lifesciencesLife sciences companies are among the most frequent targets of securities class action litigation as I noted in a recent post. However, according to a recent law firm report, life sciences company defendants fared well in securities litigation in 2015. The recently released report, written by the Sidley Austin law firm and entitled “Securities Class Actions in the Life Sciences Sector: 2015 Annual Survey,” can be found here. This comprehensive report reviews all of the district court and appellate court decisions in 2015 in securities class action lawsuits pending against life sciences companies, and also reviews the new securities suits that were filed in 2015 against life sciences companies. The report provides a broad overview of the important issues involved with securities class against litigation against life sciences companies.


The primary focus of the report is its analysis of a total of 34 court decisions entered in 2015 in securities cases involving life sciences companies. The decisions include rulings both by district courts and appellate courts. Of the 34 court decisions, 23 of the decisions related to pre-approval drugs or devices (inclusive of three cases related to stock promotion activities), and 11 of which relate to post-approval drugs or devices. Of the 11 involving post-approval drugs or devices, seven involved regulatory issues and four involved non-regulatory issues.


With 23 out of 34 decisions involving pre-approval drugs or devices, by far the largest number of decisions issued by federal courts in securities litigation against life sciences companies involved products at the developmental stage. The court decisions involving developmental stage companies “broke decisively for defendants” during 2015, with defendants winning dismissal or summary judgment in 17 of 23 cases.  Appellate decisions involving pre-approval drugs or devices were more evenly split during 2015, with two decisions in unpublished appellate opinions and one decision for plaintiffs in a published opinion


Several themes emerge from these rulings in the cases involving pre-approval drugs or devices.


First, in cases in which plaintiffs allege that the defendants had hidden the risk that a drug would not be approved or that a trial would not success, the courts have “proven willing to look closely at the larger record of a company’s public statements,” and “quite often have concluded that the supposedly hidden risks were in fact revealed.”


Second, the courts have proven more willing to recognize “that the regulatory process is one of give and take, and that companies have no obligation to report every comment, question or concern expressed by regulators during that process.” The rulings embodying this principle “should prove helpful to companies faulted for note disclosing interim communications with the FDA.”


Third, courts have recognized that a company’s public statements in this area often consist of opinion or deal with future occurrences that cannot be foreseen;  statements of opinion or prediction are rarely found to be false or misleading, let alone knowingly so.


However, it should be noted with respect to the cases involving developmental stage companies that “the law has not developed in a uniformly positive way.” A minority of courts have suggested that “once a company begins discussing an issue of concern in the approval process, the companies take on a duty to report all subsequent significant developments related to that issue.”


Companies were also more successful than not in cases involving companies with post-approval drugs or devices. In this area, companies prevailed in eight of 11 cases. Several courts have rejected investors’ attempts to turn cases of regulatory non-compliance – involving, for example, off-label marketing or improper billing – into cases of securities fraud.


Courts continue to show “fairly nuanced understanding of the regulatory context in which life sciences companies operate.” Where courts apply that understanding, “they generally arrive at the conclusion that the regulatory setback a company has suffered does not amount to a fraud to company’s investors.”  However, courts have been willing to follow plaintiffs and to make the leap from regulatory non-compliance to fraud where plaintiffs can anchor their theory of fraud on a company’s legal compliance statements.


In addition to the court rulings in previously pending cases, there were also 39 new securities class action lawsuits filed against life sciences companies in 2015. Of these 39 new lawsuits, 24 were filed against companies with developmental stage drugs or devices. Four actions involved arise from regulatory issues involving companies with mature products. The remaining eleven actions involve issues not specific to life sciences companies (such as, for example , missed guidance or financial statement issues). Sixteen of the cases were filed in district courts in the Ninth Circuit, six in the First circuit, five in the third circuit, and four in the second circuit, with the remainder spread among the other circuits.


The heighted securities class action litigation frequency against life sciences companies has important D&O insurance implications, as I discussed in a prior post, here.