A proposed class action alleges Co-Diagnostics, Inc. and its board of directors misled the public as to the efficacy of the company’s COVID-19 diagnostic tests, causing investors to lose millions when the FDA contradicted the company’s “100% accuracy” claim.
The 23-page lawsuit out of Utah alleges that as the coronavirus outbreak began to spread across the globe, DNA-based testing company Co-Diagnostics seized on the opportunity “to use its technology and expertise to earn money” by developing COVID-19 diagnostic tests. According to the suit, the company’s patented CoPrimer technology was so effective that its COVID-19 test kits were the first in the world to obtain regulatory approval to be sold in Europe.
On April 6, 2020, the suit says, Co-Diagnostics received emergency approval from the U.S. Food and Drug Administration (FDA) for its test kits to be used by certified clinical laboratories nationwide. Around this time, the company’s stock price steadily rose from its less-than-$1-per-share position at the end of 2019.
After receiving the regulatory certifications, Co-Diagnostics went on to obtain “lucrative contracts” to sell its COVID-19 test kits to several states, including Utah and Iowa, and at least 50 foreign countries, allowing the company to rake in millions of dollars, according to the complaint.
On April 30, however, the Salt Lake Tribune published an article, titled “‘This is a Potential Public Health Disaster’: COVID-19 results from TestUtah.com are raising questions,” in which it questioned the company’s claim that its tests were “between 99.52% and 100% accurate.”
To diffuse public and investor concerns, Co-Diagnostics issued on May 1 a press release in which the company “unequivocally stated” that its COVID-19 tests were 100 percent accurate based on data gathered from across the globe. The lawsuit adds that while in most situations, 99.5-percent and 100-percent accuracy are “functionally equivalent,” the difference between the markers in the diagnostic testing of diseases with a low population saturation can “dramatically affect” whether the test is valuable to public health officials:
“For example, in Utah Covid-19 testing has fairly consistently resulted in only 5% of apparently-symptomatic test subjects testing positive for Covid-19. In other words, for every 1,000 tests, only about 50 people test positive. However, even if Co-Diagnostics tests were 99.5% accurate . . . one in ten people who tested positive would not have the disease. At only slightly lower accuracy rates, the test becomes essentially worthless for public health testing and tracing.”
The case alleges that even though the April 30 Tribune article suggested that Co-Diagnostics tests were only accurately reporting half of the state’s COVID-19 infections—which the suit notes is “infinitely worse” than company’s 100-percent accuracy claim—the market accepted the defendants’ reassurances, boosting Co-Diagnostics’ stock price throughout May to reach an all-time high of $29.72 on May 14.
Around that time, however, Co-Diagnostics’ 100-percent accuracy claim became “unsustainable,” according to the lawsuit, noting that on May 14, the Salt Lake Tribune reported that TestUtah.com, which used Co-Diagnostics’ tests, had refused to participate in a statewide experiment with other labs to confirm testing quality.
Moreover, the Tribune report revealed that the defendants’ tests required a higher “limit of detection”—i.e. the amount of virus required to trigger a positive result—than most other approved COVID-19 tests, which indicated a lower rate of accuracy. As the complaint tells it, Co-Diagnostics’ tests were far less trustworthy than the company let on:
“This meant that Co-Diagnostics tests were likely to have a much higher false negative reporting rate, meaning that potentially thousands of infected people were inaccurately told that they did not have the disease, an observation that was consistent with earlier concerns about TestUtah’s lower rate of positive test results.”
Also on May 14, the suit says, Iowa Governor Kim Reynolds issued a public statement indicating that the Test Iowa validation process, which used Co-Diagnostics’ tests, reported 95-percent accuracy for positive results and 99.7-percent accuracy for negative results—figures that did not match with the defendants’ previous statements.
Upon this news, Co-Diagnostics’ stock price fell by more than 38 percent “within hours,” the case alleges. Nevertheless, the company did not address the testing accuracy allegations nor revise its accuracy claims in its first-quarter 2020 financial report or during an investor call scheduled for the evening of May 14, the lawsuit says.
That same day, the FDA, in connection with an investigation into another company’s COVID-19 test accuracy, announced to the public that “No diagnostic test will be 100% accurate,” the lawsuit says, driving the defendant’s stock price down to just over $15 per share when markets opened on May 15.
The lawsuit alleges that Co-Diagnostics knew that even highly accurate tests were not as valuable as a 100-percent accurate test and that advertising such a “miracle test” would “significantly distinguish” the company from its larger, more reputable competitors. According to the suit, the defendants intentionally issued false statements to the public to artificially inflate their stock price while the company’s directors and officers, amid “a cloud of doubt” over Co-Diagnostics’ accuracy claim, “exercised low priced options and dumped their stock into the market.”
The case argues that the defendants’ fraudulent statements “and disregard for the basic scientific principles that make their falsity of their statements clear in retrospect” cost investors millions of dollars.
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.