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Securities

Life Sciences Companies and Securities Litigation: 2014 Update

 Life sciences companies are “an increasingly popular target” of securities class action lawsuits, according to the annual securities litigation survey from the David A. Kotler of the Dechert law firm. According to the March 16, 2015 report, entitled “Dechert Survery of Securities Fraud Class Actions Brought Against U.S. Life Sciences Companies,” the number of 2014 securities suit filings against life sciences companies represents a “remarkable increase” compared to 2013. The Dechert law firm report can be found here. My analysis of the 2014 securities class action litigation filings, including the filings against life sciences companies, can be found here.

According to the Dechert report, in 2014, there were 39 different securities class action complaints filed against 38 different life sciences companies, representing approximately 23% of the 170 securities class action lawsuits filed during the year.

The number of suits and the percentage the suits represent of all securities filings represent a “sharp increase” compared to equivalent levels in recent years. For example, in 2013, only 11% of the 167 securities fraud lawsuit filings involved life sciences companies. The 2014 figures were also well ahead of 2012 (18%), 2011 (9%) and 2010 (16%).

The filings in 2014 followed trends that developed in recent years in which the securities litigation activity appears to be concentrated on companies with “relatively smaller market capitalizations.” In 2014, 57% of all life sciences companies hit with securities class action lawsuits had market capitalizations of under $500 million. Indeed, about 40% of the life sciences companies (15 out of 38) had market caps under $250 million.

At the same time, many of the 2014 lawsuits also involved larger companies as well. Life sciences companies with market capitalizations of at least $2 billion were named as defendants in about 21% of the 2014 lawsuits against companies in those industries.

The 2014 filings followed recent trends in other respects. The report notes that trend that began in 2011 of a return to “more industry-specific allegations” continued in “full force” in 2014. The kinds of allegations the report characterizes as industry specific are allegations such as “alleged misrepresentations or omissions regarding marketing practices, prospects/timing of FDA approval, product efficacy, product safety, manufacturing and other healthcare-related allegations.” Approximately 56% of the 2014 securities suits against life sciences companies involved these types of industry specific allegations, while claims of inaccurate financial reports/accounting improprieties were asserted in 44% of the 2014 life sciences securities suits. Some of the 2014 suits involved both types of allegations.

The report concludes with an analysis of how the 106 securities suits filed against life sciences companies between 2011 and 2014 have fared in the courts. The report notes that the defendants in these cases have “continued to enjoy relative success in obtaining dismissals.” However, the report also notes that “it is equally worth noting that securities fraud lawsuits still carry a substantial risk of exposure, and even when settled can result in very large payments.” To illustrate the later point, the report cites Pfizer’s January 2015 agreement to pay $400 million to settle the securities class action litigation pending against the company.

 Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.

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