Law360 (May 27, 2020, 6:17 PM EDT) -- Sorrento Therapeutics Inc. was hit with a stock-drop suit on Tuesday over statements its CEO made to Fox News in mid-May that allegedly referred to a recent breakthrough in the company's COVID-19 treatment research as a "cure."
A Sorrento investor filed suit in California federal court, alleging the biopharmaceutical company's stock was artificially inflated May 15 after it announced the discovery of an antibody that "demonstrated 100% inhibition of SARS-CoV-2 virus infection."
That same day, as Sorrento's stock price shot above its 12-month high, company founder and CEO Henry Ji "misleadingly referred to Sorrento's research as a 'cure'" in a statement to Fox News, the investor claims. But Ji insisted a week later that he hadn't called the breakthrough a cure in response to a report that called Sorrento's claims "sensational," "nonsense" and "too good to be true."
"On this news, Sorrento shares closed at $5.07 per share on May 22, representing a decline of $4.93, or 49.4%, from the class period high, on unusually high volume," according to the investor, who seeks to hold Ji and his company liable for the stock price's precipitous rise and fall.
The investor, Wasa Medical Holdings, is hoping to establish a class period that starts May 15, roughly a week after Sorrento announced it was collaborating with Mount Sinai Health System on generating antibody products that could work as a "protective shield" against COVID-19 infection.
On the same day Sorrento announced its discovery of an antibody that "demonstrated 100% inhibition of SARS-CoV-2 virus infection," Fox News claimed to have exclusively learned of the breakthrough and quoted Ji as saying: "We want to emphasize there is a cure. There is a solution that works 100 percent … If we have the neutralizing antibody in your body, you don't need the social distancing. You can open up a society without fear."
The same article quoted Mark R. Brunswick, the vice president of regulatory affairs and quality at Sorrento, as saying: "As soon as it is infused, that patient is now immune to the disease … For the length of time, the antibody is in that system. So, if we were approved [by the FDA] today, everyone who gets that antibody can go back to work and have no fear of catching COVID-19."
Tuesday's lawsuit alleges that Ji's comment referred to the breakthrough as a "cure," while Brunswick's "misleadingly conflated Sorrento's finding of 100% inhibition in an in vitro virus infection with 100% inhibition in a 'patient.'"
On the day of the announcement and the Fox News article, Sorrento's share price grew from $4.14 to $6.67 per share by the end of the trading day and continued to rise after hours before opening at roughly $10 per share when trading resumed the following week.
Then on May 20, Hindenburg Research issued a report poking holes in Sorrento's claims and stating that researchers at Mount Sinai had dismissed Sorrento's announcement as "very hyped." Ji publicly rebutted the report that day, but Sorrento's shares nonetheless fell to $5.70 per share, or 43% lower than the class period high, the suit alleges.
The suit's class period ends on May 22, when the life sciences industry publication BioSpace put out an article containing an interview with both Ji and Brunswick, in which Ji "insist[ed] that they did not say it was a cure." Sorrento's share price fell to $5.07 that day, representing a nearly 50% drop from its class period high, according to the investor suit.
Sorrento and counsel for Wasa Medical Holdings did not respond to requests for comment Wednesday.
Tuesday's suit bears similarities to another coronavirus-related securities fraud class action playing out in Pennsylvania federal court against Inovio Pharmaceuticals Inc., which saw its own stock price quadruple after its CEO publicly met with President Donald Trump and the company announced "an accelerated timeline" for developing a COVID-19 vaccine.
Inovio investors claim the company's CEO inflated its share price by saying it had developed a vaccine in a matter of hours for the rapidly spreading coronavirus, only to later walk those statements back.
The investor is represented by Robert J. Gralewski Jr. and Ira M. Press of Kirby McInerney LLP.
Counsel information for Sorrento is not yet available.
The case is Wasa Medical Holdings v. Sorrento Therapeutics Inc. et al., case number 3:20-cv-00966, in the U.S. District Court for the Southern District of California.
--Editing by Haylee Pearl.
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