(CN) – A shareholder derivative action says Genocea BioSciences exaggerated the viability of a herpes drug while the company lacked sufficient finances to support the drug’s development.
Genocea develops vaccines and immunotherapies and is headquartered in Cambridge, Massachusetts. The complaint filed in Delaware Chancery Court accuses Genocea’s top executives of “causing significant harm to the company” with allegedly false statements about its genital herpes drug known as GEN-003.
According to the complaint, on Aug. 4, 2016, after previously touting positive results for the Phase 2 trials, Genocea announced that Phase 3 trials for GEN-003 were expected to start in the second half of 2017. On Nov. 4, 2016, Genocea filed documents with the Securities Exchange Commission stating that “the company expected to have sufficient resources to fund the expenses for the Phase 3 trial, without the need to pursue debt or equity financing.”
On May 5, 2017, the company filed a statement with the SEC disclosing that additional funding was needed to finance the Phase 3 trials, but that “the company had the ability to fund operations until at least 1 more year from the date of the quarterly report.” On Sept. 25, 2017, the company revealed that spending and activities on GEN-003 would end and that it was reducing its workforce by 40 percent.
The news caused Genocea’s share price to fall 76.5 percent to close at $1.25 per share on Sept. 26, 2017.
“Defendants either knew or should have known of the false and misleading statements that were issued on the company’s behalf and took no steps in a good faith effort to prevent or remedy that situation,” the lawsuit states.
Plaintiff Julie Howard seeks damages and an order compelling the firm to improve internal procedures and comply with governmental obligations to protect investors. Genocea is also facing a number of class action lawsuits in other jurisdictions over GEN-003.
Howard is represented by Ryan M. Ernst and Daniel P. Murray of O’Kelly Ernst & Joyce LLP in Wilmington, Del.