Like everyone else, I have been following the Ebola outbreak news with a mixture of horror and fascination. I never in a million years imagined that I would have occasion to write about the Ebola outbreak on this blog. Perhaps due to a lack of imagination on my part, I never foresaw that there might be an Ebola outbreak-related D&O claim. As it turns out, though, late last week plaintiffs’ lawyers filed a securities class action lawsuit against iBio, Inc. for allegedly misrepresenting its role in manufacturing an experimental Ebola vaccine.
As reflected in their October 24, 2014 press release (here), plaintiffibiocomplaint lawyers have filed a securities class action lawsuit in the United States District Court for the District of Delaware against iBio and its Chairman and CEO, Robert B. Kay. The complaint (a copy of which can be found here) was filed on behalf of investors who acquired the company’s shares during an unusually short class period – that is, between October 13, 2014 and October 23, 2014, during which period there was a flurry of media activity about the company’s ostensible involvement in the manufacture of ZMapp, an experimental Ebola virus fighting drug.
There is a shortage in the supplies of ZMapp, which is manufactured by Mapp Pharmaceutical and Kentucky BioProcessing. The federal government is helping the current manufacturers of ZMapp to find additional facilities affiliated with Texas A&M to increase the supply of ZMapp. Caliber Biotherapeutics is affiliated with the Texas A&M center and is one of the companies being considered to help manufacture additional supply of ZMapp.
The gist of the complaint’s allegations is that the defendants allegedly misrepresented the company’s relationship with Caliber. The plaintiff alleges that the defendants misled investors by suggesting that iBio’s relationship with Caliber has to do with ZMapp production. The complaint alleges that “in truth, iBio’s relationship with Caliber does not concern the production of ZMapp.”
In the complaint’s substantive allegations, the first alleged statement to which the complaint refers is from an October 11, 2014 newspaper article, which stated (and was quoted verbatim in the complaint) as follows:
Caliber Biotherapeutics “is by far the largest facility in the world” for producing pharmaceuticals in tobacco plants, said Robert Kay, CEO of iBio Inc., a Newark, Delaware-based biotechnology company that owns one of the technologies used to make drugs in tobacco plants. “If anybody is going to produce this, it is almost axiomatic it has to be with Caliber involved.” Caliber didn’t immediately return a phone message left at its offices.
The complaint alleges that iBio issued an October 16, 2014 press release captioned “iBio Responds to Inquiries About its Role in Emergency Response to Ebola Virus Disease Outbreak” (here). The press release describes iBio’s relationship with Caliber, noting that the company has a licensing agreement with Caliber to collaborate on commercial opportunities for recombinant antibodies and antibody-related proteins. In a separate paragraph, the press release also states that iBio has offered to assist the U.S government in connection with manufacturing drugs that address the Ebola outbreak.
The complaint also refers to an October 17, 2014 online article that cites an unnamed iBio spokesperson as having said that “any lab that wants to make ZMapp vaccine using plant-based technology would have to license it from iBio; Caliber has License from iBio”
The complaint alleges that iBio’s representations about its “purported involvement in the emergency response to the Ebola virus outbreak” were misleading because “iBio’s relationship with Caliber had nothing to do with the production of ZMapp or combating the Ebola virus.” The complaint quotes extensively from two Seeking Alpha articles dated October 20, 2014 (here) and October 23, 2014 (here) which raise questions about iBio’s supposed involvement in the production of Ebola-related drugs, and point out that its license with Caliber is not in connection with Ebola drugs but instead, according to iBio’s prior SEC filings, relates to an oncological indication. After the publication of the first Seeking Alpha article, the company’s share price fell 32%, and the share price fell an additional 8% after the second article.
On first reading of the complaint, I wondered why it had referenced the October 11, 2014 newspaper article, because the article doesn’t say anything suggesting that iBio is involved with producing the Ebola medication or that iBio’s license relationship with Caliber has to do with Ebola. Then I read the stock purchase certification the plaintiff attached to the complaint. It shows that the plaintiff bought iBio shares on October 14, 2014 (7872 shares @1.89/share), October 17, 2014 (8400 shares @ 2.29/shre) and again on October 17, 2014 (15050 @ 2.20/share). Now I know that the complaint refers to the October 11 newspaper article in order to try to take the beginning of the class period back to a time prior to the plaintiff’s first purchase of iBio shares on October 14.
The first statement by iBio that the complaint cites in which the company referred to its relationship with Caliber is the October 16 press release. Unless the plaintiff can come up with some other statements from the company prior to October 16, the plaintiff will have difficulty pushing the start of the class period before October 16.
In addition, it is not going to be easy for the plaintiff to make of the October 16 press release what he attempts to make of it in his complaint. The press release itself does not say that iBio’s relationship with Caliber has anything to do with the Ebola drug. The press release does, two paragraphs after the mention of iBio’s license relationship with Caliber, refer to the iBio’s offer to help the federal government with the Ebola drug. The plaintiff is in effect seeking to argue that the subsequent reference in the press release is connected to the earlier reference to Caliber. The difficulty the plaintiff will have is that, as the complaint itself states, the company’s own prior SEC filings state that iBio’s licensing relationship with Caliber relates to an oncological indication.
In preparing this blog post, I trolled through a lot of the chatter that has been taking place on various Internet investment sites about the available alternatives for Ebola medication. It is obvious that there is a segment of the investment marketplace convinced there is money to be made out of the Ebola outbreak, by trying to pick the winners on the Ebola drug derby. Whatever one might make of this macabre attempt to attempt to profit from the Ebola outbreak, it is clear that among the companies that got caught up in the frenzy was iBio. Indeed, that appears to explain the plaintiff’s purchase of iBio shares. Where the plaintiff may struggle in this lawsuit, at least based on the allegations presented in the complaint, is showing that the iBio got caught up in the frenzy because of statements by iBio itself.
The one statement on which the plaintiff seeks rely that comes closes to linking iBio up to the Ebola drug efforts of Caliber is the October 17 Internet article that supposedly said that an “iBio Spokesperson Says Any Lab the Wants to Make ZMapp Vaccine Using Plant-Based Technology Would have to License it from Bio; Caliber has License.” Even this statement doesn’t quite deliver the alleged misrepresentation on which the plaintiff purports to rely (that is, that Caliber’s license arrangement with iBio has to do with Ebola). For what it is worth, I wasn’t able to find this statement on the website to which the complaint refers, and even then, I am not sure how far the plaintiff will be able to get relying on a third party’s account of what an unidentified spokesperson may have said.
The Ebola outbreak presents a complicated and frightening public heath threat and involves a terrible affliction for the individuals infected by the virus. I never anticipated that a D&O claim would be among the things that would follow in the wake of the outbreak. Having failed to foresee the possibility this claim, I am not going to attempt to predict whether there will be other Ebola-related D&O claims. As long as I have been doing this, nothing should surprise me any more. I will say, it is always something new and different.