Dechert LLP recently released its annual survey on the developments in United States Securities Fraud Class Actions Against Life Science Companies. The survey notes that while the number of lawsuits overall and lawsuits filed against life science companies decreased from last year, both numbers were higher than just five years prior.
In 2018, there were a total of 403 class action securities fraud cases filed, with 86 of those against life sciences companies. This is compared to 412 total filed in 2017, with 88 against life sciences companies. 2017, however, was a year with a huge spike in lawsuits, up from just 217 total in 2016, with 67 specifically targeting life sciences companies.
Trends and New Developments
Roughly one-fifth of claims filed involved alleged misrepresentation regarding product efficacy and safety, with many of those cases involving alleged misrepresentations regarding negative side effects related to leading product candidates, which occasionally has an impact on FDA approval.
Almost one-third of the claims alleged unlawful conduct in both the United States and abroad, including illegal kickback schemes, anticompetitive conduct, and inadequate internal controls in financial reporting. Further, about one-third of the claims involved alleged misrepresentations of material information made in connection with proposed mergers, sales and other transactions.
Consistent with historic trends, the majority of the 86 cases that were filed against life sciences companies were filed in three federal circuits: 24 were filed in the Ninth Circuit, 18 were filed in the Third Circuit, and 18 were filed in the Second Circuit. When it comes to district courts, district courts in California had the most filings (21 overall) and New York had the second most filings, with 18 overall. While almost half of all cases were brought in the federal district courts in California and New York (an increase from 2017), the number of filings is down from 2016.
Dechert LLP noted in the report that in 2018, a new filing trend emerged: a rise in claims against large cap companies. Roughly 60 percent of the life sciences companies named in class action securities fraud complaints had a market capitalization of $500 million or more. Almost half of the cases filed were against life sciences companies with a market cap of $1 billion or more.
Court Decisions Throughout the Country
Courts throughout the country also issued many decisions in 2018 involving life sciences companies. Some of those decisions touched upon claims that arose in the development phase, such as cases involving products failing clinical trials that are required for FDA approval or products not approved by the FDA, all of which the defendants were able to get dismissed.
Courts also discussed claims that were independent of or arose after the development process, with which defendants also had great success in dismissing. When it came to claims based on financial management of life sciences companies, outcomes were generally split between plaintiff- and defendant-friendly outcomes.
Given the numbers from this and recent years’ filings, there is no indication that the filings of securities claims against life sciences companies are going to slow down any time soon. Our sister publication, Policy & Medicine Compliance Update, will have an in-depth review of this survey and its content in the coming months.