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Law360 (June 19, 2020, 5:25 PM EDT ) Chembio Diagnostics Inc., a point-of-care diagnostics company that saw its stock price explode in the early stages of the coronavirus pandemic, was sued Thursday after authorization for its COVID-19 antibody test was revoked by the U.S. Food and Drug Administration.
Investor Sergey Chernysh filed suit in New York federal court after watching Chembio's share price drop more than 60% on June 17, the day after the FDA announced it had revoked the company's so-called emergency use authorization for its COVID-19 antibody test, which had been among the first tests to receive such authorization as the virus spread through the U.S.
The proposed securities class action claims Chembio and its top brass misrepresented the test as providing high sensitivity and specificity, as well as being "100% accurate," only for the FDA to later question the test's accuracy and declare "it is not reasonable to believe that the test may be effective."
"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," the suit alleges. "Defendants achieved this by making false statements about Chembio's DPP COVID-19 test, while they knew or at least recklessly disregarded that there were material performance concerns with its DPP COVID-19."
Chembio's stock hung around $4 per share in the early months of 2020 before exploding at the end of March. After the market closed on the last day of the month, Chembio announced it was launching a COVID-19 antibody test that could detect antibodies within 15 minutes of a finger prick. The company's share price rose approximately 40% the next day and continued to climb to a high of $15.54 on April 24, the suit noted.
The continued climb was hastened by the company's announcement on April 15 that it had received emergency use authorization from the FDA for its antibody test. Then on a May 4 conference call with investors, a Chembio executive stated that "accuracy of the DPP COVID-19 systems after 11 days post the onset of symptoms is 100% for total antibodies," based on data reviewed by the FDA, the suit alleges.
Chernysh claims Chembio executives took advantage of the company's allegedly inflated stock price and closed a public offering of 2.6 million shares on May 11 at an offer price of $11.75, netting approximately $30.8 million.
Then on June 16, the FDA announced it had revoked Chembio's emergency use authorization "due to performance concerns with the accuracy of the test."
"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. "Moreover, the risk to public health from the false test results makes [authorization] revocation appropriate to protect the public health or safety."
Chembio shares declined from a closing price of $9.93 that day to close at $3.89 per share on June 17, the complaint noted.
Chernysh is hoping to hold Chembio and its executives liable for the dramatic drops in the company's share price, which he alleges was inflated due to a series of misrepresentations about the COVID-19 antibody test's accuracy and efficacy. The proposed class includes all investors who purchased Chembio stock between April 1 and June 16.
"The decline in Chembio's stock price at the end of the class period was a direct result of the nature and extent of defendants' fraud finally being revealed to investors and the market," the investor claims.
A representative for the company did not immediately respond to a request for comment Friday.
The investor is represented by Jeffrey P. Campisi and Jason A. Uris of Kaplan Fox & Kilsheimer LLP.
Counsel information for the company was not immediately available.
The case is Chernysh v. Chembio Diagnostics Inc. et al., case number 2:20-cv-02706, in the U.S. District Court for the Eastern District of New York.
--Editing by Daniel King.
For a reprint of this article, please contact reprints@law360.com.
