Chembio Diagnostics faces a proposed class action that alleges stockholders were harmed financially after the FDA revoked emergency use authorization for the company’s COVID-19 antibody test.
Filed in New York’s Eastern District, the 20-page lawsuit says Chembio, a player in the point-of-care infectious-disease diagnostics industry, claims its patented Dual Path Platform (DPP) technology, which utilizes a drop of blood from the fingertip, can produce “high-quality, cost-effective” results in roughly 15 minutes. Amid the coronavirus crisis, the company pivoted to developing and commercializing an antibody test, which went on to be one of the first whose use was authorized by the U.S. Food and Drug Administration (FDA) during the unprecedented public health emergency, per the complaint.
Between April 1 and June 16, 2020, Chembio and its top officers represented that its DPP point-of-care antibody test for the detection of IgM and IgG antibodies was 100-percent accurate and provided both high sensitivity (the ability to correctly identify those with COVID-19) and specificity (the ability of the test to correctly identify those without the disease), the complaint says.
Given the defendants’ rosy representations, Chembio stock soared from $5.12 per share on March 31 to $15.54 per share on April 24, according to the lawsuit. On May 11, Chembio, taking advantage of its inflated stock price, reported that it closed its public offering of approximately 2.6 million shares at $11.75 per share, with gross proceeds pushing beyond $30 million, the case says.
After the market closed on June 16, however, the FDA issued a press release in which it announced it had revoked emergency use authorization for Chembio’s DPP antibody test, citing “performance concerns with the accuracy of the test,” the lawsuit relays. According to the FDA, data submitted by Chembio and gathered through an independent evaluation of the company’s test showed it “generates a higher than expected rate of false results and higher than that reflected in the authorized labeling for the device.”
“Under the current circumstances of the public health emergency, it is not reasonable to believe that the test may be effective in detecting antibodies against SARS-CoV-2 or that the known and potential benefits of the test outweigh the known and potential risks of the test, including the high rate of false results,” the FDA said.
The following day, the case says, Chembio disclosed to the Securities and Exchange Commission (SEC) that the FDA had pulled emergency use authorization for the DPP antibody test over performance concerns, noting that the company could no longer distribute the test but intended to work with the agency to modify the testing system.
Upon the disclosure of the FDA’s letter, Chembio shares dropped more than 60 percent on heavier than usual trading volume, from a closing price of $9.93 on June 16 to $3.89 per share on June 17, the lawsuit says. The plaintiff alleges the steep stock decline was “a direct result of the nature and extent of Defendants’ fraud” being revealed to investors and the market.
According to the suit, the defendants “engaged in a scheme to deceive the market and a course of conduct that artificially inflated Chembio stock price and operated as a fraud or deceit on Class Period purchasers of Chembio stock by misrepresenting the efficacy of the Company’s DPP COVID-19 test.” Chembio and its executives “achieved this by making false statements about [the company’s] DPP COVID-19 test” while aware of or at least having recklessly disregarded the “material performance concerns” of the test.
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.