By: Kaitlyn Sibley

On December 1, 2021, the Delaware Court of Chancery dismissed the majority of claims against the small vaccine development firm, Vaxart, Inc.[1], and its shareholder, the hedge fund, Armistice Capital LLC.[2]

Vaxart’s shareholders filed the derivative suit alleging that Vaxart’s board of directors and Armistice profited from nonpublic information regarding their efforts to develop a COVID-19 vaccine in the wake of the pandemic.[3] Plaintiffs’ claims were alleged chronologically as the timeline of the actions and events were significant.

In 2019, Vaxart’s board amended its compensation plan to increase the number of eligible shares for key officers.[4] In May 2020, the board approved a warrant agreement allowing Armistice Capital to become a majority shareholder with the ability to dispose of shares quicker than ever before.[5] This agreement seemed odd to Vaxart’s shareholders as Armistice Capital had been selling off its shares up until that point.[6] A few weeks later, in June 2020, Vaxart publicly announced that its COVID-19 vaccine candidate had been selected to participate in Operation Warp Speed as part of the federal government’s initiative to accelerate the development of the COVID-19 vaccine.[7] As expected, Vaxart’s stock price rose significantly after this announcement.[8] Subsequently, this rise allowed Armistice Capital to sell its shares for nearly $170 million in profit.[9]

After the rise of the stock price, Vaxart’s minority shareholders began to raise suspicions. These shareholders alleged that the board knew of their Operation Warp Speed selection before the public announcement. As a result of this information, Vaxart allowed Armistice Capital to become a majority shareholder and increased the compensation plan as a result of this information.[10] Plaintiffs’ claims included breach of fiduciary duty, unjust enrichment, and aiding and abetting. Essentially, the plaintiffs alleged Vaxart withheld disclosure to benefit themselves and Armistice Capital.[11]

Although these suspicions sound valid on their face, the Delaware Chancery Court rejected three out of five counts in the suit and rejected all claims against Armistice Capital.[12] The Court applied Delaware’s famous (or infamous) business judgment rule.[13] The Court reasoned that Armistice Capital’s voting power in Vaxart was less than ten percent at the time of the public announcement and that it was not a majority shareholder.[14] Armistice Capital claimed there was no evidence proving that it had pressured the board members into approving the warranty, which allowed them to buy the additional shares.[15] The Court further reasoned that no conflict of interest or bad faith was present with Armistice Capital or the increased compensation plan as it hardly increased the company’s capital as compared to their yearly earnings.[16] Significantly, Vaxart claimed that the compensation plan was a part of the routine decisions made by the board, and the decision was made in March and April—before the federal government even formed Operation Warp Speed.[17] Finally, the Court disregarded plaintiffs’ argument that Vaxart could have raised capital “in better ways,” as this argument is barred by the business judgment rule, which discourages “second-guessing” litigation.[18] Vaxart claimed plaintiffs failed to show a sufficient bias or questionable decision-making on behalf of the board.[19]

Concluding, the two remaining claims have not yet been addressed by the Court and will be subject to further litigation.[20]


[1]  Vaxart, Inc. is a Delaware corporation based in California. The company specializes in orally administered vaccinations.

[2]  Armistice Capital, LLC is a hedge fund focused primarily on the health care sector. In re Vaxart, Inc. Stockholder Litig., No. 2020-0767-PAF, 2021 WL 5858696, at *67 (Del. Ch. Dec. 1, 2021).

[3]  See id. at *2-3.

[4]  See id. at *2.

[5]  See id. at *17.

[6]  See In re Vaxart, 2021 WL 5858696, at *9-10.

[7]  See id. at *26-31.

[8]  See id. at *31.

[9]  See id. at *33.

[10]  See In re Vaxart, 2021 WL 5858696, at *2-3.

[11]  See id. at *3.

[12]  See id. at *67.

[13]  See id. at *56-58.

[14]  See In re Vaxart, 2021 WL 5858696, at *43.

[15]  See id. at *44.

[16]  See id. at *63-65.

[17]  Operation Warp Speed was announced by former President Donald Trump on May 15, 2020. See, id. at *18-21.

[18]  See In re Vaxart, 2021 WL 5858696, at *45-46.

[19]  See id. at *46.

[20]  As of the time of the writing of this post – February 2022.