Key Takeaways
- Biotechnology companies were the second most sued industry for securities class actions in 2024, following technology firms.
- Most cases are dismissed or withdrawn before reaching a settlement, reflecting the courts’ scrutiny over plaintiffs’ claims.
- Significant settlements continue to rise, with a median settlement of $8.5 million for biotech firms from 2020 to 2024.
Insights on Biotechnology Securities Litigation
In 2024, biotechnology companies accounted for 17% of securities class action filings, making them the second most targeted industry after technology. The strategy employed by plaintiffs involves waiting for adverse news, observing stock price declines, and then filing claims alleging fraudulent company statements. This trend highlights the courts’ critical evaluation of such claims and the frequency of case dismissals.
Statistics from the D&O Databox™ indicate that biotechnology litigation saw a return to the pattern of more dismissals and withdrawals than settlements in 2024, a shift from the previous two years. Despite a general increase in settlement amounts—which rose by 5% over the past five years—the median settlement for biotechnology cases stood at $8.5 million, with instances of settlements exceeding $400 million.
The Sidley report, which analyzes securities class actions in the life science sector, provides detailed insights into recent court decisions related to biotechnology companies. This year, the report focused on drug and device cases, focusing on disclosure and risk factors. A significant aspect of the report highlighted dismissals of Rule 10b-5 claims due to insufficient evidence of “scienter,” or intent to deceive.
The cases of BioXcel, Revance, and AcelRx demonstrated that while defendants may have had knowledge of facts undermining their statements, plaintiffs failed to convincingly show that defendants intended to deceive investors. For example, BioXcel’s case was dismissed because the plaintiffs could not prove the fraudulent intent behind allegedly false statements, even though the statements were later proven inaccurate. Similar outcomes were seen in the Revance and AcelRx cases, where lack of pleadings regarding state of mind led to dismissal.
The evidence illustrates the challenges of disclosures for public companies, especially in the complex life sciences sector. Directors and officers must stay abreast of legal developments to navigate potential disclosure challenges effectively. Regularly reviewing reports and statistics, like those provided by Sidley, can help firms prepare for potential litigation and manage disclosure risks.
Moreover, securing robust directors and officers (D&O) insurance is crucial, especially given the high self-insured retentions currently faced by public companies. Adequate insurance coverage proves beneficial not only in case of winning motions to dismiss but also in protecting the company if litigation progresses beyond initial dismissals.
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