In the Bard’s timeless words, what’s past is prologue. And in that same vein, many of the last year’s most pronounced securities class action lawsuit filing trends are already showing signs of strong continuity in the early days of the New Year. As shown in my recent annual securities class action lawsuit filings analysis, by year-end, a record number of securities suits had been filed during 2016, with life sciences companies among the most frequent lawsuit targets. We are only just a few days into 2017, but these securities suit filings trends already appear to be continuing in the New Year, as so far this year both the continued strong filing pace and the heightened levels of securities suit activity involving life sciences companies are already appear to be well-established.
Though the New Year holiday shortened the year’s first work week, at least six new securities lawsuits were during the week. Of the six new securities suits filed last week, four involved companies in the life sciences sector, including three in the 2834 Standard Industrial Classification (SIC Code) category (pharmaceutical preparations).
First, in the year’s first securities class action lawsuit, on January 3, 2016, plaintiffs’ lawyers filed a securities class action lawsuit in the Central District of California against Endologix, Inc., and certain of its directors and officers. According to the plaintiffs’ attorneys’ January 3, 2016 press release (here), the complaint (a copy of which can be found here), alleges that the defendants:
made false and/or misleading statements and/or failed to disclose that: (1) Endologix did not have the requisite clinical data for FDA premarket approval of its Nellix® EndoVascular Aneurysm Sealing System; and (2) as a result, Endologix’s public statements were materially false and misleading at all relevant times. On November 16, 2016, Endologix announced that the FDA requested two-year follow-up data on patients enrolled in the EVAS-FORWARD-IDE study to assess Nellix. On this news, shares of Endologix fell $2.02 per share or over 20% to close at $7.82 per share on November 16, 2016, damaging investors.
Second, on January 6, 2016, plaintiffs’ lawyers filed a securities suit in the District of Massachusetts against Inotek Pharmaceuticals Corp. and certain of its directors and officers. According to the plaintiffs’ lawyers’ January 6, 2016 press release (here), the complaint (a copy of which can be found here) alleges that Inotek:
misrepresented the efficacy of its drug candidate trabodenoson—the only drug Inotek currently has in its clinical development pipeline—and its attendant capacity to receive New Drug Approval by the U.S. Food and Drug Administration. In particular, it is alleged that the Company made positive statements about the drug despite knowledge that the MATrX-1 phase 3 clinical trial of trabodenoson would fail to meet its primary endpoint of statistical relevance in the reduction of intraocular pressure compared with placebo.
On January 3, 2017, Inotek announced that the Phase 3 trial of trabodenoson had failed to achieve this primary endpoint. Following this news, shares of Inotek fell from a closing price of $6.10 on December 30, 2016, to a closing price of of $1.75 per share on January 3, 2017.
Third, on January 6, 2016, plaintiffs’ lawyers filed a securities class action lawsuit in the Southern District of New York against TG Therapeutics and certain of its directors and officers. According the plaintiffs’ lawyers’ January 6, 2016 press release (here), the complaint (a copy of which can be found here) alleges that the company:
misrepresented and/or omitted material information concerning its GENUINE Phase III clinical trial for its proprietary combination of drug therapies TG-1101 and TGR-1202. The Phase III trial consisted of two parts, Part I evaluating the effect of the addition of TG-1101 to ibrutinib on overall response rate (ORR) in approximately 200 patients, and Part II evaluating the effect of the addition of TG-1101 to ibrutinib on progression-free survival (PFS) in all study patients.
During the class period TGTX repeatedly assured investors as to the efficacy and potential FDA approval of the treatment, referring to it as a “best-in-class treatment.” Then on October 13, 2016, TGTX announced that it would abandon Part II of the study, thus annulling its filed Special Protocol Assessment with the FDA and cutting enrollment and increasing the likelihood that the FDA would not approve the combination treatment.
Finally, and also on January 6, 2016, plaintiffs’ lawyers filed an action in the District of New Jersey against Agile Therapeutics, Inc. and certain of its directors and officers. According to their January 6, 2016 press release (here), the plaintiffs’ complaint (here) alleges that the defendants:
failed to disclose: (1) that the Twirla contraceptive patch had an efficacy rating that fell below peer group standards; (2) that over half of patients in its “Secure” Phase 3 Study discontinued the study early; (3) that the Twirla patch therefore allegedly had a slight chance of FDA approval; and (4) that, as a result of the foregoing, Defendants’ statements about Agile’s business, operations, and prospects, were false and misleading and/or lacked a reasonable basis.
On January 3, 2017, Agile disclosed statistical information pertaining to its Phase 3 SECURE study analyzing the Company’s combined hormonal contraceptive patch Twirla. The study, which was initiated at the request of the FDA, comes after the FDA rejected Agile’s initial marketing application back in 2013. The Company cited “positive top-line results” in the study, yet reported an efficacy measure that failed to meet the standard set by other approved contraceptive patches. Additionally, 51.4% of subjects opted to discontinue the study.
On this news, Agile stock fell nearly 64% during intraday trading on January 4, 2017.
Endologix is in the 3841 SIC Code category (Surgical and Medical Instruments). Inotek Pharmaceuticals, TG Therapeutics, and Agile Therapeutics are all three in the 2834 SIC Code category (Pharmaceutical Preparations).
In my year-end analysis of 2016 securities class action lawsuits (here), I noted that one of the year’s most pronounced trends was the significant amount of securities suit filing activity involving companies in the life sciences sector – a trend that has in fact consistently been evident for the past several years. During 2016, securities suits filed against companies in the life sciences sector represented about 25% of all securities lawsuit filings during the year, a year in which securities suit filing overall were at record levels. With 2017 just barely underway, it seems likely that this securities suit filing pattern will continue into the New Year. Indeed, it already seems to be well established.
Another of 2016’s pronounced filing trends is also very much in evidence in the New Year’s early lawsuit filings. Readers will recall that in my analysis of last year’s filings, one significant factor I identified as an important feature of 2016’s elevated filings activity was the pronounced involvement of what has been called the “emerging law firms” (refer here for a discussion of this description and of the involvement of these law firms in securities lawsuit filings activity).
The early 2017 securities suit filing activity very much appears to be a reflection of the continuing activity of these law firms. The suits so far this year also show one of the attributes of these kinds of companies that makes them susceptible to securities suits, and that is the company’s vulnerability to regulatory setbacks, as well as the pronounced impact that bad news in the regulatory process has on the companies’ share prices.
The early signs are that securities suit activity in 2017 may well continue at last year’s elevated pace. It could be yet another active year for securities class action lawsuit filings. Strap on your helmets, it could be a rough ride.
A Day at Lloyd’s: I am very pleased to be able to report here that once again this year my good friend Perry Granof will be hosting a program designed to introduce D&O industry professionals to claims handling at Lloyd’s. This year’s program, entitled A Day at Lloyd’s III, will take place from Noon to 5 pm on February 7, 2017, the day before the PLUS D&O Symposium commences in New York. This American Bar Association-sponsored event will be held at the New York Law School, 185 W Broadway, in New York. The program features an illustrious group of panelists, beyond Perry himself, including my good friends Joe Monteleone, Lori Masters, and Damon Vocke, as well as many other well-known industry luminaries. Information about the program, including registration instructions, can be found here. I hope everyone will plan on attending.