As I noted in my recent analysis of the 2019 securities class action litigation filings, one of the significant factors driving the near-historical levels of securities suit filings during the year was the elevated levels of securities litigation against life sciences companies. A January 21, 2020 report from the Dechert law firm, entitled “Dechert Survey: Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies: 2019 Edition” (here), details the 2019 securities lawsuit filings against life sciences companies, and reports that once again life sciences companies were “popular targets” for securities litigation claims.
According to the Dechert survey report, plaintiff shareholders filed a total of 97 securities class action lawsuits against life sciences companies. The 97 filings in 2019 represents a 12.8% increase over 2018, and a 148.7% increase from five years prior. Given the year-end 2019 total of 404 securities suit filings overall, the filings against life sciences companies represent about one out of every four securities suit filings during the year (24%). By contrast in 2018, life sciences securities suit filings represented about 21.3% of all securities suit filings. Slightly more life sciences lawsuits were filed in the second half of the year (51) than in the year’s first half (46).
The report notes that a number of the life sciences lawsuits filed during 2019 involved non-U.S. companies. (Significantly, the report included within the life sciences filings the several lawsuits filed during the year against cannabis companies.) 22 lawsuits were filed against non-U.S. life sciences companies during 2019. The companies hit with these suits represented eight countries. Nine of these suits involved Canadian companies, and four are based in Ireland. 9.3% of the 2019 life sciences lawsuit filings were against cannabis companies, most of which are based in Canada.
The survey reports authors noted several trends among the 2019 filings. First, with respect to the size of the life sciences companies sued during the year, the report notes the following. About 51% of the life sciences companies named as defendants has market capitalizations over $500 million. About 39% had market capitalizations over $1 billion. Of the suits against companies with market caps of $1 billion or greater, about half had market capitalizations of $5 billion or more (representing about one-fifth of all life sciences securities suit filings during the year). By the same token, 31 of the life sciences lawsuit filings were against companies with market capitalizations of under $250 million.
The life sciences securities suits were concentrated in three federal judicial circuits: the Second Circuit; the Third Circuit; and the Ninth Circuit. During 2019, the largest number of life sciences lawsuits were filed in the Third Circuit, and the federal district with the greatest number of life sciences lawsuits was the District of Delaware (where many merger-related lawsuits are filed). Lawsuits filed in the District of Delaware accounted for about 29.9% of all life sciences securities suit filings in 2019.
In a very interesting note, the authors report that approximately two-thirds of the 2019 life science securities suit filings were associated with just three law firms: RM Law; Ridgorsky & Long P.A. and Pomerantz LLC. The plaintiffs firm with the next most filings was The Rosen Law Firm. The increased involvement of the RM Law and Ridgorsky & Long law firms in life sciences litigation is attributable to the increase in merger litigation in Delaware, where those firms are particularly active. RM Law and Rigdorsky & Long together accounted for 26 complaints; the Pomerantz law firm accounted for 18 complaints; and The Rosen Law Firm accounted for 14 complaints.
Of the 97 securities suits filed against life sciences companies, about 46.4 percent involved proposed misrepresentations in connection with mergers, sales, IPOs, or other offerings. The report does not separately break out what percent or number of cases were merger objection lawsuits, nor does it break down what percentage or number of cases were “traditional” or “core” lawsuits. By lumping the IPO-related lawsuits into the same category as the merger lawsuits, the report also does not break out the percentage or number of cases that were IPO-related.
About 26.8% of the life sciences lawsuits related to underlying allegations of misconduct in the U.S. or abroad involving kickback schemes, anti-competitive conduct, tax issues, or inadequate internal controls in financial reporting.
About 17.5% of life sciences cases related to concerns involving product safety or efficacy, including cases arising out of alleged failures to report or disclose negative side effects. About 15.5% of cases related to alleged misrepresentations involving regulatory hurdles, including FDA approvals.
With respect to results for life sciences companies on motions to dismiss during the year, the report notes that the outcomes were mixed. There were 24 district court opinions that, according to the report, were favorable to the defendants, eight opinions in which the motion to dismiss was denied, and 14 opinions in which motions to dismiss were granted in part and denied in part. At the appellate level, four out of five opinions affirmed district court dismissals, but in the fifth case, the appellate court reversed a district court’s dismissal of a life sciences securities suit.
In its overall analysis of the 2019 life sciences securities suit filings, the report notes that the numbers “illustrate that life sciences companies remain attractive targets for class action securities fraud claims” and suggest that “companies should continue to stay abreast of recent developments and implement best practices to reduce their risk of being sued.” The report includes a separate section of suggested risk management steps that companies can take to try to reduce their litigation risks. The report concludes by saying that “given the numbers from this and recent years’ filings, there is no indication that the filings of securities claims against life sciences companies is going to slow down any time soon.”