RiskOctober 18, 2019

ElectroCore Faces Class Action Headache

Complaint alleges firm misled investors over migraine medicine.

Reported by Michael Katz

A class-action lawsuit has been filed against bioelectronic medicine company electroCore, Inc. and some of its officers and directors, alleging they violated federal securities laws by providing false and misleading information to investors about its lead product in the run-up to the company’s IPO. The lawsuit is intended to cover investors who purchased electroCore stock between June 22, 2018 and Sept. 25, 2019.

ElectroCore focuses on non-invasive vagus nerve stimulation therapy, and its lead product gammaCore is used for the acute treatment of pain associated with migraine and episodic cluster headache in adults. However, according to the complaint, the company and it’s its leadership team failed to disclose to investors that gammaCore did not have any advantages over other acute treatments for migraines and episodic cluster headaches.

“The company lacked sufficient clinical data demonstrating that gammaCore was effective and safe for migraine prevention,” said the complaint. “As a result, doctors and patients were unlikely to adopt gammaCore over existing treatments.”

In late June of 2018, electroCore held its IPO and sold just under 6 million shares of common stock at $15.00 per share, and received proceeds of approximately $79.5 million, according to court documents. The firm said the proceeds from the IPO were to be used to commercialize gammaCore products, expand its clinical program into additional indications in headache and rheumatology, and build its specialty distribution channel for the anticipated launch of gammaCore Sapphire.

But in May of this year, the company announced first quarter 2019 financial results that missed expectations, reporting $410,000 net sales and an operating loss of $14.2 million. As a result of the disappointing results, electroCore’s shares fell $1.58, or nearly 30%, to close at $3.75 on May 15.

Adding to the company’s woes, it reported last month that the US Food and Drug Administration requested more information and analysis of clinical data for electroCore’s 510(k) submission, which was seeking an expanded indication for the use of gammaCore. As a result of the news, the company’s share price fell more than 23%, to close at $2.57 per share on Sept. 25.

According to the complaint, by the time lawsuit against electroCore stock was filed, its stock was trading as low as $1.25 per share, a nearly 92% drop from the $15 per share IPO price.

The plaintiffs argue that the company’s IPO registration statement was false and misleading and omitted material adverse facts.

“The company lacked sufficient resources to successfully commercialize gammaCore, and its business plan and strategy was not sustainable because electroCore lacked sufficient revenue to be profitable,” said the complaint. “As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, the plaintiff and other class members have suffered significant losses and damages.”