As I noted in a recent post (here), even though we are now more than five years past the initial COVID-19 outbreak in the U.S., companies continue to be hit with securities class action lawsuits alleging that the lingering effects of the pandemic’s disruption continue to affect their operations and financial results. The latest COVID-related securities lawsuit example provides an interesting variant on the typical allegations. The complaint in a new securities suit against pharma supply company West Pharmaceutical Services alleges not that the company failed to disclose the full impact of the pandemic on its operations and financial results, but rather that the company’s reports about the pandemic’s pervasive disruption masked other undisclosed customer losses.  A copy of the complaint against West can be found here.  

Background

West develops, manufactures, and distributes to the pharma and biotech industries supplies for the containment and administration of injectable drugs. During the pandemic, West experienced a temporary boost in demand for its injectable components used in COVID-19 vaccine delivery devices. At the same time, pandemic-related supply chain disruption caused many of its customers to stockpile West’s other products. According to the complaint, the pandemic-driven demand boom temporarily inflated West’s revenues and margins.

However, the complaint alleges, as the pandemic subsided, customers reduced their purchasing activity as they sought to work through excess inventories, leading to a significant slowdown in order volumes for West. West publicly acknowledged the destocking trend. However, the complaint alleges, West assured investors that it had strong visibility into customer inventory levels and demand. The complaint alleges that these assurances were misleading, as the company was facing substantial and ongoing destocking across its highest-margin portfolio.

On February 13, 2025, the company issued what the complaint described as “extremely weak” 2025 revenue and earnings forecasts, attributing the weakened guidance to “headwinds” in its contract manufacturing portfolio, including the loss of two major customers that had begun transitioning to in-house manufacturing of new generation devices. On this news, according to the complaint, the company’s stock price dropped approximately 38%.

The Complaint

On May 5, 2025, an institutional investor filed a securities class action lawsuit in the United States District Court for the Eastern District of Pennsylvania against West and certain of its executives. The complaint purports to be filed on behalf of investors who purchased the company’s securities between February 16, 2023, and February 12, 2025.

The complaint alleges that during the class period, the defendants mislead investors by failing to disclose that: “(a) despite claiming strong visibility into customer demand and attributing headwinds to temporary COVID-related product destocking, West was in fact experiencing significant and ongoing destocking across its high-margin [High Value Products] portfolio; (b) West’s SmartDose device, which was purportedly positioned as a high-margin growth product, was highly dilutive to the Company’s profit margins due to operational inefficiencies; (c) these margin pressures created the risk of costly restructuring activities, including the Company’s exit from continuous glucose monitoring (CGM) contracts with long-standing customers; and (d) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially false and/or misleading or lacked a reasonable basis.”

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 plaintiff class.

Discussion

There is no doubt that the pandemic disrupted this company’s inventory sales to its customers. After the pandemic its customers, which had over-purchased during the pandemic owing to supply chain disruption, were working through the excess inventory they had amassed, resulting in a significant slowdown in order volumes. According to the complaint, the company publicly acknowledged all of these developments.

But the complaint also alleges that because of the company’s claims about its “strong visibility into customer inventory levels and their demand for Company’s products,” investors were “mislead into believing that West’s financial pressures were temporary and industrywide, when in fact, undisclosed customer losses and margin deterioration posed a substantial and continuing threat to the Company’s profitability.”

In effect, the complaint alleges that the company tried to explain disruption of its order volume as a temporary result of the pandemic’s disruption, masking other disruptive impacts on its order volume due to factors unrelated to the pandemic.

Whatever was going on at the company, there is no doubt that the pandemic played havoc with its order volume. The disruption to its operations and financial results had substantial impacts results, while at the same time, other factors further disrupted its order volume.

The fact that allegations involving the pandemic’s disruptive effects are continuing to make their way into securities lawsuit complaints is, to me, noteworthy. For most of us, the pandemic is well into the rear-view mirror. However, for many businesses, it may not be so simple to put the pandemic in the past, if for not other reason than the magnitude of the impact that the pandemic had on their operations.

It is interesting that here the plaintiffs are alleging, in effect, that this company used the magnitude of the pandemic’s impact as a way to try to conceal other declines in customer order volume unrelated to the pandemic’s lingering effect – an interesting variant on the usual allegations. The way I read the complaint is that companies are continuing to have challenges in managing their post-pandemic business environment, and the misrepresentation allegations about customer demand reflect broader issues that many companies have encountered in the wake of the pandemic.

In any event, even though we are now into the sixth year since the initial COVID outbreak in the U.S. in March 2020, COVID-related securities lawsuits continue to be filed, including two so far this year (on top of 16 filed in 2024, representing about 7% of all securities lawsuits filed last year). Sooner or later, we will reach a  point when no new COVID-related securities lawsuits are filed – but we do not appear to be there yet. It seems likely that at least for a while we will continue to see new COVID-related securities suits filed.