Not Slowing Down: Lawsuits Against Life Sciences Companies

Not Slowing Down: Lawsuits Against Life Sciences Companies

If you’re general counsel for a life sciences company, you’re probably aware that 2017 was a record year for class action securities litigation, in particular targeting your industry. According to a highly in-depth survey from Dechert LLP, filings made last year and prior show that this momentum will most likely continue. The survey digs into the data to reveal other trends that could prove valuable to counsel, plus identifies how companies can minimize securities fraud litigation risks.

Last year, there were 88 class action lawsuits filed against life sciences companies — a more than 30 percent increase from 2016 and an astonishing more than 225 percent increase from just five years ago. Among the trends that Dechert identified was that a vast majority of the suits were filed in the first half of the year, with 18 in January alone, and there was an increase in suits filed in Third Circuit, in particular in New Jersey.

Of note, there were three law firms associated with more than half of the filings against life sciences companies: Levi & Korsinsky LLP (21), Pomerantz LLP (14) and The Rosen Law Firm (11).

The Dechert survey also identified the types of lawsuits filed. While there was a continuation of trends from previous years, there were also some new developments.

“Nearly 33 percent of claims involved misrepresentations regarding product efficacy and safety, especially negative side effects of leading product candidates or the likelihood of FDA approval.”

According to the survey, there was a large number of decisions made, which fell into different categories: claims that arose during the development phase and before the company’s product had gone to market, those that were independent of or arose after the development process, and those based on the financial management of life sciences companies.

The outcomes of these cases were mixed: 15 cases in favor of the defendants, 13 cases denied motions to dismiss and only partial dismissals in 7 cases.

After thoroughly examining the types of cases and noteworthy outcomes, Dechert offers its expertise in recommended practices for minimizing securities fraud litigation risks, including:

“Review internal processes relating to communications and disclosure about products, including those that are in the developmental stage. Ensure that such processes are well documented and that disclosure decisions are appropriately vetted.”

The survey authors’ list also advises developing and publishing an insider trading policy to minimize the risk of insider trades occurring at certain times that might help class action lawyers later develop a theory.

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