The number of securities class action lawsuits filed against life sciences companies in 2022 declined compared to 2021 but remained relatively 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 2022 Edition: Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies,” states that there were a total of 43 securities suits filed against life sciences companies in 2022, compared to 59 in 2021. The Dechert law firm’s February 23, 2023 press release about the report, which links to the full report, can be found here.
According to the report, there were a total of 43 securities class action lawsuit filed against life sciences companies in 2022, representing almost one of four of all securities suits filed during the year. The 43 suits against life sciences companies represented a 27.1% decline from the 59 securities suits filed against life sciences companies in 2021 and a 51.1% decline decrease from five years prior (that is, in 2019, there were 97 securities suits filed against life sciences companies).
While the overall number of securities suits against life sciences companies declined in 2022, the proportion of actions against life sciences companies as a percentage of all securities suit filings “has decreased only marginally.” Thus, while the 43 securities suits against life sciences companies represented slightly less than one in four of all securities suit filings in 2022 (21.8%), the 59 suits against suits against life sciences companies out of 211 securities suits in 2021 represented about 28% of all filings. The proportion of suits against life sciences companies as a share of all filings was 25.2% in 2022.
The categories of securities suits filed against life sciences companies in 2022 represented continuing trends from previous years, though the report does note that the lasting effect of the coronavirus pandemic have emerged as a new trend in 2022: 11 of the 43 cases filed against life sciences companies in 2022 related to COVID-19 products and services.
Others of the cases reflected filings trends consistent with prior years. Thus, about 48.8% of the securities suits filed in 2022 against life sciences companies (21 out of 43) involved alleged misrepresentations regarding produce efficacy and safety, including negative side effects of leading product candidates, and/or issues with clinical trials, which could affect the likelihood of FDA approval.
About 39.5% of the claims, or 17 out of 43, arose from alleged misrepresentations regarding the sufficiency of the applications submitted to the FDA. (Several of these cases involved COVID-19-related products and services.)
About 20.9% of the securities suit filed in 2022 against life sciences companies, or nine out of 43, alleged misrepresentations regarding purported unlawful conduct in both the United States and abroad, including but not limited to illegal kickback schemes, criminal investigations, and inadequate controls in financial reporting.
Finally, about 25.6% of the claims, 11 out of 43 claims, involved alleged misrepresentations made in connection with proposed mergers, sales, initial public offerings, and other transactions.
It should be noted that the percentages in the various categories together total more than 100%, as 34 out of the 43 claims fell in more than one category.
These suits against life sciences companies continued to have mixed results in 2022, with the court decisions in these cases reflecting a variety of outcomes. In 2022, the courts issued a total of 43 opinions in cases involving life sciences companies, an increase from the 39 decisions in 2021. Of the 43 opinions in 2022, 21 cases were decided in favor of the defendants, while in ten cases the motion to dismiss was denied, and in 11 decisions the motion to dismiss was granted in part and denied in part.
In cases involving developmental stage companies, the courts were more likely to grant motions to dismiss in full than they were to deny them, either in whole or in part. In cases involving post-development companies, the courts were more likely to grant motions to dismiss in full than they were to deny them, either in whole or in part. In cases involving the financial management of life sciences companies, the courts were more likely to deny the motions to dismiss at least in part.
The report has some interesting information about the plaintiffs’ firms that filed the lawsuit against life sciences companies in 2022. Just four law firms were associated with about three-fourths of the first filed complaints against life sciences companies in 2022: Pomerantz LLP (18 complaints); Glancy Prongay & Murray LLP (five complaints); and Bronstein, Gerwitz & Grossman LLC and Kessler Topaz Meltzer & Check LLP (tied with four complaints each).
The report notes that given the filing numbers in recent years, and accounting for the residual impact of the COVID-19 pandemic, “there is no indication that the filings of securities claims against life sciences companies are going to slow down and time soon.” Life sciences companies “remain attractive targets for class action securities fraud claims.”
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.