fraud premium that disappeared only on and after Monday, October 1, 2018, when a short-seller, Plainview LLC, published a report claiming that the EXCEL results were misleading (“Short-Seller’s Report”).7 After the public was notified of Nektar’s potentially misleading reporting, Nektar’s stock dropped seven percent. The class period, accordingly, spans some twenty months, beginning January 10, 2017, and ending Friday, September 28, 2018, inclusive.
The EXCEL Test
In December 2015, Nektar announced that it had begun a single-therapy on twenty-eight human patients who had solid tumors. Some nine months later, on September 27, 2016, Nektar and Bristol-Myers Squibb Company (“BMS”) agreed to an oncology clinical collaboration to evaluate the combination of NKTR-214 and BMS’s drug, Opdivo.8 On January 10, 2017, at the annual J.P. Morgan Healthcare Conference (“JPM Healthcare Conference”)—just over one year after the EXCEL test had begun and four months after the BMS agreement—Nektar reported results of the EXCEL test. In reporting the results, Nektar presented a chart showing that for ten patients dosed with NKTR-214 once every three weeks, cancer-fighting cells increased—on average—30-fold, with very little increase in the immuno-suppressive Treg cells.9 Nektar continued to present this encouraging 30-fold-increase chart at various conferences thereafter.10
The Bristol-Myers Squibb Agreements
On February 14, 2018, just after the next annual JPM Healthcare Conference, Nektar and BMS announced that they had entered into a new, strategic collaboration agreement to evaluate NKTR-214 to replace the 2016 collaboration and a new, share-purchase agreement. The second clinical trial of NKTR-214 would involve combination therapy (with BMS’s cancer immunotherapy drug, Opdivo). The agreements would close and did close on April 3, 2018.11
Under the new collaboration agreement, Nektar and BMS agreed to develop NKTR-214 jointly, alone and in combination with Opdivo and other products, and also agreed to commercialize NKTR-214. BMS would pay Nektar $1 billion in cash with a possible payment of up to $1.35 billion. Under the equity arrangement, BMS purchased 8,284,600 Nektar shares for $850 million, at an effective price of $102.60 per share.12
Based on the BMS payment, Nektar recognized revenue, on the line item “license, collaboration and other,” of about $1.059 billion, which enabled the Company to report net income of just over $681 million for 2018. This was the first time since 1994, when the Company became public, that Nektar did not report a net loss for the year. For the following year, 2019, however, Nektar again reported a loss—its largest loss ever—of $440.76 million.
The Short-Seller’s Report
On October 1, 2018, Plainview LLC, acknowledging that it is a short-seller and stood to profit if Nektar’s stock price dropped, published a written report on Nektar titled, “NKTR-214: Pegging the Value at Zero” (“Short-Seller’s Report”).13 The Short-Seller’s Report concluded that NKTR-214 is “too weak to work,” and stated that the 30-fold average increase as it appeared on Nektar’s chart was misleading because only one of the ten patients—an outlier—had a 300-fold increase in cancer-fighting (TIL CD8+) cells while the other nine patients, 90 percent of the test group, had shown no increase. Even the outlier “saw no clinical benefit.”14 The Short-Seller’s Report also noted that the outlier patient was dosed with NKTR-214 not once every three weeks but rather every two weeks. If true, this would have been an increased dosage of 50 percent per week.15
Plaintiffs’ Complaint incorporated the claims of the Short-Seller’s Report and included allegations that two confidential witnesses had corroborated for Plaintiffs the assertions of a “misleading average” (“Outlier Omission”) and undisclosed dosing schedules (“Dosing Statement”) on this small sample of 28 individuals.16
The Federal Securities Fraud Complaint
Stratified Pleading Standards
A private claim for securities fraud must satisfy three levels of pleading requirements. First, Rule 8(a)(2), applicable to all claims, requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” For fraud claims, Rule 9(b) requires allegation of the statement (or action) and the contemporaneous “state” of the statement-maker’s (or actor’s) mind—the knowledge, understanding, motivation, and intention. As for the statement or action, Rule 9(b) requires the complaint to allege “with particularity the circumstances constituting fraud,” but for state of mind, “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” A third level, mandated by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), is discussed below.
Section 10(b) and Rule 10b-5
Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and its implementing Rule 10b-5 prohibit and make unlawful the use of materially false statements or omissions (“Statement-based Frauds”) or fraudulent schemes or devices (“Scheme-based Frauds”) in connection with the sale or purchase of securities.17 The SEC routinely brings securities fraud actions against defendants for violations of Exchange Act Section 10(b) and Rule 10b-5.
PSLRA and Pleading the False or Omitted Statement
Federal courts recognize an implied private claim for securities fraud violations,18 but the PSLRA, codified at 15 U.S.C. § 78u-4, imposes the final and most demanding pleading requirements on private securities fraud actions. These demanding pleading requirements are not imposed on the SEC; its pleading obligations cease at Rule 9(b).19 For private plaintiffs, however, the PSLRA requires that the complaint: (1) specify “each statement alleged to have been misleading,” (2) specify “the reason or reasons why the statement is misleading,” and (3) state “with particularity all facts on which that belief is formed,” if “the allegation regarding the statement or omission is made on information and belief.”20
PSLRA and Pleading Fraudulent Intent
In pleading a fraudulent state of mind, pursuant to the PSLRA, a private plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind” for each false statement or omission.21 Congress did not create a test for “strong inference,” leaving that task to the federal courts.
After U.S. Courts of Appeals developed various analyses for “strong inference,” the U.S. Supreme Court issued guidance in Tellabs, Inc. v. Makor Issues & Rights, Ltd.22 Tellabs requires courts to use a comparative method in deciding whether a securities fraud claim is sufficient under the PSLRA.23 This multi-step method requires that the court (1) consider the inference of fraudulent intent that plausibly could be drawn from the facts alleged in favor of fraudulent intent; (2) consider any non-culpable “competing inferences” for the defendant’s conduct that could be “rationally drawn” from the alleged facts; and (3) compare the two sets of inferences, which reveals the strength of the inference. A “strong inference” of scienter that satisfies the PSLRA requirement is one that “is more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of non-fraudulent intent.”24
The District Court’s Pleading Standards in Nektar
The Court ruled that the Complaint failed to satisfy the PLSRA standards in four elements of Section 10(b) and Rule 10b-5: the falsity of the statements, materiality of the statements, the scienter of Defendants, and allegations concerning loss causation.25 We discuss the falsity, materiality, and scienter elements.
“Trial” of the Complaint’s False-Statement Allegations
Under the banner of the PSLRA, the district court in Nektar conducted a non-trial trial on the Complaint’s allegations via the motion to dismiss. The court stated that the alleged Outlier Omission and Dosing Statement “failed to adequately show that the [Short-Seller’s] Report identifying the Figure 6 line graph supported their falsity allegations.”26 The verbs used—“to show” and “to support”—suggest that the Complaint was analyzed as more than a pleading; rather than “allege” sufficient facts, Plaintiffs had to provide or refer to specific “evidence” for the factfinder to accept the allegations of fact as true.
The court’s view that a plaintiff must present or reference evidence, even before the complaint has been answered and prior to having engaged in any civil discovery, is confirmed by the court’s finding that “Plaintiffs fail to explain why the inclusion of the ‘outlier data’ in the EXCEL trial, or the failure to disclose its inclusion, necessarily made the 30-fold figure false or misleading, which is inadequate under the PSLRA’s heightened pleading standards.”27 The court, in effect, ruled that a factfinder could not, if presented with the facts, find the Outlier Omission materially misleading. The court further found that, even if the Outlier Omission had been sufficiently pleaded, “Plaintiffs have not alleged facts sufficient to show that the inclusion of these patients made the 30-fold increase chart materially false or misleading.”28
The court’s opinion was a pre-answer ruling—as a matter of law—on the critical questions of materiality and falsity. One wonders how one could possibly allege facts “sufficient” to avoid a judicial ruling that looks to the “evidence” upon which the allegations may rest. It seems to us that a factfinder could very well find a material difference between the following increases in patient levels of cancer-fighting cells in response to the use of NKTR-214: Version (1) 0, 0, 0, 0, 0, 0, 0, 0, 0, 300; and Version (2) 0, 10, 20, 20, 20, 40, 40, 40, 40, 70. Version (1), which was alleged by Plaintiffs in their Complaint, if true, would explain Defendants’ reluctance to avoid admitting this result in an answer. Defendants were relieved of the need to admit (or deny) this result by the district court’s dismissal of the Complaint.
The PSLRA Requirements
As noted above, the PSLRA requires a private securities fraud claim (1) to specify “each statement alleged to have been misleading;” (2) to specify “the reason or reasons why the statement is misleading;” and (3) to state “with particularity all facts on which that belief is formed” if “the allegation regarding the statement or omission is made on information and belief.”29 The PSLRA does not require the Complaint to refer to or proffer evidence to support the allegations of fact; it requires specificity in factual allegations.
The Complaint in this case specified the omitted and false statements, specified that Defendants misled investors by use of the term “average” despite a radical outlier, explained why the statement was misleading,30 showed why it was material, and it went beyond the requirements to reference sources of evidence upon which these allegations were predicated. If the allegations are true, evidence other than the corroborated statements in the Short-Seller’s Report exists. The PLSRA requires that information-and-belief allegations concerning the falsity of the statement simply state “with particularity all facts on which that belief is formed,” which Plaintiff did.
The court, however, determined the admissibility and credibility of the information to which (or “evidence” to which) the Complaint referred to be inadequate to satisfy the particularity requirement. The Short-Seller’s Report, according to the court’s opinion, was effectively (1) inadmissible because it lacked “any foundation . . . establishing why Plainview’s opinions on the highly-technical matters at issue here are reliable” and (2) not creditable because “[t]he shortsellers’ disclosures [detailed] that it stood to benefit from a poor performance in Nektar’s stock price.”31 In short, the Complaint’s proffered “evidence” supporting the allegations, (1) that the test results were misleading and (2) why the test results were misleading, was insufficient to “show” or “support” the alleged fact that the test results were misleading.
Even if the Short-Seller’s Report was admissible evidence and the questions of falsity left to the factfinder, the falsity allegations would still be insufficient because “Plaintiffs have not alleged facts sufficient to show that the inclusion of these patients made the 30-fold increase chart materially false or misleading.” The court ignored the assumption that alleged facts are deemed true, and instead evaluated the truth of the alleged facts under the specificity-of-allegations standard.
What About Summary Judgment?
As suggested above, the court in this case seemed to treat Defendants’ Rule 12(b)(6) motion to dismiss the claims and Complaint as a Rule 56 motion for summary judgment against Plaintiff. Rule 56(b) generally provides that “a party may file a motion for summary judgment at any time until 30 days after the close of all discovery.” Rule 56(a) states that the court must grant summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
To win on summary judgment a defendant must present sufficient evidence to show that the plaintiff cannot satisfy one of the multiple elements required to show securities fraud and that evidence cannot be countered by evidence that creates a question of fact. For instance, in this case, Defendants could proffer evidence in their motion that the Outlier Omission was not true. Early application of Rule 56 would make the court’s analysis and the issues for appeal less garbled.
Rulings such as the one in Nektar have become increasingly common and are, perhaps, a symptom arising from the combination of the heightened pleading standards of the PSLRA and compounded by the “plausibility pleading” standard enunciated by the U.S. Supreme Court in Twombly32 and Iqbal.33
When enacted in 1995, the PSLRA was viewed as a remedy for run-away securities class action cases in which cookie-cutter complaints were filed after a negative news announcement or significant price dip in a public company’s stock. These complaints often appeared to be the product of using the “search-and-replace” function to insert the new defendant company’s name and those of its officers, but otherwise reflected identical allegations of supposedly egregious securities fraud that had “caused” the price drop.. To curb this practice, the PSLRA introduced the requirements discussed above.
The PSLRA was enacted when “notice pleading” was the norm for complaints.34 Just over a decade after the PSLRA was enacted, however, the Supreme Court added the requirement that claims be “plausible.”35 This “moved the system from a notice pleading structure . . . to a fact pleading structure, which is exactly what the Federal Rules were drafted to reject.”36 In the context of the private securities class action case, the plausibility pleading and the PSLRA have, together, arguably led to “fact-plus-evidence” pleading, which we believe Nektar exemplifies. The motion to dismiss has become an implicit motion for summary judgment in which the plaintiff is put to the task of “proffering” evidence without the benefit of even an answer. This approach will certainly clear court dockets.
 Nektar was founded in 1990 as Inhale Therapeutic Systems. It is a publicly traded Delaware corporation, headquartered in San Francisco, California, and listed on Nasdaq as “NKTR.” The Company completed its initial public offering in May 1994, when it raised net proceeds of about $14.4 million. Nektar Therapeutics, Inc., Form 10-K, at 33 (Mar. 23, 1998), https://ir.nektar.com/static-files/38bee1a1-a0ad-478d-9fc1-dfc31f806f18.
 Mulquin v. Nektar Therapeutics, Inc., No. 18-cv-06607, 2020 WL 7773580 (N.D. Cal. Dec. 30, 2020) (“Opinion”). On July 13, 2020, the court had granted a motion to dismiss the first amended complaint but gave Plaintiff leave to amend. In re Nektar Therapeutics Sec. Litig., No. 18-cv-06607, 2020 WL 3962004 (N.D. Cal. July 13, 2020).
 On January 29, 2021, Plaintiff filed a notice to appeal, for review in the Ninth Circuit. The case number on appeal is 21-15170.
 The Court dismissed the Complaint on related alternative grounds, discussed below.
 In Nektar’s 2018 Form 10-K, under “Risks Related to Our Business,” the Company disclosed that it is “highly dependent on the success of NKTR-214, our lead I-O candidate. We are executing a broad development program for NKTR-214 and clinical and regulatory outcomes for NKTR-214, if not successful, will significantly harm our business.” Nektar Therapeutics, Inc., Form 10-K, at 30 (Mar. 1, 2019), https://ir.nektar.com/static-files/440a2adf-c1c4-4f0f-b745-e51daf0346fc.
 On November 9, 2016, Nektar announced that it had presented new Phase 1 clinical data for NKTR-214 at the 2016 Annual Meeting of the Society for Immunotherapy of Cancer (SITC), which showed that “[t]reatment with NKTR-214 produced a robust elevation in immune cell frequency and activation, including: * Increase in total and newly proliferating (Ki67+) CD4+ T cells, CD8+ T cells, and Natural Killer (NK) cells in 9/9 patients with blood samples evaluated in the trial to-date, with increases of up to 30-fold observed.” Nektar Therapeutics, Inc., Press Release, Nektar Therapeutics Presents New Clinical Data from Ongoing Phase 1 Dose-Escalation Study of NKTR-214 at the Society for Immunotherapy of Cancer (SITC) 2016 Annual Meeting (Nov. 9, 2016), https://ir.nektar.com/news-releases/news-release-details/nektar-therapeutics-presents-new-clinical-data-ongoing-phase-1.
 Short selling is the act or practice of borrowing securities to sell. The seller must repay the loan with the same securities (cover) and profits are realized only if the covering price (plus transaction costs) is less than the price at which the seller sold the securities.
 Bristol-Myers Squibb Co., Press Release, Bristol-Myers Squibb and Nektar Therapeutics Announce Oncology Clinical Collaboration to Evaluate the Combination of Opdivo (nivolumab) and NKTR-214 (Sep. 27, 2016), https://news.bms.com/news/details/2016/Bristol-Myers-Squibb-and-Nektar-Therapeutics-Announce-Oncology-Clinical-Collaboration-to-Evaluate-the-Combination-of-Opdivo-nivolumab-and-NKTR-214/default.aspx.
 Opinion, supra note 2, at *1.
 In April 2018, BMS reported increased sales of its checkpoint-inhibitor, Opdivo, and quarterly revenue of $5.19 billion and net income of $1.5 billion for Q1 2018. Angelica LaVito, Bristol-Myers’ cancer drug Opdivo fuels growth, but revenue falls short, CNBC (Apr. 26, 2018), https://www.cnbc.com/2018/04/26/bristol-myers-squibb-q1-earnings-2018.html.
 Nektar 2018 Form 10-K, supra note 5, at 34, 88. On February 13, 2018, Nektar’s stock closed at $75.66 per share; on April 2, 2018, it closed at $98.77 per share. One may visualize Nektar’s stock prices over the past five years as a plateau with a mountain range in the center. Per-share prices on either side ranged between $11, about five years ago, to about $20, today. The “mountain range” emerges after October 30, 2017 ($23.75), rises on November 20, 2017 ($52.59), peaks on March 5, 2018 ($108.34), and dips on July 2, 2018 ($47.64), before hitting another peak on August 27, 2018 ($66.49). Since August 2019, however, the price has hovered around $20 per share. BMS’s payment of $102.60 for each share of Nektar seems to have been on the high end of the price range.
 Opinion, supra note 2, at *2 (“The [purported] source of the ’30-fold’ increase claim was a single line chart from a poster that Nektar displayed at a February 2017 American Society of Clinical Oncology [ASCO] symposium.”) (alterations in original).
 A unit dosage every three weeks creates an average dosage of one-third of a unit (0.33) per week. If the unit dosage per week is increased to one-half (0.50) unit per week, the increase dosage equals (3/6 – 2/6) / (2/6) = (1/6 / 2/6), or fifty (50%) percent.
 Opinion, supra note 2, at *3.
 15 U.S.C. § 78j(b). Rule 10b–5 makes it unlawful: ‘‘(a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.’’ 17 CFR § 240.10b–5.
 The SEC has a public claim for such violations.
 The SEC is also able to do “pre-discovery” by means of a thorough investigation before filing a complaint. Such investigations often take years and usually involve the SEC issuing subpoenas for extensive data and document production and deposition-like testimony under oath by participants in the alleged securities fraud.
 15 U.S.C. § 78u-4(b)(1)(A) and (B).
 15 U.S.C. § 78u-4(b)(2)(A).
 551 U.S. 308 (2007).
 Id. at 314.
 Namely, that (1) the Company’s reporting of the (misleading) positive EXCEL caused the stock price to increase, beginning on January 10, 2017, and (2) the Short-Seller’s Report’s contention that the EXCEL results were not so positive caused the stock price to decrease.
 Opinion, supra note 2, at *8 (emphasis added).
 Id. (emphasis added).
 15 U.S.C. § 78u-4(b)(1)(A) and (B).
 The word “average” is not only a statistical term meaning arithmetic mean, as distinguished from median or more, but also a colloquial term used to characterize the “the typical” individual, quality, or quantity.
 Opinion, supra note 2, at *8.
 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
 Ashcroft v. Iqbal, 556 U.S. 662 (2009).
 Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (“[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”).
 Ashcroft, supra note 33, at 678 (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also, Robin J. Effron, Putting the “Notice” Back into Pleading, 41 Cardozo L. Rev. 981, 982-83 (2020).
 Arthur R. Miller, Simplified Pleading, Meaningful Days in Court, and Trials on the Merits: Reflections on the Deformation of Federal Procedure, 88 N.Y.U. L. Rev. 286, 346 (2013).