As I have noted on this site, even though it has now been nearly 22 months since the initial coronavirus outbreak in the U.S., coronavirus D&O lawsuits have continued to be filed continuously since the initial outbreak. Coronavirus-related securities suits were in fact a significant securities litigation phenomenon in 2021 as well as in 2020. In an early sign that the coronavirus related litigation could remain a significant securities litigation factor in 2022, late last week plaintiffs’ lawyers filed two new securities lawsuits against a health insurance and services company and against a diagnostic testing company. Both companies had completed IPOs earlier in 2021. A copy of the new securities lawsuit against Bright Health Group can be found here and a copy of the new securities suit against Talis Biomedical Corporation can be found here.


Bright Health Group

Bright Health Group is a health insurance and health services company. It provides health insurance plans to consumers and employers and also manages primary medical care clinics. The company completed its IPO in June 2021.


On November 11, 2021, the company released its financial results for the third quarter 2021, the company’s first full quarter as a public company. The company reported EPS of -$0.48 compared to consensus estimates of $0.31. Among other things, the company reported an increase in its Medical Cost Ratio (MCR). The company reported that its MCR “for the third quarter of 2021 was 103.0%. which includes a 540 basis point unfavorable impact from COVID-19 related costs and a 900 basis point unfavorable impact primarily from a cumulative reduction in premium revenue due to an inability to capture risk adjustment on newly added lives.”


According to the subsequently filed securities lawsuit complaint, the company’s share price declined over 32% on this news.


On January 6, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against Bright Health Group and certain of its directors and officers. The complaint purports to be filed on behalf of two classes of investors: those who purchased the company’s securities in connection with or traceable to the company’s June 24, 2021 IPO; and those who purchased the company’s securities on the open market between June 24, 2021 and November 10, 2021.


The complaint alleges that in the company’s offering documents and in its public statements during the open market trading class period the defendants made false and/or misleading statements and/or failed to disclose that: “(i) Bright Health had overstated its post-IPO business and financial prospects; (ii) the Company was ill-equipped to handle the impact of COVID-19-related costs; (iii) the Company was experiencing a decline in premium revenue because of a failure to capture risk adjustment on newly added lives; (iv) all the foregoing was reasonably likely to have a material negative impact on Bright Health’s business and financial condition; and (v) as a result, the Offering Documents and Defendants’ public statements throughout the Class Period were materially false and/or misleading and failed to state information required to be stated therein.”


The complaint alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class members.


Talis Biomedical Corporation

Talis Biomedical Corporation develops diagnostic tests for rapid molecular testing of infectious diseases. Talis completed its IPO on February 11, 2021. In its offering documents, the company disclosed, among other things, that in January 2021 the company had submitted a request to the FDA for Emergency Use Authorization (EUA) for its Talis One platform for COVID-19 testing. The documents specifically stated that there “can be no assurance that the COVID-19 test we are developing… will be granted an Emergency Use Authorization,” adding that if the EUA is not granted, we will “be unable to sell this product in the near future.”


On March 8, 2021, Talis announced that it had withdrawn its EUA application for the Talis One COVID-19 test and that the company intends to implement its “previously planned validation study” and submit its EUA application in early second quarter 2021. The company’s share price declined 12% on this news.


On August 10, 2021, the company announced that its “development timelines have been extended by delays in launching of [the] COVID-19 test and manufacturing scale.” The company’s share price declined 6% on this news.


On August 30, 2021, the company announced that its CEO was stepping down. The company’s share price declined 11% on this news. On November 15, 2021 the company announced that Brian Blaser had been appointed CEO effective December 1, 2021. However, one week later, on December 8, 2021, Talis announced that Blaser had stepped down from his position. The company’s share price declined another 11% on this news. By the time the lawsuit was filed, the complaint alleges, the company’s share price had declined more than 76% below its IPO price.


On January 7, 2022, a plaintiff shareholder filed a securities class action in the Northern District of California against Talis and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased shares in connection with or traceable to the company’s February 2021 IPO.


The complaint alleges that the offering documents prepared in connection with the company’s IPO were false and misleading and failed to disclose to investors: “(1) that the comparator assay in the primary study lacked sufficient sensitivity to support Talis’s EUA application for Talis One COVID-19 test; (2) that, as a result, Talis was reasonably likely to experience delays in obtaining regulatory approval for the Talis One COVID-19 test; (3) that, as a result, the Company’s commercialization timeline would be significantly delayed; and (4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis.”


The complaint alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933. The complaint seeks to recover damages on behalf of the plaintiff class.



By my count, these two new lawsuits represent the 43rd and 44th coronavirus-related securities class action lawsuits to be filed since the initial U.S. coronavirus outbreak in March 2020. They are the first coronavirus-related securities suits to be filed in 2022, after 18 were filed in 2021.


As I have noted in prior posts, during most of the period since the initial COVID-19 outbreak in the U.S., the coronavirus-related securities suits that have been filed have generally involved companies in one of three categories: companies that had experienced coronavirus outbreaks in their facilities (cruise ships, private prison systems, meat-packing plants); companies that had tried to claim that they would be able to profit from the coronavirus outbreak (vaccine development companies, diagnostic testing companies, personal protective equipment manufacturers); and companies whose operations or financial results were disrupted by the outbreak (real estate development firms, hospital systems). In the second half of 2021, a fourth category of claims emerged, involving companies that initially prospered at the outset of the outbreak but whose fortunes slumped as shutdown orders lapsed and businesses reopened.


This new lawsuit against Bright Health seems to fall into the third category – that is, it is a lawsuit against a company that experienced a disruption in its financial results due to the coronavirus outbreak. The fact that the lawsuit falls into this category is noteworthy, at least to me. As the coronavirus-related litigation has accumulated over the last 22 months, there have been relatively few of these third-category types of claims, a development that I have throughout the time period found to be unexpected. Early on, I really thought there would be more of these “disruption” kinds of claims; indeed, I thought these kinds of claims might be the most common. That there have been fewer of these kinds of claims than might have been expected might be attributable to government stimulus programs; the fiscal support propped companies up and helped them avoid more crippling losses. There were, by way of example, fewer commercial bankruptcies than I think some of us anticipated at the outset.


The lawsuit against Talis Biomedical falls clearly in the second category of COVID-19-related securities suits; that is, it involves a company that hoped to be able to profit from the coronavirus outbreak. At least in the plaintiffs’ lawyers’ telling of the story as depicted in the complaint, Talis was a company that sought to capitalize on the prospects for the completion of its COVID-19 test through its IPO. (On the other hand, the company’s offering documents are full of warnings that the company might not obtain the EUA and might not be able to commercialize its product, and warnings of what would happen if these things did not occur, so any investor in the IPO was clearly making a speculative investment.)


The fact that both of these new lawsuits involve companies that experienced significant setbacks shortly after completing their IPOs shows a couple of things: first, IPO companies with short operating histories represent enterprises with a higher degree of risk compared to longer-established companies; and second, that pandemic-related conditions and circumstances add an extra measure of risk to an already risky proposition.


The filing of the two lawsuits against these companies in the first week of 2022 does seem to suggest that we could be seeing further coronavirus-related securities litigation in the months ahead. As these lawsuits show, companies’ business and operations are continuing to be disrupted by the coronavirus, particularly those (like Talis) that have a significant part of the business plan built around the pandemic.


Indeed, the second-level economic effects of the pandemic, such as supply-chain disruption, labor shortages, and economic inflation, are likely to continue to affect many companies in the weeks and months ahead. In short, it seems likely that we will continue to see coronavirus-related litigation for some time to come. The filing of these first coronavirus-related securities suits may just be the opening salvo.