- Company Name
- PolarityTE, Inc.
- Stock Symbol
- Class Period
- March 31, 2017 to June 22, 2018
- Motion Deadline
- August 26, 2018
- District of Utah
The complaint charges PolarityTE and certain of its officers and directors with violations of the Securities Exchange Act of 1934. PolarityTE is a commercial-stage biotechnology and regenerative biomaterials company focused on discovering, designing and developing a range of regenerative tissue products and biomaterials for the fields of medicine, biomedical engineering and material sciences.
On April 7, 2017, the Company announced the closing of a transaction pursuant to which Polarity NV became a wholly owned subsidiary of PolarityTE. Polarity NV was the owner of a novel regenerative medicine and tissue engineering platform developed by defendant Denver Lough (“Lough”), the Company’s CEO, Chief Scientific Officer and Chairman of the Board, under patent application 14/954,335, “Methods for Development and Use of Minimally Polarized Function Cell Micro-Aggregate Units in Tissue Applications Using LGR4, LGR5 and LGR6 Expressing Epithelial Stem Cells.” In connection with the transaction, the Company issued Lough 7,050 shares of Series E Convertible Preferred Stock convertible into 7,050,000 shares of the Company’s common stock, or 40.95% of the Company’s issued and outstanding shares.
The complaint alleges that during the Class Period, defendants made false and misleading statements and/or failed to disclose material adverse information regarding the Company's business and prospects, including information about the status of patent application 14/954,335 at the time it was acquired by the Company on April 7, 2017 and the months following, and the updated status of patent application 14/954,335 after its June 4, 2018 final rejection by the U.S. Patent & Trademark Office (“USPTO”). As a result of this adverse material information being concealed from the market, the price of PolarityTE common shares was artificially inflated during the Class Period to an intraday high of more than $40 per share.
Then on June 25, 2018, Citron Research issued a report detailing the Company's track record of material misrepresentations, misstatements and omissions pertaining to the status of patent application 14/954,335. The Citron report noted that as far back as March 31, 2017, the USPTO had notified the Company of its non-final rejection of patent application 14/954,335. The Citron report highlighted the Company's subsequent failure to disclose the patent's non-final rejection status and its continued representation of the technology linked to the patent in a positive light. The report also disclosed that the USPTO had issued a final rejection of the patent on June 4, 2018, which the Company also failed to disclose. On this news, the price of PolarityTE stock fell over 31% to close at $26.41 per share on June 26, 2018.