Eastern District Of Pennsylvania Denies In Part COVID-19 Securities Class Action Motion To Dismiss

On February 16, 2021, Eastern District of Pennsylvania Judge Gerald J. Pappert issued a ruling in McDermind v. Inovio Pharmaceuticals, Inc., No. 20-01402 (Feb. 16, 2021) denying in part and granting in part the dismissal of a shareholder class action lawsuit against Inovio Pharmaceuticals, Inc. (“Inovio”) for violations of Section 10(b) of the Exchange Act of 1934. The Court found that the plaintiff adequately pled a claim for two of the three categories of alleged misstatements.

Plaintiffs alleged that Inovio made the following three sets of misleading statements throughout the class period: (1) on March 2, 2020, Defendant J. Joseph Kim (“Kim”) claimed that Inovio had “fully construct[ed] [its COVID-19] vaccine within three hours”; (2) on April 30, Inovio said it planned to produce one million doses of its COVID-19 vaccine by the end of 2020; and (3) on June 30, 2020, Inovio issued a press release stating its COVID-19 vaccine was “selected for” Operation Warp Speed. 
With respect to defendants’ alleged misstatements regarding Inovio fully constructing its COVID-19 vaccine in 3 hours, the Court found that determining whether the words “construct” and “design” are synonyms is a question of fact and is inappropriate to resolve on a motion to dismiss. Furthermore, the Court found that even if the terms weren’t synonymous, plaintiffs’ allegations were sufficient to satisfy the PSLRA’s heightened pleading standards, demonstrate scienter, and show loss causation.

With respect to defendants’ alleged misstatements regarding Inovio’s progress towards producing one million vaccine doses in 2020, the Court found that plaintiffs’ allegations were not forward-looking statements that were protected by the PSLRA safe harbor or speculative. The Court also found that plaintiffs had plausibly alleged that defendants mislead investors about Inovio’s progress towards producing one million doses by alleging defendants knew that the producers it contracted with did not have the capacity to manufacture the doses and from failing to disclose that one of the producers canceled its contract with Inovio. Furthermore, the Court found that plaintiffs met the PSLRA’s heightened pleading standards for scienter.

With respect to defendants’ alleged misstatements regarding Inovio’s COVID-19 vaccine’s inclusion in Operation Warp Speed, the Court found that plaintiffs failed to plead scienter and loss causation. The Court held that plaintiffs did not explain how or why a reasonable investor would have thought Inovio was receiving government funding and that even if the press release was misleading, defendants’ subsequent disclosure rendered it immaterial and not misleading.