In prior posts (most recently here), I have discussed the fact that life sciences companies remain a favored target of the plaintiffs’ securities bar. A June 2008 memorandum by Michael Kichline and David Kotler of the Dechert law firm entitled “Dechert Survey of Securities Fraud Class Actions Brought Against Life Sciences Companies”  (here) takes a closer look at the 2007 life sciences securities lawsuits and concludes that “life sciences companies remain firmly in the crosshairs of the plaintiffs’ securities bar.”


The authors note that the 25 securities class action lawsuits filed in 2007 against life sciences companies represents a 64% increase over the 16 filed the preceding year, and also represents 14% of the 175 total securities lawsuits filed in 2007. (My own numerical analysis of the 2007 life sciences lawsuits, which can be found here, differs slightly, but only in the details, not the direction, and the difference undoubtedly is due to the narrow definition of “life sciences” I used in my analysis.)


The authors also have a number of interesting observations about the 2007 life sciences lawsuits, including the fact that “life sciences companies with the greatest market capital — more than $10 billion – were sued at the same rate as companies with less than $250 million.”


The authors also note that the securities lawsuit allegations against life sciences companies “continue to span the product life cycle” and that many of the companies sued 2007 were sued “based on information they communicated, or failed to communicate, to the public about a drug’s efficacy, safety, and/or the results of the FDA approval process.”


One particularly interesting observation in the study is that “research personnel were frequently named as defendants,” and specifically that in five cases, the plaintiffs alleged that because “key research personnel had a high level position with the company and access to internal information, they both knew and failed to disclose the alleged adverse non-public information.”


The authors predict that life sciences companies will continue to be the targets of securities fraud lawsuits, noting that “the structural factors that lead plaintiffs’ lawyers to target life sciences companies – volatile stock prices and a drug or device product life cycle fraught with potential for adverse and unpredictable events, such as a negative clinical trial result of FDA decisions – remain challenging, especially in the current stock market and regulatory environment.” The authors predict that plaintiffs’ counsel will continue to strive to find new theories. The authors cite as an example the likelihood that “more securities lawsuits will be premised on off-label communication or sales.”


The survey, which concludes with practical risk minimization suggestions, is quite good and merits reading at length and in full.


While I concur in all of the authors’ views, I think that in order to fully appreciate life sciences companies’ securities litigation exposure, it is important to consider not only the lawsuit filings, but also the case dispositions. Life sciences companies may be frequent lawsuit targets, but that does not mean that all or even most of the lawsuits are meritorious.


As I have noted in prior posts (most recently here), many of the securities lawsuits filed against life sciences companies are dismissed. Indeed, many of the large life sciences companies that have been targeted in securities suits in recent months – including, for example, Guidant, Pfizer and Astra Zeneca – have successfully managed to get the cases dismissed. And it is not just the larger companies that have prevailed; smaller companies, such as, for example, Micrus Endovascular (which recently prevailed on its motion to dismiss, about which refer here), have also prevailed on their dismissal motions.


To be sure, there have also been many settlements of life sciences securities lawsuits, some of which have been quite significant. But overall life sciences securities lawsuits have not always been as productive for the plaintiffs’ lawyers as might be suggested by the sheer numbers of filings.


I do agree that the volatility of life sciences companies’ share price and the companies’ susceptibility to product-driven dislocations will continue to attract the unwanted attention of the plaintiffs’ lawyers. The good news for these companies is that they have potentially effective defenses available and they may be able to use these defenses to stave off the litigation assault. The risk protection steps suggested in the authors’ memorandum are particularly good starting points for preparing these defenses.


Special thanks to David Kotler of the Dechert firm for providing me with a copy of the life sciences securities litigation survey.