PixarBio (OTC:PXRB) investors launched a securities class action suit against the Massachusetts-based biotech yesterday, alleging that the company lost its investors millions of dollars by issuing false statements about the prospects of a merger with InVivo Therapeutics (NSDQ:NVIV).
The case was brought on behalf of investors who purchased or acquired PixarBio stocks between October 31, 2016 through January 20, 2017. It claims that the defendants made false, misleading statements about the company’s current shareholders, the identity and qualifications of key shareholders and employees and the company’s development efforts.
The lawsuit, filed in the U.S. District Court for Massachusetts, said that because PixarBio CEO Frank Reynolds is also the company’s chairman, chief financial officer and chief scientific officer, he had the authority to control the content and form of PixarBio’s annual reports and press releases provided to the market.
“Because of his positions within the Company and his access to material non-public information available to him but not to the public, Reynolds knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations being made were false and misleading,” the suit said.
Among the press releases that the lawsuit cited is a lengthy, nearly 2,700-word press release that pointed towards a -41.7% slide in the price of NVIV shares since January last year to make the case for Reynolds’ proposed merger. In the release, Reynolds asserted that he is the rightful owner of the intellectual property behind InVivo’s technology.
“We all know that NVIV current CEO Mark Perin’s [sic] took his company before NVIV as CEO into bankruptcy, and Perin [sic] has had 3 years (maybe 2 years too long) that’s enough time to succeed with a Frank Reynolds’ Neuroscaffold technology so it’s time for change. The CEO of NVIV needs to be replaced to have a shot at commercializing NVIVs true value, the NeuroScaffold for treating acute spinal cord injury invented by Frank Reynolds,” Reynolds said in prepared remarks.” PixarBio’s 2017 Deal making is NOT done. The industry needs consolidation, so let’s get busy and make US Pharma great again [sic].”
Reynolds said the $77 million offer, which he later upped to $100 million, was discounted “because NVIV has failed to develop my patents, science and know-how. NVIV appears to have lost the historically significant [spinal cord injury] primate research data, and they are now back to my 2010 IPO share price, for the second time in 3.5 years but its 2017 [sic]. It is time I take back the technology I invented to bring my neurological R&D portfolio to market by acquiring NVIV and saving the NVIV shareholder from more years of down-rounds.”
InVivo responded to the offer, saying that PixarBio’s statement “contained a number of unfounded statements that do not warrant a response.”
“InVivo Therapeutics Corporation was not privy to the announcement made today and has not had any discussions with PixarBio Corporation nor any other party regarding this matter. Given that the nature of the offer is not credible, InVivo disclaims any obligation to make any additional public statements regarding this or similar proposed transactions from PixarBio,” the company said.
On Jan. 23, PixarBio said publicly that it would end its takeover bid for InVivo and instead focus on its NeuroRelease pain platform.
The SEC later suspended trading in shares of PixarBio due to possible “manipulative or deceptive activities” and due to questions about the accuracy of claims made by the company in press releases and SEC filings.
“On January 3, 2017, the Company reported an apparently false takeover bid for InVivo. On January 20, the SEC temporarily halted trading of PixarBio shares. From January 3, 2017 through January 20, 2017, when the SEC intervened, shares in PixarBio fell from $4.59 to $2.90 per share, nearly 37%. This decline is directly attributable to the Company’s false representations about its development and business combination prospects,” the lawsuit said.