Life Science Companies are Litigation Targets for Unhappy Investors

Life science companies are popular targets for securities fraud litigation. That’s the gist of a new report released by the law firm Dechert LLP.

In its report, Dechert noted that 2017 was a dramatic year with 88 separate class action lawsuits filed against life sciences companies. That’s a 30 percent increase from 2016, which had 67 class action lawsuits regarding securities. Compare those numbers to 2012 when there were only 27 class action securities fraud lawsuits filed against life science companies. That’s a 225 percent increase over the past five years, the law firm said.

California saw the highest number of securities fraud lawsuits with 18 followed by 17 in New York and 13 in Massachusetts and New Jersey. Dechert said the majority of the 88 lawsuits were filed by three legal firms, Levi & Korsinsky, Pomerantz LLP and The Rosen Law Firm.

Dechert pointed to several factors that have contributed to the increase, including an increase in merger objection lawsuits and an increase in “filings by emerging law firms against small-cap companies involving event-driven allegations, rather than allegations based on financial misrepresentations.” The majority of the life science companies involved in these types of lawsuits in 2017 had a market capitalization of less than $500 million, according to the report. Those smaller companies typically have the majority of assets wrapped up in one or two investigational products and if it fails and sends stock prices falling some lawyers are ready to pounce.

Last year the Rosen Law Firm initiated a class action lawsuit against Massachusetts-based Ocular Therapeutix after the U.S. Food and Drug Administration rejected its post-eye surgery pain treatment. That rejection caused the company’s stock prices to fall dramatically. Rosen immediately initiated a class action lawsuit alleging there may have been manufacturing issues that the company hid from the FDA when seeking approval. In its Complete Response Letter to Ocular, the FDA pointed to deficiencies in the manufacturing process, as well as concerns over analytical testing related to the manufacture of the drug that the FDA identified during a” pre-NDA approval inspection” of Ocular Therapeutix’s new manufacturing facility.

For example last year some shareholders revived a kick-backs class action lawsuit against St. Paul, Minn.-based Cardiovascular Systems, Inc. despite a judge having previously dismissed the litigation. The lawsuit was revived after plaintiffs cited a $25 million judgment against the company in a related case.

Earlier this month Insulet Corporation agreed to pay $19.5 million to settle a class action lawsuit where plaintiffs alleged the company misrepresented the success of its insulin delivery device OmniPod Eros. The lawsuit alleged the company hid manufacturing problems with the device before its roll-out in 2013, which ultimately led to a dramatic decrease in stock prices.

Also this month Utah-based Lipocine Inc. entered into a settlement agreement over a class action lawsuit. The company said it denied the allegations made in the securities fraud case. Lipocine said it was entering into the agreement in order to avoid the burden and expense of further litigation. Plaintiffs allege the company may have issued materially misleading business information to the investing public, according to a press release by the Rosen Law Firm.