By Dean Seal

Law360 (March 15, 2021, 10:55 PM EDT) -- Vaxart Inc. asked a California federal judge Friday to dismiss allegations that it misled investors about the prospects of its COVID-19 vaccine candidate, saying the securities suit is "premised on statements Vaxart never made."

The biotechnology company told U.S. District Judge Vince Chhabria that the putative investor class is resting its entire suit on a press release issued in late June titled "Vaxart's COVID-19 Vaccine Selected for the U.S. Government's Operation Warp Speed," and arguing that the announcement suggests Vaxart would receive federal funding through the initiative.

But the release tells the whole truth, Vaxart claims — that it had been selected to participate in a nonhuman primate study, funded by Operation Warp Speed, of its oral COVID-19 vaccine.

"There is nothing in the OWS release that, in any way, implies or insinuates that Vaxart's participation in the OWS-funded primate study would mean that Vaxart also would be compensated," the company said, asking Judge Chhabria to "recognize that Vaxart's June 26 statement should be taken for what it is — honest and complete on the topic addressed."

Investors filed suit against Vaxart in August following media reports that allegedly revealed the company had falsely claimed to be receiving support from Operation Warp Speed.

Following a crowded battle for lead plaintiff appointment, the proposed investor class filed an amended complaint in January alleging that the former penny stock company issued materially misleading statements on June 25 and 26 of last year to drive "a phenomenal increase" in its stock price.

Vaxart allegedly said June 25 that it had partnered with a company called Attwill Medical Solutions Sterilflow LP to "to manufacture a billion or more doses per year … of our COVID-19 vaccine for the US, Europe and other countries in need," despite the fact that, as two former Attwill employees who assessed the company's manufacturing capabilities at that time can attest, Attwill was not certified to produce any vaccines.

"The suggestion that Attwill had anything close to this capability is demonstrably false and defendants, in making this announcement, either knew it was false and misleading or were deliberately reckless as to the truth of the statement," the investors claim, alleging that Vaxart's stock price nearly doubled in response to the announcement.

The following day, Vaxart issued the press release stating that it's vaccine had been "selected for the U.S. Government's Operation Warp Speed," with its CEO saying that day that the company was "very pleased to be one of the few companies selected by Operation Warp Speed, and that ours is the only oral vaccine being evaluated."

The release noted that Vaxart would be participating in a nonhuman primate challenge study that "in reality was a tangentially related U.S. government side program," the investors claim.

"However, Vaxart was not 'selected for the U.S. Government's Operation Warp Speed' or funding with [nonhuman primate] study participation, and by claiming to be 'one of the few companies selected by Operation Warp Speed' at a time when the identities of the remaining two or three pharmaceutical companies actually selected were still a secret yet to be revealed to the public, defendants again materially misled the market," according to the amended complaint, which states that Vaxart's share price surged another 28% on the news.

The suit further alleges that hedge fund Armistice Capital LLC used the surging prices to dump 27.6 million shares of the company and rake in "an astounding $267 million."

The investors claim that about a month later, The New York Times published an article focusing on corporate profits associated with the race for a COVID-19 vaccine and reported that Vaxart was not part of the Operation Warp Speed initiative, causing Vaxart's share price to drop nearly 10%.

Then on Aug. 19, the head of Operation Warp Speed said in a news report that some companies had misled shareholders by "erroneously tying themselves to OWS in order to drive up their common stock price." The investors allege that Vaxart was one of those companies, which led its share price to drop another 4.3%.

Vaxart responded Friday that the investors were mischaracterizing both the June 25 and 26 announcements in order to construct securities claims. The first press release was a forward-looking statement that reflected Vaxart's "'intent to establish [Attwill] as a resource for … manufacturing' its vaccine, if and when the vaccine was successfully developed."

The June 26 announcement was also fully transparent in stating that Vaxart had been selected to participate in a nonhuman primate study funded by Operation Warp Speed, the company said, arguing that it can't be accused of fraud just because the release didn't explain that participating in the study didn't mean Vaxart was receiving federal funding for its vaccine development.

"Nowhere in the 58-page [amended complaint] is there a single Vaxart statement that hints at its receipt of federal compensation," the company argued, asking that the claims be dismissed.

Armistice Capital is also seeking dismissal of the suit, arguing that while it indeed "realized gains for its investors by selling much of its stock in Vaxart," it had less than a 10% stake in the company by the start of the complaint's proposed class period on June 25.

"In the face of these straightforward facts — an investor buying low and selling high — plaintiffs manufacture an alleged 'pump-and-dump' scheme premised on statements Vaxart never made," the hedge fund said. "This story is patently false."

Counsel for the parties did not immediately respond to requests for comment Monday.

The proposed investor class is represented by Reed R. Kathrein, Lucas E. Gilmore and Steve W. Berman of Hagens Berman Sobol Shapiro LLP; John T. Jasnoch, William C. Fredericks, Heather H. Volik and Jeffrey P. Jacobson of Scott + Scott Attorneys at Law LLP; and Brian J. Schall of The Schall Law Firm.

Vaxart is represented by Daniel Martin and Jonathan A. Shapiro of Baker Botts LLP and Menachem M. Piekarski and Riccardo M. DeBari of Thompson Hine LLP.

Armistice Capital is represented by Neal R. Marder, Ali R. Rabbani, Josh A. Rubin and Sina Safvati of Akin Gump Strauss Hauer & Feld LLP.

The case is In re: Vaxart Inc. Securities Litigation, case number 3:20-cv-05949, in the U.S. District Court for the Northern District of California.

--Editing by Andrew Cohen.

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