By Lauren Berg

Law360 (February 16, 2021, 11:08 PM EST) -- Biotechnology firm Inovio Pharmaceuticals Inc. and a cohort of company executives must face slightly trimmed class action claims alleging they misled the public about a coronavirus vaccine they purport to have in the works, a Pennsylvania federal judge ruled Tuesday.

In a 26-page order, U.S. District Judge Gerald J. Pappert partially granted Inovio's motion to dismiss, scrapping some of the claims based on two press release statements the company and some of its executives made last year, but keeping the majority of the investors' claims intact.

The consolidated suit, which launched March 12 and was most recently amended in September, names as defendants Inovio, its chief executive J. Joseph Kim, its chief financial officer Peter D. Kies and its vice president of biological manufacturing and clinical supply management Robert J. Juba Jr.

In the suit, investors led by Manuel Williams allege that between Feb. 14 and Aug. 10, as the pandemic escalated across the nation, the company made intentionally confusing statements about its work on a COVID-19 vaccine in an attempt to push up its trading price.

"Defendants' ongoing unlawful scheme has caused significant damages to investors and allowed the company to raise over $320 million in stock offerings," the investors claimed in the September version of their suit.

In his order Tuesday, Judge Pappert found that the investors have provided enough evidence at this point in the case to allege that Kim misled the public when he said in February 2020 that Inovio constructed its vaccine within three hours of accessing COVID-19's genetic sequence, causing the company's stock to rise, while the company in March walked that assertion back to say that it had designed a vaccine in three hours, causing the stock to plummet.

Even though Inovio argued that the terms "design" and "construct" are synonymous, Judge Pappert said that issue is a question of fact that can't be resolved in a motion to dismiss.

"By alleging defendants claimed to have achieved something they did not achieve and thereby instilling false confidence in investors, plaintiffs have satisfied their burden of alleging why Kim's statements were misleading," the judge said.

Judge Pappert also found that the investors have adequately pled that Kim acted with scienter when he made the false vaccine "construction" statement, saying they detailed his background and experience in the pharmaceutical industry, suggesting that he would understand the difference between "constructing" and "designing" a vaccine, according to the order.

The investors also adequately pled loss causation, the judge said, finding that they allege Inovio's stock price increased 7.5% after Kim's first vaccine construct claim and 69.7% after his second claim, but that after the company claimed to have only designed a vaccine, its stock tumbled in response.

The judge then found that the investors' claims that Kim misled the public when he made a statement in May about Inovio and its manufacturing partners being able to produce one million vaccine doses by the end of the year are not preempted by the Private Securities Litigation Reform Act's safe harbor provision for forward-looking statements.

The judge found that the investors had alleged that it was a present statement because at the time Kim made the statement, Inovio didn't have the manufacturing capacity to produce that many vaccines by year's end.

While Judge Pappert found the investors had done enough to allege that Inovio and its executives made misleading statements and omissions about the company's manufacturing capabilities, the judge said that wasn't true of an April press release about the company's manufacturing partnership with Richter-Helm Biologics GmbH & Co.

Judge Pappert also rejected the investors' claims regarding a press release Inovio put out in June announcing that its vaccine was included in the federal government's vaccine initiative Operation Warp Speed, saying the investors hadn't shown that Inovio misled the public about receiving government funding for its vaccine when it had actually only been selected to participate in a non-human primate study.

The judge said Inovio never claimed to be receiving vaccine funding and that it disclosed its vaccine had been chosen for the study in the same press release in which it broadly claimed to have been selected for Operation Warp Speed.

"Plaintiffs do not explain how or why a reasonable investor with access to all this information would have thought Inovio would receive government funding for its vaccine," Judge Pappert said. "Even if defendants' claim about being selected for Operation Warp Speed was a misrepresentation, the subsequent disclosure rendered it immaterial and not misleading."

Judge Pappert dismissed with prejudice the claims related to the April press release and the claims related to the June Operation Warp Speed announcement, but kept the rest of the suit intact.

Representatives for the parties did not immediately respond to requests for comment Tuesday evening.

The investors are represented by Darren J. Robbins, Tor Gronborg, Trig R. Smith, Matthew J. Balotta and James E. Barz of Robbins Geller Rudman & Dowd LLP and Lawrence F. Stengel of Saxton & Stump.

Inovio is represented by Patrick Loftus and Matthew S. Decker of Duane Morris LLP and Luke Cadigan and Heather Speers of Cooley LLP.

The case is Patrick McDermid v. Inovio Pharmaceuticals Inc. et al., case number 2:20-cv-01402, in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Dean Seal, Matthew Santoni and Emilie Ruscoe. Editing by Regan Estes.

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