In re Vaxart, Inc. Securities Litigation

Background

The investors alleged that Vaxart issued a series of statements in June 2020 that exaggerated its progress toward developing and manufacturing an oral coronavirus vaccine. The complaint focused especially on two statements: Vaxart’s announcement that an agreement with Attwill Medical Solutions would enable production of one billion or more vaccine doses per year, and its announcement that Vaxart’s vaccine had been selected for the federal government’s Operation Warp Speed.

According to the complaint, Attwill lacked the regulatory approval, staff, and production ability to manufacture the claimed number of doses. The complaint also alleged that Vaxart knew it had been selected only to participate in a non-human-primate study, not as one of the companies chosen to receive significant federal funding to develop and manufacture a vaccine. Vaxart’s stock price rose after the statements and later declined after a New York Times article and a Department of Health and Human Services tweet clarified Vaxart’s status.

The complaint alleged that Armistice, a hedge fund that held Vaxart shares and warrants, coordinated with Vaxart to increase the stock price and profit from selling shares and exercising warrants.

Legal standard

The investors asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, which prohibit materially false or misleading statements connected to securities transactions. They also asserted control-person claims under Section 20(a) against the individual defendants.

At the motion-to-dismiss stage, the court had to accept well-pleaded factual allegations as true and decide whether they stated a plausible claim. Private securities-fraud complaints must also identify the allegedly misleading statements and explain why they were misleading with particularity. They must allege facts supporting a strong inference that the defendants acted knowingly or with deliberate recklessness.

Claims against Vaxart and its officers

The court held that the complaint plausibly alleged material misrepresentations. Although some of Vaxart’s statements were accurate when read in isolation, the court evaluated them in context, including the public’s interest in identifying companies that might receive Operation Warp Speed funding. In that context, the Attwill announcement plausibly created the misleading impression that Vaxart had the ability to produce one billion or more vaccine doses. The Operation Warp Speed headline likewise plausibly led a reasonable investor to believe that Vaxart had been selected for significant government funding, even though the smaller text referred to participation in a non-human-primate study.

The court also held that the complaint adequately alleged intent to mislead. The allegations about Attwill’s known manufacturing deficiencies and Vaxart’s knowledge that it had not been selected for federal vaccine funding supported a strong inference that the defendants knew their statements were false or acted recklessly toward their truth.

The complaint adequately alleged reliance under the fraud-on-the-market doctrine, which can presume that investors relied on public statements incorporated into the price of a security traded in an efficient market. It also plausibly alleged loss causation because the Times article and the government’s tweet disclosed information that could be understood as correcting or undermining Vaxart’s earlier statements and were followed by a stock-price decline.

The court further held that the complaint adequately stated Section 20(a) control-person claims against Steven J. Boyd, Keith Maher, Cezar Andrei Floroiu, Wouter W. Latour, Robert A. Yedid, Todd C. Davis, Michael J. Finney, and Sean N. Tucker. The complaint alleged that these individuals directly or indirectly controlled Vaxart’s decision-making, including the content and distribution of the challenged statements.

Claim against Armistice

The court reached a different conclusion as to Armistice. Under Rule 10b-5, liability for a misleading statement generally requires that the defendant made or had ultimate authority over the statement. The complaint did not allege that Armistice made or meaningfully controlled Vaxart’s public statements.

The court also found that the alleged stock-price manipulation theory was not plausible as pleaded. The complaint did not adequately explain why changing the percentage limit on Armistice’s warrant exercises was necessary for Armistice to exercise and sell its shares, or how that change showed that Armistice conspired with Vaxart to inflate the stock price. The court additionally found that the complaint did not plausibly allege that Armistice disseminated or assisted in disseminating the press releases, whose logo and attribution pointed to Vaxart.

Disposition

The court denied defendants’ motion to dismiss as to Vaxart and its current officers—Cezar Andrei Floroiu, Wouter W. Latour, Robert A. Yedid, Todd C. Davis, Michael J. Finney, and Sean N. Tucker—and denied it as to former officers Steven J. Boyd and Keith Maher. The court granted the motion to dismiss the claims against Armistice with leave to amend. The plaintiffs were given 21 days from the ruling to file an amended complaint if they could allege additional supporting facts. The court also stated that the class period would presumably need adjustment at the class-certification stage.