1. As I have previously noted, the elevated number of securities class action lawsuits against life sciences companies was an important factor in the increase of securities lawsuit filings in 2017. The significant volume of securities suits involving life sciences companies has been the subject of focused analysis, as discussed here. Now the Sidley Austin law firm has released its exhaustive review of the 2017 securities litigation against life sciences companies. Among other things, the report finds that while the numbers of securities suit filings against life sciences companies has increased in recent years, the companies are faring worse at the dismissal motion stage in the district courts relative to the most recent years. The report summary can be found here. The full report can be found here.


The 2017 Filings

According to the Sidley report, the volume of new securities lawsuit filings against life sciences companies has been increasing over the past three years, from 39 new complaints in 2015 to 50 new complaints in 2016, to 54 new securities class action complaints in 2017. The 2017 filings were weighted toward concerns involving drugs and devices at the pre-approval stage, with 34 filings against companies in the pre-approval stage, compared to 20 involving companies with approved products.


With respect to the 34 lawsuit filings against companies at the pre-approval stage, 10 of the new lawsuits involved companies with product candidates in Phase 1 or Phase 2 trials (or earlier); 16 involved companies with product candidates in Phases 3 trials; and eight new cases involved companies for which applications had been submitted but not approved.


Interestingly, of the 54 new complaints in 2017, seven involved companies that are developing or marketing opioids, both at the pre-approval and post-approval stage.


The 2017 securities lawsuit filings against life sciences companies were concentrated geographically. 46 of the 54 new securities lawsuits were filed in just four federal judicial circuits. Seven new cases were filed in the First Circuit (which includes Massachusetts); 14 were filed in the Second Circuit (which includes New York); 15 were filed in the Third Circuit (which includes New Jersey); and ten new cases were filed in the Ninth Circuit (which includes California).


Life Sciences Companies in the Courts

In general, on motions to dismiss in securities lawsuits involving life sciences companies, the federal courts “scrutinize the motions carefully and hold plaintiffs to the demanding statutory pleading requirements.” In 2017, life sciences companies succeeded in winning dismissal in 50% of the cases in which they filed motions to dismiss.


While about half of the cases on which motions to dismiss were heard in 2017 were dismissed, companies fared significantly worse in 2017 than they did in the previous two years. In 2017, 50% of the dismissal motions in securities cases involving life sciences companies were granted (13 out of 26), whereas in 2015, 69% (18 out of 26) were granted, and in 2016, 76% (25 out of 33) were granted.


In 2017, the outcome of the dismissal motions seems to have been significantly affected by whether or not the case arose in the pre-approval or post-approval context. 63% of the pre-approval cases were dismissed but only 30% of the post-approval cases were dismissed. Significantly, several of the post-approval cases in which the motions to dismiss were denied involved the recent high-profile scandals involving price-gouging and the opioid crisis.


Interestingly, the report notes that while the number of new lawsuits has been increasing in recent years, the number of reported dismissal motion decisions has not kept pace. The number of reported decisions fell from 41 in 2016 to 35 in 2017, “suggesting that the cases are moving through the courts quite slowly.”


One factor that may suggest the better dismissal rate for post-approval companies is that companies are “adept at identifying and communicating about risks in the pre-approval context.” Identifying and meaningfully disclosing risks in the post-approval context “may be more challenging,” particularly were those risks relate to catastrophic regulatory or legal setbacks, such as recalls, high-stakes government investigations, and indictments.


While life sciences’ companies’ success rate at the district court level declined in 2017 relative to recent years, the companies have fared better at the appellate level. In 2017, the appellate courts affirmed dismissal in four of five pre-approval cases and in three of the four post-approval cases. Overall, the companies prevailed in seven of the nine cases in the appellate courts.


The extensive full report contains a detailed analysis of the new complaints filed in 2017 as well as of the number district court and appellate court decisions during the year involving life sciences companies. The report is exhaustive and well worth reading at length and in full. In the summary, the authors reduce their analysis to a short list of  “takeaways” from their exhaustive analysis.


The list of takeaways includes the following: (1) that courts generally reject cases in which the plaintiffs attack the science underlying the drug development programs or clinical trials – however, the 2017 cases included “some outliers” in that regard; (2) statements made in the course of ongoing trials present special risks; (3) courts are continuing to refine their analysis of the U.S. Supreme Court’s Omnicare opinion on securities law liability for statements of opinions — where courts focus on a company’s process in arriving at an opinion, companies have fared well.


The final take away, and one worth emphasizing, is that “regulatory violations do not equate to securities fraud,” although “the line between the two areas can be thin.” Courts recognize that even a high-stake government investigation does not mean the company has committed securities fraud. But while courts generally recognize the line between securities fraud and other unlawful conduct, “in practice the line can sometimes blur.” The line between the two may be particularly important as courts work through the new cases arising from the opioid crisis.


The Sidley law firm’s report and analysis is interesting and overall consistent with the analysis in prior analyses of the 2017 securities litigation involving life sciences companies, such as, for example, the report and analysis of the Dechert law firm, discussed here.


Readers interested in a separate very detailed and precise analysis of securities litigation involving small biopharma firms will want to refer here.