Just as the coronavirus pandemic itself continues to disrupt economic and social activity, it also continues to generate COVID-related securities class action litigation. In the latest COVID-related securities suit, the vaccine development firm Novavax has been hit with a securities suit pertaining to delays the company has experienced regarding its coronavirus vaccine candidate. As discussed below, this latest lawsuit shares a number of features with other previously filed coronavirus-related securities suit. The November 12, 2021 complaint in the new Novavax lawsuit can be found here.
Novavax is in the business of developing and manufacturing infectious disease vaccines. The company is seeking to develop a vaccine for COVID-19, NVX-CoV2373. Prior to the class period in the new lawsuit, the company allegedly had said that it intended to seek Emergency Use Authorization (EUA) from the Food and Drug Administration (FDA) in the second quarter of 2021. However, in May 2021, news sources reported that due to regulatory issues the company was delaying its EUA application until June 2021 at the earliest. The same day as the news reports, the company confirmed that it was unlikely to seek the EUA until July 2021 at the earliest.
On August 5, 2021, in the company’s quarterly earnings release (here), the company reported, among other things, that it expected to file the EUA for NVX-CoV2373 in the fourth quarter of 2021.
Finally, on October 19, 2021, Politico published an article entitled “They Rushed the Process: Vaccine Maker’s Woes Hamper Global Inoculation Campaign.” Among other things, the Politico article reported that Novavax “faces significant hurdles in proving it can manufacture a shot that meets regulators’ quality standards” with respect to NVX-CoV2373. The article cited an anonymous source as stating that Novavax’s issues “are more concerning than previously understood” and that it could take until the end of 2022 to resolve its manufacturing issues and win regulatory authorizations.
According to the complaint, the company’s share price decline as each of these delays was disclosed, and that on the news in the Politico article, the company’s share price fell nearly another 15%.
On November 12, 2021, a plaintiff shareholder filed a securities class action lawsuit in the District of Maryland against the company and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s shares between March 2, 2021 and October 19, 2021.
The complaint alleges that the defendants made misleading statements or failed to disclose that: “(i) Novavax overstated its manufacturing capabilities and downplayed manufacturing issues that would impact its approval timeline for NVX-CoV2373; (ii) as a result, Novavax was unlikely to meet its anticipated EUA regulatory timelines for NVX-CoV2373; (iii) accordingly, the Company overstated the regulatory and commercial prospects for NVX-CoV2373; and (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.
By my count, the new lawsuit against Novavax is the 37th COVID-related securities class action lawsuit to be filed since the initial coronavirus outbreak in the U.S. in March 2020. The Novavax lawsuit is also the 13th COVID-related securities suit to be filed so far in 2021 — meaning that the bulk of the coronavirus-related securities suits were filed in 2020 and also suggesting that the pace of the coronavirus-related securities suit filings has slowed considerably in 2021 relative to 2020.
As I have noted in prior posts about the coronavirus-related securities litigation, the COVID-19 related securities suits tend to fall into one of three categories: suits against companies that experienced coronavirus related outbreaks in their facilities (cruise ship lines, private prison systems); companies that hoped to be able to profit from the panedemic (diagnostic testing firms, online learning companies); and companies whose finances or operations were disrupted by the pandemic (real estate development firms, hospital systems). The new lawsuit against Novavax clearly falls into the second category, as the company’s positive statements about its ability to develop its vaccine and to seek the EUA clearly were intended to reflect positively on the company’s future business prospects.
There have in fact been prior coronavirus-related securities lawsuits against other vaccine development firms. Indeed one of the first coronavirus-related securities suits to be filed, way back in March 2020, was against the vaccine development firm Inovio. The Inovia lawsuit is in fact one of the few coronavirus-related securities suits that has survived a motion to dismiss.
The arrival of the new Novovax lawsuit at this late date, as well as the specifics of the allegations raised in the complaint, suggest that we could continue to see COVID-related securities suits to be filed. The fact is that many companies are still reacting to and adjusting their business plans to the circumstances that the coronavirus has created. As circumstances change and evolve, earlier statements about the company’s business operations or finances may be subject to harsh hindsight scrutiny; in some cases, the contrast between the current circumstances and the earlier statements may form the basis of securities lawsuit complaints. I fully expect that we will continue to see these kinds of lawsuits filed as we head into 2022.