We are now well into the second year of the COVID-19 pandemic, yet at this late date the COVID-19-related securities class action lawsuits continue to come in. In the latest example, Ocugen, a U.S.-based gene therapy development company that hoped to develop a COVID-19 vaccine, was hit with a securities class action law after a setback in its regulatory approval efforts. A copy of the plaintiff’s June 17, 2021 complaint against Ocugen can be found here.
In a February 2, 2021 press release (here), Ocugen announced that it had entered an agreement with Bharat Biotech International Ltd., an Indian biotechnology company, that gave Ocugen the exclusive right and license under Bharat’s intellectual property rights to develop, manufacture, and commercialize COVAXIN, a vaccine candidate for the prevention of COVID-19 in the U.S. Under the agreement, Ocugen was responsible for clinical development, regulatory approval (including obtaining an Emergency Use Authorization [EUA], and commercialization of COVAXIN in the U.S. On this news, Ocugen’s share price increased over 80 percent.
In subsequent statements and filings, the company stated its intent to move COVAXIN toward emergency use authorization.
However, in a June 10, 2021 press release (here), the company disclosed that the FDA has “provided feedback to Ocugen” regarding the company’s COVAXIN submission and had recommended that Ocugen pursue a biologics license application (BLA) “instead of an EUA application.” The FDA also “requested additional information and data.” The company said that it is “in discussions with the FDA to understand the additional information required.” The press release quotes a statement of the company’s CEO that the FDA’s recommendation that the company pursue a BLA path rather than an EUA “will extend our timelines.” According to the subsequently filed securities lawsuit complaint, the company’s share price declined over 28 percent.
On June 17, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of Pennsylvania against Ocugen; its CEO; and its CFO. The complaint purports to be filed on behalf of Ocugen investors who purchased Ocugen shares between February 2, 2021 (the date that the agreement with Bharat Biotech International was announced) and June 10, 2021 (that date that the company announced the FDA’s “feedback”).
The complaint alleges that the defendants made false or misleading statements or failed to disclose that: “(i) the information submitted to the FDA was insufficient to support an EUA, (ii) Ocugen would not file an Emergency Use Authorization with the FDA, (iii) as a result of the foregoing, the Company’s financial statements, as well as Defendants’ statements about Ocugen’s business, operations, and prospects, were false and misleading and/or lacked a reasonable basis.”
The plaintiff alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover damages on behalf of the plaintiff class.
By my count, this new lawsuit is the 34th COVID-19-related federal court securities class action lawsuit to be filed. It is also the tenth COVID-19-related federal court securities suit to be filed so far in 2021. Though there have been ten pandemic-related suits filed this year, this lawsuit is the first COVID-19-related lawsuit to be filed in nearly two months. During that two-month period, it did feel as if – perhaps because of the widespread distribution in the U.S. of COVID-19 vaccines and because of the general reopening of business activities – that the pandemic-related securities litigation risk might have passed. Unfortunately, as this lawsuit shows, the risk of further pandemic-related litigation continues.
This lawsuit has only just been filed and it remains to be seen how it will fare. I will say that when the time comes for the court to consider the sufficiency of the plaintiff’s allegations, the court is going to have to look very hard to find anything in this complaint that might constitute a scienter allegation. I also think the court will find the basic premise of the lawsuit unconvincing; the essential position of this complaint is that an unexpected regulatory process issue with respect to a drug candidate submission constitutes securities fraud, a very questionable proposition, particularly given that the FDA is a notoriously unpredictable regulatory actor. Indeed, the plaintiff’s fraud theory really does not make much sense; why would the defendants set out to deceive investors in February if they were just going to have to fess up later? This theory is much less plausible than the much more plausible theory that the defendants really did believe that they would get an EUA from the FDA and they were as surprised as anyone else when the FDA’s “feedback” suggest that the company should take an alternative procedural path.
I note these seeming shortcomings of the plaintiff’s complaint because in general the COVID-19 related securities lawsuits overall have not fared particularly well. For example, as I noted in a post earlier this month (here), the several COVID-19-related securities suits that were filed against companies in the cruise ship line industry all have been dismissed. To be sure, the motion to dismiss was denied in the COVID-19-related securities suit that was filed against the vaccine development company Inovio, as discussed here. However, in general the courts have evinced a general wariness and even skepticism of securities fraud allegations in the context of the very uncertain circumstances surrounding the pandemic.
In my prior posts about the pandemic-related securities lawsuit filings, I have noted that the lawsuits generally fall into one of three categories. The lawsuits in the first category involve companies like the cruise ship lines, that experienced coronavirus outbreaks in the companies’ facilities. The second category involve companies that allegedly made statements that the company would benefit from the coronavirus outbreak. The third category involves companies that allegedly unexpectedly disclosed that the pandemic has disrupted the companies’ operations or upset the companies’ financial performance. This new lawsuit clearly falls within the second category, as have prior lawsuits involving vaccine development firms and diagnostic testing companies. Many of the more recent lawsuits have fallen into the second category; there have been relatively few lawsuits in the first category overall and none at all for many months.
It is an interesting question to whether we will continue to see pandemic-related securities lawsuits filed. My guess is that we will. As this lawsuit shows, even though we are now well into the pandemic’s second year, pandemic-related business activity goes on and the pandemic continues to affect companies’ business operations, performance, and even strategic decision-making. Companies are continuing to make statements about how changed circumstances or business decisions or strategies affect the companies’ operations, performance, or plans. Plaintiffs’ lawyers will continue to target companies that experience setbacks or whose plans go awry.