Pennsylvania-based Inovio Pharmaceuticals is the target of a planned class action lawsuit alleging it falsely claimed it has developed a vaccine for COVID-19 that would go into testing as soon as next month.
But the pharmaceutical firm has said the allegations are based on a misunderstanding of the medical science.
The class action alleges that Inovio and its Chief Executive Officer J. Joseph Kim violated federal securities laws. It is being brought on behalf of all persons who acquired Inovio common stock (NASDAQ: INO) between February 14, 2020 and March 9, 2020.
The plaintiff charges that Inovio claimed that it had developed a vaccine, but that the claim is not true. The claim caused Inovio’s stock price to skyrocket, but once the claim was called into question, the stock plummeted.
According to the suit, on February 14, Inovio CEO Kim appeared on Fox Business News and stated that Inovio had developed a COVID-19 vaccine “in a matter of about three hours once we had the DNA sequence from the virus” and “our goal is to start phase one human testing in the U.S. early this summer.”
In response, Inovio’s stock price rose more than 10% over the next few trading days, according to the suit.
Then two weeks later, “following a well-publicized March 2, 2020 meeting with President Trump to discuss the COVID-19 outbreak, Defendant Kim again claimed that Inovio had developed a COVID-19 vaccine, stating ‘we were able to fully construct our vaccine within three hours . . . . Our plan is to start [U.S. based COVID-19 trials] in April of this year.'”
After that statement, Inovio’s stock price more than quadrupled from $4.28 per share on February 28, and continued to increase in the following weeks, reaching a high of $19.36 on March 9, according to the suit.
However, on March 9, Citron Research, a firm headed by Andrew Left, a short-seller who exposed accounting fraud at Valeant Pharmaceuticals, called on the SEC to halt trading in Inovio stock and “investigate the ludicrous and dangerous claim that they designed a vaccine in 3 hours.”
In response to Citron’s questioning, Inovio’s stock price dropped from its March 9 opening price of $18.72 per share to close at $9.83. The following day, March 10, Inovio’s stock price fell from its $9.30 per share opening price to close at $5.70 per share. The two-day drop wiped out approximately $643 million in market capitalization for the company, according to the complaint.
The plaintiff says that Inovio knew it had “not developed a vaccine for COVID-19, that such a vaccine could not be developed in a matter of hours, and that trials were not likely to begin in April 2020.”
Inovio dismissed Citron’s criticism in a message to shareholders on March 9:
“A third-party report today demonstrated a lack of understanding of the science behind DNA medicines. Inovio designed a vaccine construct for its coronavirus vaccine (INO-4800) within three hours after the viral sequence was publicly available; produced the vaccine at small scale and was in preclinical trials in January – preclinical results are available online in Nature Communications. Inovio expects to move into human trials next month. Based on extensive prior work creating DNA vaccines using our proprietary DNA medicines platform, we are confident that we have a viable approach to address the COVID-19 outbreak. We remain committed to sharing our progress as we advance into the clinic in the coming weeks.”
But the complaint alleges that a “vaccine construct” is not the same as a developed vaccine. The plaintiff alleges Inovio “attempted to blunt the Citron revelations” by admitting that it had not developed a COVID-19 vaccine but claiming that instead it had merely “designed a vaccine construct” and that it believed it had a “viable approach to address the COVID-19 outbreak.”
The suit was filed March 12 in U.S. District Court for the Eastern District of Pennsylvania. The class action has been initiated by investor Patrick McDermid of Manitoba, Canada, who purchased stock when the price was high and suffered a loss when the stock fell.
Meanwhile, in Seattle on March 16, the first phase of testing began on a potential vaccine by a Cambridge biotech company, Moderna. The National Institutes of Health is conducting the study that calls for 45 patients to be administered two shots, 28 days apart. Patients will be followed for a year.
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