In re Vaxart, Inc. S’holder Litig., Consol. C.A. No. 2020-0767-PAF (Del. Ch. June 3, 2022)

A small biotechnology company issued a press release that connected the company to the federal government’s Operation Warp Speed program and its efforts to develop a COVID-19 vaccine. The body of the press release provided more clarity than the headline—namely, that the company had been selected to participate in a primate research study, not selected as a final recipient of funds for vaccine development. Stockholders filed suit, alleging that the company’s selection was material information that should have been disclosed in advance of the stockholders’ vote on an amendment to the company’s equity incentive plan that enabled officers to issue themselves spring-loaded stock options prior to the press release. The defendants moved to dismiss.

The Court held that the complaint failed to allege facts supporting a reasonable inference that the company’s selection for a non-human research study was material information to stockholders voting on the plan amendment. The plaintiffs’ allegations were conclusory and did not support a pleadings-stage inference that the selection was a watershed moment for the company that would cause the company’s stock price to increase dramatically. Therefore, the directors did not have a duty to supplement the company’s proxy prior to the vote. The Court also rejected plaintiffs’ standalone unjust enrichment claim for directors’ votes on compensation. The Court first concluded that plaintiffs had failed to make a demand on the company’s board to institute litigation against the director defendants. The various compensation decisions did not constitute one global transaction, and the Court’s decision-by-decision and director-by-director analyses indicated that in all instances a majority of the company’s board did not receive a benefit from each compensation decision. Thus, plaintiffs had failed to plead demand futility. The Court further concluded that because the company’s selection was not material information, plaintiffs had failed to state a claim for unjust enrichment.