Sorrento Therapeutics COVID-19 Antibody Lawsuit

In the thick of the COVID-19 pandemic on May 15, 2020, Sorrento Therapeutics made headlines by announcing a promising antibody it had developed, which they claimed conferred immunity to the virus. This bold announcement caused Sorrento’s stock to surge from $2.62 to $9.00 per share. However, just a week later, after the company clarified that the antibody “might be” or “potentially” could be a cure, the stock price plummeted to $4.67, according to an article by Cahill Gordon & Reindel.

An investor, feeling misled, filed a class action complaint in district court, alleging that Sorrento’s statements were false or misleading. However, the court sided with Sorrento, granting their motion to dismiss. The court concluded that the investor failed to specify how the statements were false or misleading, categorizing them as non-actionable “corporate optimism” or “puffery.”

The court further noted that the statements were not misleading when viewed in the full context of the publications. Moreover, the plaintiff did not establish a strong inference that Sorrento intended to deceive, manipulate, or defraud (scienter).

The case was taken to the Ninth Circuit on appeal, where the plaintiff argued that Sorrento needed to raise funds to retire high-interest debt, implying a motive to deceive. However, the Circuit Court found these “generalized assertions of motive based on potential profit” insufficient. On March 25, 2024, the appellate court unanimously upheld the district court’s decision.

Cahill Gordon & Reindel suggests this case might prompt more defendants to use “puffery” defenses in securities fraud cases, especially involving breakthrough drugs still under testing. The decision emphasizes the courts’ responsibility to differentiate between genuine enthusiasm and falsehood by considering the full context of statements.