The number of securities class action lawsuits filed against life sciences companies in 2023 remained steady compared to 2022, as suits against life sciences companies represented almost one in five of the securities class action lawsuits filed during the year, according to a new report from the Dechert law firm. The report, entitled “Dechert Survey: Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies: 2023 Edition,” states that there were a total of 43 securities suits filed against life sciences companies in 2023, the same number as were filed in 2022. The Dechert law firm’s March 27, 2024 press release, which links to the full report,  can be found here.

The 43 securities class action lawsuit filings against life sciences companies in 2023 came in a year in which there was a slight overall increase in the total number of securities class action lawsuits filed. The total number of securities suit filings increased to 213 total filings in 2023, compared to 197 in 2022. With the slight increase in the overall number of securities suits during the year, and with the number of suits against life sciences companies remaining steady from 2022 to 2023, the proportion of suits against life sciences companies slightly decreased. Thus, the 43 suits against life sciences companies represented 20.2% of all securities suit filings in 2023, compared to 2022, when the suits against life sciences companies represented 21.8% of all filings.

While the number of lawsuit filings against life sciences companies remained steady between 2022 and 2023 filings with 43 filings each year, the 43 filings in 2023 represents a significant decrease compared to 2019, when there were 97 securities suit filings against life sciences companies, and compared to 2020, when there were 80 lawsuits filed against life sciences companies.

The mix of the size of life sciences companies sued changed slightly in 2023 compared to 2022, with a slight increase in the percentage of large cap companies sued and a slight decrease in the percentage of claims against small cap companies. Thus, in 2023, 16.3% of the life sciences companies sued had market capitalizations of more than $10 billion, compared to 11.6% in 2022. In 2023, 30.2% of life sciences companies sued had market capitalizations between $250 million and $2 billion, compared to 2022, when 34.9% of complaints were filed against companies in that market capitalization range.

The categories of securities suits filed against life sciences companies represented filing trends consistent with prior years:

About 46.5% of the securities suits filed against life sciences companies in 2023 (20 out of 43) involved alleged misrepresentations regarding product efficacy and safety, including alleged negative side effects or general ineffectiveness associated with leading product candidates.

About 27.9% of complaints filed against life sciences companies in 2023 (or 12 out of 43 complaints) involved alleged misrepresentations regarding regulatory hurdles, the timing of FDA approval, or the sufficiency of applications submitted to the FDA.

About 11.6% of the suits filed against life sciences companies in 2023 (five of 43 complaints) involved misrepresentations related to COVID-19 vaccines, products, or services.

About 9.3% of the 2023 life sciences securities suits (four out of 43) involved alleged misrepresentations regarding purported underlying unlawful conduct that gave rise to the securities claim.

About 16.3% of the 2023 lawsuits against life sciences companies involved non-U.S. issuers that were incorporated abroad.

About 34.9% of the complaints (15 out of 43) involved alleged misrepresentations related to the company’s financial reporting.

About 18.6% of the lawsuits filed in 2023 against life sciences companies (eight out of 43) involved alleged misrepresentations in connection with proposed mergers, IPOs, offerings, or other transactions.

It should be noted that the percentages in the various categories together total more than 100% as the majority of 2023 filings against life sciences companies fell into more than one category.

The report summarizes its analysis of the types of securities suit allegations against life sciences companies by observing that “Life sciences companies continue to face unique challenges in securities litigation, particularly around negative clinical trial results, product safety, and FDA approval expectations.” The report goes on to note that “Despite facing industry -specific issues, these companies also encounter common securities fraud risks, such as those related to disclosures in sales or mergers and are not immune to class actions in the U.S. even if incorporated abroad.”

The lawsuits against life sciences companies continued to have mixed results in 2023, with the court decisions in these cases reflecting a variety of outcomes. In 2023, courts issued a total of 49 opinions in lawsuits involving life sciences companies, representing a slight uptick from the 43 opinions in 2022.

Of the 49 decisions in 2023, 21 included allegations of misrepresentations during product development. In 2023, the courts in these kinds of cases favored granting the motions to dismiss in their entirety, with 17 of 21 motions granted, and three motions denied in part and granted in part.  

The report also identified 26 opinions involving circumstances in which the defendant companies’ products or services were in commercial distribution. Of these 26 cases, nine of the motions to dismiss were granted in whole, 12 were dismissed in part, and give motions to dismiss were denied.

There were also 23 opinions in 2023 in cases involving allegations of financial mismanagement, including financial reporting, business operations, and disclosures relating to mergers or IPOs. The outcomes in these cases varied, with seven cases being dismissed in whole in favor of the defendants, 11 more being dismissed in part, and five in which the motion to dismiss was denied.

The report has some interesting information about the plaintiffs’ law firms that filed the lawsuits against life sciences companies in 2023. A small number of plaintiffs’ firms were associated with almost half of the life sciences complaints filed in 2023: Pomerantz (11 complaints); Glancy Prongay & Murray LLP (9 complaints); Levi & Korsinsky (7 complaints); and The Law Offices of Frank R. Cruz (6 complaints).

Given that “life sciences companies continue to be a popular target for class action securities fraud claims,” companies should “take steps to reduce the risk of being targeted in a securities fraud class action.” The report sets out a list of actions companies can take to try to mitigate their securities litigation risk, including, among other things, managing disclosures pertaining to clinical trial results; the implementation of appropriate cautionary disclosure in company statements; and the adoption of Rule 10b5-1 trading plans.