As I noted in posts earlier this month (here and here), even though the COVID pandemic is about to enter its fourth year, COVID-related securities suits continue to be filed. The latest example is the securities class action lawsuit complaint filed late last week against pharmaceutical delivery device firm Catalent, a firm whose revenues soared at the in the early stages of the pandemic but whose fortunes lagged as the pandemic progressed. A copy of the February 24, 2023 complaint against the company can be found here.


Catalent manufactures and packages drugs into delivery devices (e.g., pre-filled syringes, vials, etc.) pursuant to long-term supply contracts with pharmaceutical companies. In early 2020, the company took on several large-scale COVID projects, including filling vaccine syringes for Moderna and AstraZenca. These projects, according to the subsequent securities suit complaint, “catapulted the Company’s quarterly revenues to record highs,” which in turn caused the prices of the company’s shares to soar.

By mid-2021, demand for the company’s COVID products decreased as vaccine rates declined. The securities suit complaint continued to report growing revenues and assured investors that customer demand remained strong. The complaint goes on to allege that “unbeknownst to investors, Defendants artificially inflated these revenues through fraudulent accounting and channel stuffing schemes to mislead investors into believing that Catalent was generating sustainable revenue growth.” By September 2021, the company’s shares traded at record highs.

The complaint asserts that Catalent’s misrepresentations “were first revealed to the market on August 29, 2022, when the company disclosed that demand for tis COVID-related products was facing substantial headwinds.” The company’s shares declined about 7 percent on this news.

Then on September 20, 2022, the Washington Post published a report that the company had delayed the release of some COVID-19 vaccines because regulators had flagged supposed improper sterilization at one of Catalent’s facilities. The companies shares declined a further 9 percent on this news.

On November 1, 2022 the company released disappointing financial results for the third quarter 2022 and lowered its financial guidance, citing falling demand. The company also noted regulatory issues at key facilities that were negatively impacting its financial results. The company’s share price declined over 31% on this news.

On November 16, 2022, the company disclosed that it was carrying approximately $400 million in excess inventory, further revealing, the complaint alleges, that “the company had misrepresented demand for its products as well as its purported ability to predict future demand.” The company’s shares declined a further 8 percent on this news.

Then on December 8, 2022, Glass House Research, a short seller, published a report claiming that the company had materially overstated its revenues, citing numerous red flags that supposedly were indicative of improper accounting practices. The company’s share price declined a further 3.6% on this news.

The Lawsuit

On February 24, 2023, 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. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between August 30, 2021 and October 31, 2022.

The complaint alleges that during the class period the defendants misrepresented or failed to disclose the following facts:

a. Catalent materially overstated its revenues and earning by prematurely recognizing revenue in violation of US. Generally Accepted Accounting Principles (GAAP); b. Catalent had material weaknesses in its internal control over financial reporting related to revenue recognition; c. Catalent falsely represented demand for its products while it knowingly sold more product to its direct customers than could be sold to healthcare providers and end consumers; d. Catalent disregarded regulatory rules at key production facilities in order to rapidly produce excess inventory that was used to pad the Company’s financial results through premature revenue recognition in violation of GAAP and/or stuffing its direct customers with this excess inventory; e. As a result of the foregoing, Defendants lacked a reasonable basis for their positive statements about the Company’s financial performance, outlook, and regulatory compliance during the Class Period.

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.


As I noted at the outset, plaintiffs’ lawyers are continuing to file COVID-related securities suits even as the pandemic is about to enter its fourth year. This new lawsuit is already the third COVID-related securities suit to be filed this year, following on the complaints filed in late January against Invivyd (discussed here) and National Vision Holdings (discussed here). Since the initial outbreak of COVID-19 in the U.S. in March 2020, there have been a total of 64 COVID-related securities suits filed.

In the first few months of the outbreak, as the first of the COVID-related securities suits were filed, the cases generally fell in to one of three categories: suits against companies that had experienced a COVID outbreak in their facilities (e.g., cruise ships, private prison systems); suits against companies that tried to portray themselves as positioned to profit from the pandemic (e.g., diagnostic testing companies, vaccine manufacturers); and companies whose operations or finances were disrupted by the pandemic (e.g., hospital systems, real estate development companies).

Later, as the pandemic progressed, a fourth category of cases emerged – this fourth category involved companies that initially prospered at the outset of the pandemic but whose fortunes lagged as the pandemic evolved. An example of this fourth category is the athletic equipment company Peloton.

This new lawsuit against Catalent clearly is an example of one of these fourth category cases. Indeed, the complaint in the action is quite explicit about this. Paragraph 2 of the complaint specifically says “This case is about the rise and fall of a company that initially benefited from the COVID-19 pandemic.” The company, the complaint goes on to say, doubled its business during the first year of the pandemic. However, by mid-2021, when COVID-related work dropped off, “Defendants engaged in accounting and channel stuffing schemes to pad the Company’s revenues.” By late 2022, the company reported significant sales declines and excess inventory. As a result, the complaint alleges, Catalent stock “dropped to pre-COVID levels, causing substantial losses to investors as they learned that Catalent’s early-COVID revenues were never sustainable, and its Class Period revenues were the product of securities fraud.”

Time will tell of course but the early signs are that COVID-related securities suits will remain an important securities suit filing trend in 2023.