March 07, 2018

A recent uptick in securities class actions against pharmaceutical and life sciences companies isn't expected to drop off anytime soon.

Last year, shareholders brought 66 such cases against pharmaceutical, biotechnology, and device companies, according to a report prepared by Goodwin Procter LLP. In 2016, there were 64, compared with 42 in 2015. From 1997 to 2016, the average was 32. These numbers don't include cases emerging from mergers and acquisitions.

More lawsuits do help clarify the law and provide industry with guidelines to follow, Caroline Bullerjahn, a partner with Goodwin Procter's securities litigation and white-collar defense group in Boston, told me.

“The helpful thing about a greater body of case law is that a company in this sector can review cases and say, ‘This is a factually analogous situation,’” she said. “It can get a preview of how courts will view your case. There are a lot more on-point precedent [and] factual scenarios.”

And for the defense bar, a parallel rise in the number of these cases being dismissed is heartening.

“[T]he good news is that while a record number of cases have been filed against these types of companies, courts are really scrutinizing these complaints very carefully, and they’re being dismissed at a much higher rate than we’ve seen in the past,” Bullerjahn told me.

In 2017, 24.2 percent of securities cases against health-care companies filed that year were dismissed, according to the report, which was based on data provided by Cornerstone Research, a consulting firm that provides economic and financial analysis to attorneys involved in complex litigation.

Securities actions often arise after a stock drop, according to the report, following bad news—poor results in a clinical trial, a trial delay, negative FDA feedback, or manufacturing problems, for example.

“There are just more junctures during the natural life of the companies for the stock price to go up or down,” Bullerjahn told me. “[I]f you have a stock drop of a certain percentage, you can be fairly certain that plaintiffs’ lawyers will follow.”

But one lawyer representing shareholders says a decision to file suit isn't so cut-and-dried.

“Within the cases that my firm gets involved in, we’re really looking very much at the qualitative factors about these cases,” Daniel S. Sommers, a partner with Cohen Milstein Sellers & Toll PLLC in Washington, told me. “If there happens to be a situation involving a life sciences company where a case looks particularly meritorious, that’s what’s driving our decision. It’s not a decision to target that industry or any other industry."

This Bloomberg Law article by Greg Langlois can be accessed here