In what is the third coronavirus-related securities class action lawsuit filed so far in 2021, a plaintiff shareholder has filed a securities class action lawsuit against the U.K.-based biopharma firm AstraZeneca plc relating to the setbacks the company encountered late last year in connection with the company’s efforts to develop a COVID-19 vaccine. The complaint also relies heavily on the way that the company communicated to investors and the general public concerning anomalies in the vaccine’s interim clinical trial results. A copy of the January 26, 2021 complaint against the company can be found here.
AstraZeneca is a multinational biopharmaceutical company headquartered in the U.K. After the coronavirus outbreak became widespread in early 2020, AstraZeneca was one of several pharmaceutical companies to become involved in efforts to develop a COVID-19 vaccine. As part of its effort, the company partnered with Oxford University. In a series of press releases during 2020, the company detailed its efforts to develop the vaccine and described the company’s clinical trial program in support of its efforts. AstraZeneca’s vaccine candidate was known as AZD1222.
In a May 21, 2020 press release, the company announced that it had received substantial governmental commitments to develop its vaccine candidate and noted that the previous month the company had begun a Phase I/II clinical trial. Among other things, in its May 21 press release, the company said that if the early stage trial results were positive, it could “lead to late-stage trials in a number of countries,” although it also said that the company “recognizes that the vaccine may not work but is committed to progressing the clinical trial program with speed and scaling up manufacturing at risk.”
In a July 20, 2020 press release, the company said that the early stage trials had shown positive results – the tests showed that the vaccine “tolerated and generated robust immune responses against [COVID-19] in all evaluated participants.” In various subsequent press releases, the company provided further detail about its ongoing clinical trial efforts, reiterating that the company was committed to “the highest scientific and clinical standards, making the safety and efficacy of the vaccine of paramount importance.” On August 31, 2020, the company announced that it was expanding the U.S. clinical trials of its vaccine candidate to Phase III, and the company published several subsequent updates detailing its clinical trial efforts and reiterating the company’s commitment to safety and efficacy.
On November 23, 2020, AstraZeneca announced the results of an interim analysis of its ongoing trial for AZD1222. Though the press release claimed that the vaccine candidate had met its primary endpoints, the announcement, according to the subsequently filed securities class action lawsuit complaint, “immediate began to raise questions among analysts and industry experts.” Among other things, the results show that one of the clinical trials inexplicably provided patients with only a half dose of the vaccine, followed by a full dose. Confusingly, the company, according to the complaint, claimed that the half dosing regimen was “substantially more effective at preventing COVID-19 at 90% efficiency than the full dosing regimen, which had achieved just 62% efficiency.”
The complaint alleges that the “unexplained discrepancies, omissions and the need for multiple trials in separate locales raised red flags for investors and distinguished AstraZeneca’s trial procedures from those of other biopharmaceutical companies.” The company, the complaint alleges, “hastily put out statements defending its interim analysis and held conference calls with analysis covering the Company,” although the responses “raise more questions than answers and cast further doubt on the integrity of the trials’ design, data and conclusions.” The complaint alleges that the company’s share price declined 5% over three trading days by the end of trading on November 25 in response to the adverse news.
The complaint alleges that the company’s various communications leading up to the news of the mixed clinical trial results on November 23 were false and/or misleading because the communications failed to disclose that:
(a) that initial clinical trials for AZD1222 had suffered from a critical manufacturing error, resulting in a substantial number of trial participants receiving half the designated dosage;
(b) that clinical trials for AZD1222 consisted of a patchwork of disparate patient subgroups, each with subtly different treatments, undermining the validity and import of the conclusions that could be drawn from the clinical data across these disparate patient populations;
(c) that certain clinical trial participants for AZD1222 had not received a second dose at the beginning of the designated time points, but rather received the second dose up to several weeks after the dose had been scheduled to be delivered according to the original trial design;
(d) that AstraZeneca had failed to include a substantial number of patients over 55 years of age in its clinical trials for AZD1222, despite this patient population being particularly vulnerable to the effects of COVID-19 and thus a high priority target market for the drug;
(e) that Astra-Zeneca’s clinical trials for AZD1222 had been hamstrung by widespread flaws in design, errors in execution, and a failure to properly coordinate and communicate with regulatory authorities and the general public;
(f) that, as a result of (a)-(e) above, the clinical trials for AZD1222 had not been conducted in accordance with industry best practices and acceptable standards and the data and conclusions that could be derived from the clinical trials was of limited utility; and
(g) that as a result of (a)-(f) above, AZD1222 was unlikely to be approved for commercial use in the United States in the short term, one of the largest potential markets for the drug.
The plaintiff, Monroe County Employees’ Retirement System, an AstraZeneca shareholder, filed the complaint on January 26, 2021 in the Southern District of New York against the company and certain of its directors and officers purportedly on behalf of a class of investors who purchased AstraZeneca’s American Depositary Shares (ADSs) between May 21, 2020 and November 20, 2020. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
As I noted at the outset above, this new lawsuit is already the third coronavirus-related securities class action lawsuit to be filed so far in the New Year, and it is also the 26th overall coronavirus-related suit to be filed since March 2020. This lawsuit also arguably is one of the highest profile of these lawsuits, other than perhaps the lawsuits that were filed last year against the cruise line companies.
Although this lawsuit involves high-profile events, it is similar to many of the other coronavirus-related lawsuits that have been filed so far in that the complaint involves statements by the defendant company showing how the company hoped to profit or prosper from the pandemic. There have been a number of these kinds of lawsuit filed as part of the coronavirus-related securities litigation filings, involving not only other vaccine developers, but diagnostic testing companies, manufacturers of personal protective equipment, and even online educational firms.
The new lawsuit against AstraZeneca is similar to certain of the other coronavirus-related securities lawsuit in another respect as well, in that it is filed in reliance on a relatively modest stock price drop – in this case, a drop of 5% in three trading days following the supposed corrective disclosure. While a drop of 5% percent for a company with a market cap as large as AstraZeneca’s still arguably represents a significant loss in shareholder value, the fact is that a 5% drop is hardly the kind of precipitous decline on which plaintiffs’ lawyers’ typically seek to rely in asserting securities law claims. It suggests to me that in fact investors did not think the setback relating to the vaccine candidate clinical trials substantially impaired or undermined the company’s enterprise value.
The AstraZeneca lawsuit is different from many of the other previously filed coronavirus-related securities lawsuits in one significant respect – unlike many of the other pandemic-related lawsuits, which typically involve alleged statements made at the very outset of the coronavirus outbreak, this lawsuit is based on company statements allegedly made throughout the course of 2020 and culminating in an alleged disclosure relatively late in the year.
I emphasize this point about the timing of the alleged misstatements because I think it is relevant in thinking about how much future coronavirus-related securities litigation we might see. The fact is that companies have made and are continuing to make ongoing statements about how they are dealing with the circumstances surrounding the pandemic; as events continue to unfold, claimants may seek to assert that prior statements did not accurately reflect the company’s circumstances, operations, or financial performance. Which is all another way of saying that I think we will continue to see coronavirus-related securities class action lawsuits filed in the weeks and months ahead. Indeed, the longer the public health crisis face of the pandemic continues, the likelier these possibilities are.
That said, while many these lawsuits have been filed and while more may be filed in the weeks and months ahead, that says nothing about how these lawsuits will fare. In that regard, I think it is important to note, as I detailed in a post earlier this week (here), that these cases could face a skeptical judiciary and an uphill battle.
In that regard, it is worth noting that while AstraZeneca undeniably stumbled as it rushed to develop its vaccine candidate, it did so while operating under extraordinary emergency circumstances in which processes that usually take years were compressed into weeks. I suspect very strongly that any court considering the merits of the plaintiff’s securities fraud allegations against the company will bring a very heavy dose of skepticism to the table. It will not be difficult for the defendants to cast the plaintiff’s allegations and efforts here in a dubious light.