Just as the COVID-19 virus continues to represent a threat to human populations, companies continue to explore possible alternatives for the treatment of the disease and its symptoms. As in any initiative built around developing and testing unproven products or processes, a number of these efforts to develop coronavirus treatments and therapies are unsuccessful. In some instances, litigation ensues after these unsuccessful efforts. A lawsuit filed last week against a biopharmaceutical company exemplifies the way this sequence of events can lead to litigation, in turn sustaining the ongoing phenomenon of coronavirus-related securities litigation filings that began at the time of the initial COVID-19 outbreak in the U.S. in March 2020.
Humanigen is a clinical stage biopharmaceutical company. Its lead product candidate is its proprietary antibody lenzilumab, which is under development as a treatment for an immune system hyper-response known as “cytokine storm” associated with COVID-19. Humanigen is investigating lenzilumab for the treatment of hospitalized COVID-19 patients ACTIV-5/BET-B study, which is part of a public-private partnership with the National Institutes of Health (NIH).
In a May 28, 2022 press release (here), the company announced that it has submitted an application to the Food and Drug Administration (FDA) for Emergency Use Authorization (EUA) for lenzilumab for the treatment of patients hospitalized with COVID-19.
On September 9, 2021, the company issued a press release (here) announcing that the FDA had rejected the EUA for lenzilumab. The press release stated that “in its letter, the FDA stated that it was unable to conclude that the known and potential benefits of lenzilumab outweigh the known and potential risks of its use as a treatment for COVID-19.” According to the subsequently filed securities class action lawsuit complaint, the company’s share price declined over 47% on this news.
Finally, in a July 12, 2022 press release (here), the company announced that lenzilumab had failed to show statistical significance on the primary endpoint of the ACTIV-5/BET-B study. According to the securities lawsuit complaint, the company’s share price fell nearly 80% on this news.
On August 26, 2022, a plaintiff shareholder filed a securities class action lawsuit in the District of New Jersey against the company and certain of its directors and officers. A copy of the complaint can be found here. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between May 28, 2021 (the date the company announced that it had applied to the FDA for the EUA for lenzilumab) and July 12, 2022 (the date the company announced that lenzilumab had failed to show statistical significance in its primary endpoint in its principal study).
The complaint alleges that during the class period, the defendants made false and/or misleading statements and/or failed to disclose that: “(i) lenzilumab was less effective in treating hospitalized COVID-19 patients than Defendants had represented; (ii) as a result, the FDA was unlikely to approve the lenzilumab EUA and the ACTIV-5/BET-B study was unlikely to approve the lenzilumab EUA and the ACTIV-5/BET-B study was unlikely to meet its primary endpoint; (iii) accordingly, lenzilumab’s clinical and commercial prospects were overstated; and (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.”
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. The complaint seeks to recover damages on behalf of the plaintiff class.
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 assess the adequacy of the plaintiff’s allegations, the court will have to search long and hard to find anything in the complaint sufficient to satisfy the requirement that a plaintiff plead scienter with particularity.
In any event, by my count, this lawsuit represents the 57th COVID-19-related securities class action lawsuit to be filed since the initial coronavirus outbreak in the U.S. in March 2020. Even though we are now well into the third year of the pandemic, the COVID-related securities suits continue to be filed in volume. By my count, there have been 14 COVID-related securities suits filed so far in calendar year 2022, including three so far in the month of August alone. Clearly, the filing of COVID-19-related lawsuit remains a significant securities litigation phenomenon.
As these lawsuits began to accumulate at the beginning of the pandemic, I noted that the lawsuits generally tended to fall into one of three categories: first, lawsuits against companies that had experienced a coronavirus outbreak in their facilities (for example, cruise ship lines and private prison systems); second, lawsuits against companies that hoped to be able to profit from the pandemic (for example, diagnostic testing companies and vaccine development companies); and third, companies whose operations or financial performance were disrupted by the pandemic (such as hospital systems or real estate development firms). As the pandemic progressed, a fourth category emerged, involving companies that profited at the outset of the pandemic but whose fortunes flagged as the pandemic progressed (here, the highest-profile example is the exercise equipment company Peloton).
This new lawsuit clearly falls into the second category. This company had what it thought was a promising drug candidate for the treatment of symptoms associated with COVID-19 in some patients. The company hoped its drug candidate would receive emergency use authorization and also that the clinical trials would show that its drug candidate was effective in treating COVID-19 patients. The company’s hopes were not realized, disappointing the company itself and its investors. While the outcome of this sequence of events clearly fell short of the hopes at the outset, and while that may be a shame, that doesn’t necessarily transform the company’s efforts into securities fraud.
It is in any event clear that events and circumstances associated with the coronavirus outbreak continue to give rise to securities class action lawsuit filings. The pandemic remains a significant factor in the number of securities class action lawsuits filed.