Law360 (November 5, 2020, 9:35 PM EST) -- Inovio Pharmaceuticals Inc. said Thursday that it has been entirely upfront with investors about its efforts to develop and produce a COVID-19 vaccine, contrary to the claims of a securities suit it wants dismissed.
The company asked a Pennsylvania federal judge to toss litigation accusing it of inflating its stock price by misleadingly saying in February and March that it had been "able to fully construct our vaccine within three hours," only to later clarify that it had "designed a vaccine construct," not a vaccine, within three hours.
Inovio's share price dropped from $18.72 to $9.83 by the end of trading on the day of the clarification, but the company contended Thursday that its initial statements were neither false nor misleading because "the terms design and construct are synonyms."
"Th[eir fraud] theory is premised on a purported material distinction between 'designing' and 'constructing' a vaccine. But plaintiffs allege no facts demonstrating there was any confusion," the company said in its dismissal motion. "And the first amended complaint offers no explanation as to how this purported distinction could have misled investors, and thus fails to plead falsity and loss causation."
The consolidated lawsuit launched roughly a month after Inovio's CEO said Feb. 14 on Fox Business News that the company had constructed a COVID-19 vaccine "in a matter of about three hours once we had the DNA sequence from the virus" and aimed to "start phase one human testing in the U.S. early this summer," leading the company's share value to rise 10%.
After a well-publicized meeting with President Donald Trump on March 2, CEO J. Joseph Kim repeated his claim about a vaccine and said Inovio could begin testing in early April, and the stock price quadrupled. But on March 9, the day Inovio had planned to offer $50 million of its common stock for sale, a short-seller report called the company's vaccine claims "ludicrous and dangerous," and its share price dropped from $18.72 to $9.83 by the end of the day and then to $5.70 by the end of the next.
A shareholder filed suit March 12, claiming the company had not actually developed a vaccine as Kim had claimed and instead capitalized on hype surrounding the emerging pandemic to artificially inflate Inovio's share price.
After a lead plaintiff was named in June, the proposed class filed an amended suit claiming that in addition to Kim's earlier misstatements, Inovio should be held liable for statements made between March 24 and May 12 assuring investors the company would be able to deliver 1 million doses of a COVID-19 vaccine by the end of 2020.
The company "said nothing" in that time about the fact that the manufacturer of its vaccine had canceled its contract with Inovio on May 7, the suit claims. Then on June 3, it was publicized that Inovio had sued the manufacturer over the canceled contract, stating in the suit that the cancellation made it "mathematically impossible" for Inovio to deliver the 1 million vaccine doses by the end of the year.
Inovio responded Thursday that the investors' fraud theory related to that promised vaccine delivery suffered from numerous defects, "the foremost of which is that 2020 is not yet over, so any claim of fraud based on Inovio's purported inability to meet its 2020 production goals is pure speculation."
"Plaintiffs attempt to obscure this fact by focusing on the various obstacles Inovio has had to overcome in order to ramp up its manufacturing capacity, but notably, plaintiffs do not allege that any of those obstacles has proven to be insurmountable," Inovio said.
The amended complaint also targets Kim's June 30 claim that Inovio's vaccine had been "selected" and included in Operation Warp Speed, the official name of the White House's COVID-19 vaccine development initiative. In an Aug. 9 media report, a company communications executive declined to comment on why Inovio had not actually received any government funding for its vaccine development, and when executives were pressed for more answers the following day, they "responded vaguely, stating that they were still working on securing outside cash in order to mass produce [the vaccine]."
This caused another drastic drop in the company's share price, investors claim, but Inovio said Thursday that the June 30 statement made it clear that the company's vaccine had been chosen for inclusion in a nonhuman primate study organized by Operation Warp Speed, "not that it was selected to receive federal funding."
"In short, this theory is premised on claims Inovio never made, and thus, plaintiffs fail to plead falsity, scienter, and loss causation," the company argued, asking that the suit be dismissed with prejudice.
Counsel for the parties did not respond to requests for comment Thursday.
The proposed class is represented by Trig R. Smith and Matthew J. Balotta of Robbins Geller Rudman & Dowd LLP, and Lawrence F. Stengel of Saxon & Stump.
Inovio and Kim are represented by Luke Cadigan and Heather Speers of Cooley LLP, and Patrick J. Loftus of Duane Morris LLP.
The case is 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 Emilie Ruscoe. Editing by Breda Lund.
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