As readers of this blog well know, life sciences companies are frequent targets of securities class action lawsuits. Interestingly, at least according to the latest annual report from the Sidley law firm, in recent years the number of lawsuits filed against life sciences companies has declined, although the lawsuit frequency against life sciences companies still remains elevated by comparison to the frequency of litigation against the universe of public companies. Perhaps even more importantly, motions to dismiss in securities lawsuits filed against life sciences companies are granted more than half of the time. A copy of the law firm’s April 2024 memo, entitled “Securities Class Actions in the Life Sciences Sector: 2023 Annual Survey,” can be found here. A two-page summary of the report can be found here.

According to the report, there 34 new securities class action lawsuits filed against companies in the life sciences sector in 2023, compared to 37 in 2022, and to 49 filed in 2021. At least one factor contributing to the decline is the reduction in the number of COVID-related securities suits against life sciences companies. In the period 2020 through 2022, there were at least six or seven new securities suits against life sciences companies related to COVID-19. However, in 2023, there were only three new COVID-19-related securities suits filed against life sciences companies, one against a company developing a treatment for the disease and two against companies whose sales suffered as the demand for their coronavirus related product dropped off.

Interestingly, of the 34 new securities suits filed in 2023, more than 50% of the cases (18) involved companies with mature products (as opposed to companies whose products are still in development). The report notes that this “is a departure from earlier years, and notable because companies with mature products have historically had less success in winning dismissal than companies with pre-approval products.”

With respect to the lawsuits filed in 2023 against companies with mature products, the majority arise from setbacks not unique to life sciences companies, such as sales performance and financial reporting issues.

According to the report, with respect to motions to dismiss in securities suits filed against life sciences companies, in more than half of the dismissal motion rulings issued during 2023, the defendants prevailed in over half. During 2023, district courts issued 25 rulings on motions to dismiss cases involving life sciences companies, with defendants successful in 17 of the 25 (68%). In recent prior years, the dismissal rate has ranged from 50-60%. In addition, the report notes, life sciences companies fared well in the appellate courts in 2023, with affirmance of dismissal in five of six cases. The sole reversal occurred in the Biogen case, which involved the controversial 2021 approval of an Alzheimer’s disease treatment.

The report also notes that the defense motion to dismiss success rate was higher in cases involving pre-approval products; in cases involving pre-approval products, the defendants succeed on the motion to dismiss in 80% of cases, whereas the success rate in post-approval cases was only 50%. The trend in the pre-approval cases seems to reflect the difficulties for plaintiffs in establishing falsity and scienter in cases where they challenged statements concern “inherently unknowable events” – such as the outcome of clinical trials or the FDA approval process.

The report does note that certain classes of litigation, the motions to dismiss were less successful. In particular, in cases involving COVID-19 manufacturing and Alzheimer’s disease drug development, defendants were less successful in their motions to dismiss. In both instances, courts proved willing to allow the plaintiffs’ claims to go forward. The motion to dismiss record during the year also showed that plaintiffs were able to gain traction in claims in which they alleged that the defendants had understated the risk that the FDA would not approve their product.

Finally, the report notes that courts continue to struggle with what the report characterizes as “claims within claims.” That is, in cases in which the plaintiffs are seeking to piggyback on underlying regulatory activities, when the defendant companies have reported regulatory scrutiny of sales, marketing, pricing, or billing activities. Courts struggle with how to regard these cases – for example, should the courts require the plaintiffs to prove the underlying regulatory violation? When should the courts defer if the regulatory questions are being adjudicated elsewhere? Where the plaintiffs are required to establish the underlying regulatory violation in order to proceed, the defendants fare better; where plaintiffs take the plaintiffs’ regulatory violations at face value, the plaintiffs have fared better.