The number of securities class action lawsuits filed against life sciences companies in 2021 declined overall relative to 2020 but remained steady as a proportion of the total number of securities class action lawsuits filed during the year, according to a new report from the Dechert law firm. The report, entitled “Dechert Survey: Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies: 2021 Edition,” states that there were a total of 59 securities suits filed against life sciences companies in 2021, compared to 80 in 2022. The Dechert law firm’s March 28, 2022 press release about the report, which links to the full report, can be found here.
As the report notes, the overall number of securities class action lawsuit filings hit a recent peak during the years 2017-2019, and then declined relative to that peak during the years 2020 and 2021. But while the overall number of lawsuits has ebbed and flowed, the number of securities suits against life sciences companies as a proportion of all securities suit filings has stayed relatively level. Thus, while the 59 suits against life sciences companies out of a total of 210 securities suit filings in 2021 represented about 28% of all filings, the 80 securities suits against life sciences companies out of a total of 324 securities suits overall in 2020 represented nearly 25% of all securities suit filings. These figures show that life sciences companies have been and remain vulnerable securities litigation targets.
The lawsuits filed against life sciences companies in 2021 were filed against a range of sizes of companies. While a majority of 2021 securities suits against life sciences companies were filed against companies with market capitalizations over $500, a significant minority were filed against smaller companies. Thus, the report notes that 50.8% of 2021 securities suits against life sciences companies were filed against companies with market caps over $500 million, which implies that 49.2% of the 2021 securities suits filed against life sciences companies were filed against companies with market caps under $500 million.
The report goes on to note that about 40.7% of the 2021 securities suits against life sciences companies had market capitalizations over $1 billion, and of these 24 complaints nine were filed against companies with a market capitalization of $5 billion or more, representing one-sixth of all cases filed.
Three plaintiffs’ law firms were responsible for a significant percentage of the 2021 lawsuit filings against life sciences companies. Some of these frequent filer law firms appeared together on some complaints. The Pomerantz law firm appeared on 27 of the 59 (47.7%) of the complaints filed against life sciences firms in 2021. The Glancy, Prongay & Murray LLP law firm appeared on 11 out of the 59 2021 life sciences complaints (18.6%). The Bronstein, Gerwitz & Grossman law firm appeared on eight of the 59 2021 life sciences lawsuit complaints (13.5%) – although its should be noted that the Bronstein Gerwitz law firm and the Pomerantz law firm appeared as co-counsel on a number of complaints.
The securities suits filed against life sciences companies in 2021 reflected several types or groups of allegations. The first group of claims involves allegations unique to life sciences companies, such as misrepresentations regarding product safety and efficacy, especially negative side effects of leading product candidates. The second group of complaints, also involving allegations unique to life sciences companies, involve allegations about misrepresentations about regulatory hurdles, such as the timing of FDA approvals or the sufficiency of applications submitted to the FDA. The third group of complaints involved allegations alleging misrepresentations in connection with mergers, IPOs, offerings, or other transactions.
Finally, the report notes “another noteworthy trend in 2021” involving the number of lawsuits against life sciences companies that are incorporated abroad but are subject to securities suits in the U.S. (a trend among life sciences lawsuits that is consistent with general securities litigation trends across all industries).
With respect to case outcomes, the report notes that courts issued 39 opinions, of which 14 involved lawsuits alleging misrepresentations in the product development process. Of these 14 opinions, nine dismissed the actions in whole, while a tenth dismissed the case in part. (Note, these figures include appellate opinions affirming lower court dismissal orders). Only seven of the 39 opinions involved cases alleging misrepresentations after the development stage. Of these seven, four were dismissed in whole and three were dismissed in part. In addition, the courts issue eight opinions in cases involving financial management allegations; three of these cases were dismissed in whole, with three more dismissed in part, one in which summary judgment for defendants was denied, and one is which plaintiffs prevailed on their motion for summary judgment.
In view of the number of cases filed in 2021 (including the number of pandemic-related cases), the report’s authors conclude that “life sciences companies remain attractive targets for class action securities fraud claims” and “there is no indication that the filings in securities claims against life sciences companies is going to slow down any time soon.” In light of this securities litigation risk, life sciences companies “should take steps to reduce the risk of being targeted in a securities fraud class action.” The report sets out a list of 13 steps companies can take to try to reduce their securities litigation exposure, including, among other things, managing disclosures pertaining to clinical trial results; the adoption of 10b5-1 trading plans; and including appropriate cautionary disclosure in company statements.