On Tuesday, California biotech Vaxart unveiled that it had dosed the first subject in a phase 1 study of its oral tablet COVID-19 vaccine candidate. But the good news was clouded with investigations and investor lawsuits around its disclosure of its involvement in Operation Warp Speed.
Vaxart was served with a grand jury subpoena from a U.S. court in California in July, the company said in a securities filing. The subpoena stemmed from an investigation by federal prosecutors, asking for documents related to Vaxart’s role in the Trump Administration’s COVID-19 vaccine acceleration program, Operation Warp Speed (OWS)—and its announcement about that participation—as well as option grants and other corporate matters going back to March.
Then, the U.S. Securities and Exchange Commission piled on in August, requesting documents on the same topics. Vaxart is cooperating with the U.S. Attorney’s Office and has provided documents to both agencies, the company said in Tuesday’s filing.
What exactly are the securities watchdog and federal prosecutors looking at? Clues can be found in several investor lawsuits against the company, its executives and board members.
Two very similar securities class actions were filed in the U.S. District Court for the Northern District of California in August and September. Plaintiffs in the cases, which were later combined to proceed as one, say Vaxart violated securities laws by disseminating misleading statements to create an impression that it was a major player in Operation Warp Speed, according to the complaints.
The event at the center of the lawsuit happened on June 26, when Vaxart, a then-little-known vaccine player, issued a press release titled “Vaxart’s COVID-19 Vaccine Selected for the U.S. Government’s Operation Warp Speed.” The release stated that Vaxart’s oral COVID candidate, now dubbed VXA-CoV2-1, was picked to participate in a non-human primate challenge study funded by OWS.
“We are very pleased to be one of the few companies selected by Operation Warp Speed, and that ours is the only oral vaccine being evaluated,” Vaxart CEO Andrei Floroiu said at the time.
Problem is, Vaxart’s involvement was not as important as the company made it sound. Compared with the likes of AstraZeneca and Moderna, which have reached major supply deals with the U.S. government, “Vaxart is not among the companies selected to receive significant financial support from Warp Speed to produce hundreds of millions of vaccine doses,” The New York Times reported in July. Instead, Vaxart was only participating in “preliminary U.S. government studies to determine potential areas for possible Operation Warp Speed partnership and support,” Michael Caputo, HHS’ assistant secretary for public affairs, was quoted as saying.
Things look even more suspicious in the context of how an institutional investor, a hedge fund called Armistice Capital, benefited big time from the announcement. Armistice had rights, known as warrants, to buy about 21 million shares of Vaxart for as little as 30 cents apiece. But on June 8, Vaxart suddenly amended the agreements, allowing Armistice to exercise the warrants immediately.
On June 25, Vaxart unveiled that it had signed a letter of intent with Attwill Medical Solutions Sterilflow to potentially produce a billion or more tablets of its COVID-19 vaccine annually, sending its stock price up to $6.26 from an opening of $3.61 that day. The Warp Speed announcement came the next day, shooting the stock up further to as high as $14.30 per share.
Armistice, which has two execs on Vaxart’s board—including its founder, Stephen Boyd—immediately sold all its warrants. It didn’t just stop there, either: In the following two trading days, “Armistice sold 27.6 million Vaxart shares, reducing its overall beneficial ownership in Vaxart from 29% to 0.2%, reaping profits of approximately $200 million,” one complaint said.
The lawsuits allege that Vaxart artificially inflated company stock by exaggerating the prospects of its COVID-19 contender, including its role in OWS, which benefited company insiders.
Separately, several lawsuits have been brought against Vaxart execs and board members, including Boyd and Floroiu, for breaching fiduciary duty and unjust enrichment tied to the OWS incident.
Vaxart’s media aides didn’t immediately respond to a request for comment.