Facts

Vaxart, Inc. is a small clinical-stage biotechnology company in San Francisco, California, with only 14 employees that is primarily focused on the development of oral, tablet-based vaccines. It was founded in 2004 and has never brought a vaccine to market. Vaxart's common stock traded below $1 throughout most of 2019. By the end of September 2019, Armistice Capital, a New York-based hedge fund had accumulated a majority of Vaxart's common stock. Armistice directed the company to expand its board of directors to include Steven J. Boyd and Keith Maher, M.D. and issue Armistice warrants that would allow them to purchase 16.7 million shares of the common stock at $.30 per share. With the new owners and board members, the day after Christmas 2019, Vaxart's board voted to lay off its entire manufacturing division and informed the terminated employees that effective January 31, 2020, they would be fired. On January 2, 2020, Vaxart announced that the company would increase its focus on its vaccine research and development efforts, in particular for norovirus and influenza. By late January 2020, the first cases of COVID-19 outside of China were reported and on January 30, 2020, the World Health Organization (WHO) declared the outbreak a "Public Health Emergency of International Concern." The next day, Vaxart announced that it had begun working to develop a coronavirus vaccine candidate based on its proprietary oral vaccine platform. The company raised $10 million in a registered direct offering price at-the-market of 4 million shares at $2.50 per share including warrants to purchase up to 2 million at same price. Vaxart's stock price spiked, closing at $1.25 per share. On April 29, 2020, the New York Times and Bloomberg reported that the federal government had created Operation Warp Speed (OWS) to provide billions of dollars in funding to a select few pharmaceutical companies to speed the development and manufacture of multiple COVID-19 vaccines. The government kept the particulars of the program out of the public eye and would not confirm who the select few pharmaceutical companies were. Through June 3, 2020, Armistice dumped 18,200,000 shares of Vaxart common stock, totaling $53 million in profit. However, on June 8, 2020, Vaxart changed the terms of its warrant agreements with Armistice Capital by entirely removing the 60-day notice period and increasing the beneficial ownership limitation to 19.99%. The company also issued between 65,000 and 900,000 spring-loaded options to purchase Vaxart common stock and gave Vaxart's senior executives the right to buy shares of the company at a set price, known as a "strike price," ranging between $1.70 and $2.46 per share. On June 25, 2020, Vaxart announced that it had partnered with Attwill Medical Solutions Sterilflow, LP to manufacture a billion or more doses per year of their COVID-19 vaccine for worldwide usage. The next day, Vaxart issued an announcement with the headline "Vaxart's COVID-19 Vaccine Selected for the U.S. Government's Operation Warp Speed." The stock price for the company closed that day at $8.04, a 28% increase and a 152% increase over two days. On June 26th and June 29th, Armistice dumped over 27.6 million shares at an average price of $9.67 per share, raking in over $267 million. On July 25, 2020, the New York Times released an article entitled "Corporate Insiders Pocket $1 Billion in Rush for Coronavirus Vaccine," which focused on Vaxart and its statements in the press release. On Monday, July 27, 2020, Vaxart's common stock tumbled by 9% against Friday's closing price. In July 2020, the U.S Attorney's Office for the Northern District of California served a grand jury subpoena on Vaxart seeking information pertaining to their participation and disclosure of an OWS-funded non-human primate study of the company's oral COVID-19 vaccine. On August 24, 2020, Kurt Himmelberg, who had purchased Vaxart common stock between June 25 and August 19, 2020, filed a putative class action complaint against Vaxart, the first of many. On January 29, 2021, Wei Huang, Langdon Elliot, and Ani Hovhannisyan, who had also purchased Vaxart common stock during the relevant period, brought a consolidated federal securities class action against Vaxart and its current and former executive officers, including Andrei Floroiu, Wouter W. Latour, Todd Davis, Michael Finney, Sean Tucker, and Robert Yedid. The class included all persons or entities who purchased or otherwise acquired Vaxart common stock between June 25, 2020, and August 19, 2020, and were damaged thereby. The parties engaged over Zoom with an experienced mediator, the Honorable Layn Phillips of Phillips ADR. As of January 29, 2021, the Armistice directors who controlled Vaxart throughout had resigned from the company.

PLAINTIFFS' CONTENTIONS: Plaintiffs contended that defendants engaged in a brazen scheme orchestrated by the officers and directors of Vaxart and Armistice to take advantage of a global rush to develop a workable vaccine for COVID-19. In particular, plaintiffs alleged that defendants knew that the company was not one of the seven or eight pharmaceutical companies selected for participation and funding by OWS and selectively revealed that the company was qualified for participation in a non-human primate challenge study under the OWS umbrella in order to artificially increase the stock price and receive approximately $300 million from insider trading. Plaintiffs maintained that defendants knew or recklessly disregarded that the public documents and statements issued in the name of the company were materially misleading and false and knowingly and substantially participated or acquiesced in the issuance or dissemination of the statements by virtue of their association with and control over the company. Additionally, plaintiffs contended that the Armistice defendants obtained from Vaxart's Board of Directors extremely lucrative abatements from the restrictions to their existing Vaxart warrants that they could sell after the value of Vaxart stock skyrockets from the materially false statements in exchange for non-Armistice defendants receiving a significant number of Vaxart shares from June 8 until June 15, 2020 with strike prices from $1.70 to $2.46 per share, thus fraudulently benefitting both parties. Finally, plaintiffs alleged that they relied on the materially false and misleading statements in purchasing and acquiring shares of Vaxart common stock artificially inflated by defendants' wrongful scheme and they would not have purchased or acquired the stocks at the inflated prices had they known of the true value of the common stocks.

DEFENDANTS' CONTENTIONS: Defendants denied all contentions.

Result

Defendants agreed to pay $12,015,000 to settle the claims.