At this point late in the year, it is looking increasingly likely that 2022 will be a down year in terms of the number of securities class action lawsuit filings relative both to recent years and even relative to long term historical norms. However, an important (and arguably somewhat surprising) part of the securities suits that were filed this year is the significant number of COVID-related securities suits filed this year. I say “surprising” because it seems unexpected well into the third year that plaintiffs’ lawyers would be continuing to file these suits. In the latest example of these kinds of suits, earlier this week a plaintiff shareholder filed a securities class action lawsuit against the pharmaceutical company Veru, Inc. related to the company’s disclosures concerning its efforts to develop a COVID-related therapy drug. A copy of the December 5, 2022 complaint filed against Veru can be found here.
Veru is a biopharmaceutical company that develops drugs to treat cancers. The company develops medicines related to COVID-19 and other diseases concerning acute respiratory distress syndrome (ARDS). The company “opportunistically” developed an orally administered drug for treatment of hospitalized COVID-19 patients. In January 2022, the FDA designated the company’s COVID-19 drug for Fast Track designation.
During 2022, the company made a number of disclosures about the clinical trials related to its COVID-19 drug. In general, the company’s disclosures suggested that the clinical trial results were positive. The company’s disclosures also reflected progress in terms of the drug’s FDA approval process. The company’s share price rose during the year in response to these disclosures.
However, on November 9, 2022, the FDA committee responsible for the drug application voted against granting the drug Emergency Use Authorization (EUA), stating among other things that there was “no direct evidence to support [the drug’s] antiviral activity. According to the subsequently filed securities class action complaint, the company’s share price declined by over half on this news.
On December 5, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of Florida against Veru and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between May 11, 2022 and November 9, 2022.
The complaint alleges that during the class period the defendants mispresented or failed to disclose “material adverse facts about the data from [the COVID-19 drug’s] Phase 3 trial and the Company’s interaction with the FDA. Specifically, Veru misled its shareholders to believe that the data from the Phase 3 trial was sufficient to support Emergency Use Authorization (EUA) and even the submission of a New Drug Application (NDA) without any further studies. Veru’s filings therefore concealed the true risks faced by the Company in gaining approval for its EUA approval.”
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 class.
By my count, this lawsuit is the 62nd COVID-related securities class action lawsuit to be filed since the initial coronavirus outbreak in the U.S. in March 2020. It is also the 19th COVID-related securities suit to be filed so far in 2022. Clearly, the pace of the filing of COVID-related lawsuits has stayed steady even as the initial coronavirus outbreak has become more and more distant in time. Indeed, the COVID-related lawsuit filings represent a substantial part of the overall number of securities class action lawsuit filings in 2022. The 19 COVID-related suits this year represents more than 10% of the securities suit filings so far in 2022. In a year in which the overall number of securities suit filings is down compared to recent years and long-term patterns, the COVID-related securities suit filings represent an important part of the filing totals.
As I have noted in prior posts, the COVID-19 related securities suit filings have generally fallen into one of three categories. First, there are the companies that experience coronavirus outbreaks in their facilities (cruise ship lines, private prison systems). Second, there are the companies that hoped to be able to profit from the pandemic (diagnostic testing companies, vaccine developers). Third, there are the companies whose financial performance or business operations were disrupted by the pandemic (real estate developers, hospital systems). As time went by, a fourth category emerged, involving companies that initially prospered in the pandemic but whose fortunes waned as it progressed (think of Peloton).
This case clearly involves circumstances in the second category. This company hoped that it could (“opportunistically,” as the complaint put it), launch a drug treatment for COVID based on therapies it already had in the pipeline. The drug did in fact look promising but as the clinical trial testing process unfolded it was not able to meet regulators requirements, and so the drug failed to secure the requisite approvals and the company’s share price declined.
It remains to be seen how this case will fare as it progresses, but one thing that is clear from the complaint itself is that when the case reaches the initial pleading hurdles, the court will have to search diligently to find anything responsive to the plaintiff’s requirement to plead scienter with particularity.
Now that we are close to year end, it is worth asking whether COVID-19 related securities suits will remain a factor in the New Year. As time has passed, it has seemed that the cases should eventually drop off. That may in fact happen in 2023; however, it is worth noting that it seemed like it would happen in 2022 yet it did not. For now at least it seems that these cases are continuing to be filed.