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Lawsuits against drug makers spike in 2016

By Ed Silverman STAT 

Shareholders regularly file lawsuits seeking class-action status against companies alleging securities fraud. But the life sciences industry continues to attract more than others, according to a new analysis.

Last year, there were 67 such lawsuits filed against drug makers and biotechs, along with their directors, officers, and key personnel. This amounted to a whopping 71 percent increase from 2015 and was also substantially higher than at any time in the past five years, according to the Dechert law firm, which conducted the analysis.

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In addition, 25 percent of the 270 securities fraud class-action lawsuits filed last year were brought against life sciences companies, which was more than the proportion of such lawsuits filed in other industries. By contrast, just 11 percent of these lawsuits were filed against life sciences companies in 2013. As in previous years, about half of the lawsuits were filed against companies with smaller market capitalizations — those under $500 million. Last year, this amounted to 51 percent of the life sciences companies that were sued for shareholder securities fraud. This is, more or less, in line with previous years, when it ranged from 50 percent in 2012 to 63 percent in 2013.

“In the small cap life sciences sector, there’s a lot of creative activity going on and a lot of new molecular analysis and applications,” said David Kistenbroker, a Dechert partner. “And that’s where you see a lot of activity for securities litigation.”

But why was there such an uptick in lawsuits overall?

Generally speaking, “It appears that the inherent risks involved with developing products makes these companies in the life sciences targets for plaintiff’s [law] firms that have found companies involved in the FDA approval process ripe for securities fraud lawsuits,” the Dechert attorneys wrote.

More specifically, the analysis found that nearly 50 percent of all class-action securities fraud cases last year complained about misrepresentations or omissions concerning product efficacy, product safety, or the likelihood of FDA approval. And an unspecified number of cases cited “alleged misrepresentations regarding regulatory hurdles and the timing and prospects of FDA approval.”

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Such complaints are not out of the ordinary for life sciences companies, although a new category emerged last year as some shareholders filed lawsuits against several generic drug makers over alleged instances of price fixing. There were nine such lawsuits, according to National Economic Research Associates, and these were prompted by investigations by federal authorities.

One point that some observers say is worth noting: Two law firms representing shareholders filed more than half of the lawsuits last year — 35, to be exact. This appears to reflect a trend, according to Kevin LaCroix, an attorney and executive vice president at RT ProExec, an insurance brokerage, who writes The D&O Diary, a blog about insurance for company directors and officers.

“Given the numbers from this and recent years’ filings, there is no indication that the filing of securities claims against life sciences companies is going to slow down anytime soon,” the attorneys concluded. “Although the majority of the cases decided last year were decided in the defendant company’s favor, life sciences companies remain attractive targets for class action securities fraud claims.”


Ed Silverman can be reached at ed.silverman@statnews.com
Follow Ed on Twitter @Pharmalot.