A recently-published report from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse analyzes securities class action litigation in 2020 and demonstrates both a continued focus by the plaintiffs’ bar on life science firms (including those in the pharmaceutical and biotechnology spaces), as well as specific trends in securities litigation affecting companies in this sector.

The report notes that while 2020 federal securities filings (excluding merger objections) against the Consumer Non-Cyclical industry, primarily composed of pharmaceutical, healthcare, and biotechnology firms, were down slightly from 2019, filings against this sector vastly exceeded long-term averages.  Specifically, there were 67 federal filings in 2020 against companies in the sector, representing a 31% increase over the average from 1997 to 2019.  Filings against this industry were also more than double those of any other industry.

Core Federal Filings
Graphic courtesy of Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse

The report also identifies certain trends in securities litigation filings that directly impact life sciences firms.  First, there were numerous cases filed in 2020 related to COVID-19, both with regard to the impact of the virus on companies’ performance, as well as directly relating to the development of vaccines, therapeutics, and diagnostics targeting the virus.  Second, the report confirmed an uptick over the last few years in cases filed against companies in the cannabis space.  Third, the report identified new filings related to the opioid crisis.

The entire report is available at:  https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2020-Year-in-Review.pdf.

Biologic drugs, many of which are antibodies, represent an increasing share of the pharmaceutical market. In recent years, numerous broad functional patent claims directed at therapeutic antibodies have come under attack for failing to satisfy the written description and enablement requirements. The proper scope of these requirements has divided the biopharmaceutical industry. In its latest decision on this topic, Amgen Inc. et al. v. Sanofi, Aventisub LLC et al., ___ F.3d ___, No. 2020-1074 (Fed. Cir. Feb. 11, 2021), the Federal Circuit affirmed the invalidity of claims directed to therapeutic antibodies, noting that “functional claim limitations … pose high hurdles in fulfilling the enablement requirement.”

Continue Reading U.S. Federal Circuit Continues To Pressure BioPharma For More When It Comes To Functional Claims

On December 15, 2020, the CEO of Decision Diagnostics, Inc. (“DECN”) was indicted by a federal grand jury in connection with an alleged scheme to defraud investors by making false and misleading statements about the purported development of a new COVID-19 test, allegedly leading to millions of dollars in investor losses.

The indictment alleges that Keith Berman falsely claimed to investors that DECN had developed a 15-second test to detect COVID-19 in a finger prick sample of blood, and that the test would be ready by the summer of 2020.  In truth, Berman knew his test was merely an idea and not a validated method of accurately detecting COVID-19, much less an actual product ready for manufacture and sale.   Allegedly, Berman and DECN were in precarious financial condition in the lead up to the pandemic, and Berman wrote in internal emails that he needed a “new story” to “raise millions.”

The indictment further alleges that Berman falsely told investors that the FDA was on the verge of approving DECN’s request for emergency use authorization of its new COVID-19 test.  In truth, Berman knew that the company lacked the financial resources and insurance necessary to conduct the clinical testing required by the FDA to complete the application process.

Related links available at: DOJ Press Release; Indictment; Press Coverage

George Lehmann, Insured Benefit Plans, Inc. v. Ohr Pharmaceutical, Inc., 2020 WL 5988517 (2nd Cir. Oct. 9, 2020)

On October 9, 2020, the Second Circuit affirmed the dismissal of an action brought against Ohr Pharmaceutical, Inc. and certain of its executives.  Plaintiffs alleged that the defendants made misleading statements concerning the efficacy of Ohr’s core product, a Squalamine-based treatment for wet age-related macular degeneration (WetAMD), a condition that can cause vision loss.

The complaint pleaded that in January 2018, Ohr announced the results of a phase III clinical trial of its WetAMD treatment, that the results of this trial showed that the treatment arm actually performed worse than the control arm, and that the Company’s stock price fell by over 80% as a result.

Continue Reading Second Circuit Affirms Dismissal of Action Regarding Clinical Trial Of Macular Degeneration Treatment

Skiadas v. Acer Therapeutics Inc., 2020 WL 3268495 (S.D.N.Y. June 16, 2020)

On June 16, 2020, Judge Gregory Woods of the Southern District of New York granted in part and denied in part a motion to dismiss an action against Acer Therapeutics Inc. and certain of its executives regarding disclosures made in offering documents prior to the Company’s submission of a New Drug Application (“NDA”) for EDSIVO, a drug that treats Vascular Ehlers-Danlos Syndrome (“vEDS”).  Plaintiff allege that when the FDA declined to approve the drug, Acer’s stock dropped.

Continue Reading S.D.N.Y. Partially Dismisses Claims Against Pharmaceutical Company, But Allows Claim Regarding Misleading Statements About Upcoming NDA for Rare Tissue Disorder To Proceed

Nguyen v. Endologix, Inc., 2020 WL 3069776 (9th Cir. June 10, 2020)

On June 10, 2020, the Ninth Circuit affirmed the dismissal of a putative securities fraud class action brought against a medical device corporation, Endologix, Inc., and certain of its officers, regarding statements concerning the FDA’s likelihood of premarket approval of the Company’s aneurysm sealing product, Nellix. The Court held that plaintiff failed to allege facts giving rise to a strong inference of scienter (i.e., fraudulent intent) and thus failed to adequately plead a claim for securities fraud.

Continue Reading Ninth Circuit Affirms Dismissal of Action Regarding Statements Concerning Likelihood of FDA Premarket Approval of Aneurysm Sealing Device

A recently-published report from NERA Economic Consulting provides a look back at securities class action litigation in 2020 and demonstrates the continued focus by the plaintiffs’ bar on life science firms, particularly those centered on the development and commercialization of drugs and devices.

The report found that excluding merger objections, the Health Technology and Services sector accounted for 22% of all securities class action filings for the year, nearly the most of any sector.  The report also showed that defendants in that sector faced the largest percentage of COVID-19-related securities class actions suits.  Those suits include cases against developers of COVID-19 vaccines and diagnostics.

NERA further reported that the average settlement value in securities class actions in 2020 for non-merger objection cases increased more than 50% over 2019, with the average settlement value coming in at $44 million.

NERA’s report makes clear that life sciences firms continue to face disproportionate rates of securities class action claims, including filings related to the COVID-19 pandemic, and that the cost to settle securities litigation has been on the rise.

Read the entire report.

On December 17, 2020, the DOJ announced that Biogen agreed to pay $22 million to resolve allegations that it violated the False Claims Act by illegally using two non-profit foundations as a conduit to pay the copays for Medicare patients taking Biogen’s multiple sclerosis drugs, Avonex and Tysabri.  As part of the alleged scheme, Biogen identified for its vendor, Advanced Care Scripts (ACS), certain patients in Biogen’s Avonex or Tysabri free drug program.  Biogen then allegedly worked with ACS to transfer these patients to the non-profit foundations, which received contemporaneous payments from Biogen that covered the costs of the Medicare copays for most of these patients. Biogen’s vendor, ACS, separately agreed to pay $1.4 million for its role in the alleged conduct.

According to the DOJ, copays were intended by Congress to be a primary method of constraining rising Medicare costs, and as such, enforcement against companies who use patient assistance programs to circumvent cost-prohibitive copays will be a key enforcement initiative for the DOJ moving forward.

Despite agreeing to the settlement, Biogen has adamantly denied that its conduct was improper.  According to a Biogen spokesperson, the company “does not agree with the government’s view of the facts and believes that its conduct was appropriate” and that “independent charitable assistance programs help patients lead healthier lives.”

Related links available at: DOJ Press Release; Press Coverage.

os Inc. (formerly affiliated with Johnson & Johnson and later sold to The Gores Group) improperly marketed a cancer treatment for uses not approved by the FDA. More specifically, the government alleged that between 2006 and 2015, Therakos marketed and promoted its extracorporeal photopheresis systems to treat pediatric patients, even though the device was not approved by the FDA for pediatric use.

This case is indicative of a relatively new trend in FCA enforcement; whereas the government previously participated in qui tam allegations against private equity firms only rarely, as of late, the government has grown more active in prosecuting FCA violations where qui tam realtors allege misconduct by both the private equity sponsor and the portfolio company.

Related links available at: DOJ Press Release; Law 360 Press Coverage; J&J Settlement; The Gores Group Settlement.

On October 22, 2020, the former CEO of Indivior PLC, Shaun Thaxter, was sentenced to six months of imprisonment for his conviction on one misdemeanor count of misbranding in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”).

Thaxter’s conviction, which arises from Indivior’s marketing of its opioid-based product Suboxone Film, is particularly significant because it is based on the rarely used “responsible corporate officer” doctrine (also known as the “Park doctrine”). Under the Park doctrine, Thaxter’s conviction is based on his role as a responsible executive who failed to prevent or correct Indivior’s illegal acts in violating the FDCA, instead of his direct involvement in those illegal acts.

While most criminal statutes require the government to prove some level of intent, the FDCA does not impose an intent requirement for misdemeanors.  Thus, Thaxter could be held criminally liable for negligently failing to prevent an offense at Indivior even if he did not have direct knowledge of the alleged misconduct. Notably, the government did not allege that Thaxter played a personal role in sending false and misleading data to the Massachusetts government (the allegations resulting in Thaxter’s conviction).  Instead, Thaxter’s alleged involvement with Medicaid consisted only of business development efforts and encouraging his marketing staff to win preferred drug status for Suboxone.

However, the government alleged that Indivior developed misleading marketing materials and encouraged providers to prescribe Suboxone in situations where it was not clinically warranted, and because Thaxter was responsible for overseeing those efforts, he could indirectly be held liable under the FDCA for these acts.

Related links are available at: DOJ Press Release; Thaxter Criminal Information; Law 360 Coverage; Ropes & Gray LLP Alert.

On October 14, 2020, the DOJ announced that it had finalized settlement negotiations with Merit Medical over allegations that Merit provided illegal payments to physicians in order to induce those providers to use Merit products. Under the guise of an internal program known as the “Local Advertising Program,” Merit allegedly provided remuneration to healthcare providers in the form of millions of dollars in free advertising assistance, practice development, practice support, and unrestricted “educational” grants to induce healthcare providers to purchase a wide variety of Merit products.

Despite publicly claiming that its financial assistance was designed to “increase the awareness” of medical treatments, Merit allegedly provided assistance only to select healthcare providers as a reward for past sales, to induce future sales, and to steer business to Merit and away from competitors. As part of the settlement agreement, Merit was required to enter into a 5-year CIA.  The CIA requires Merit to hire a compliance expert and an independent review organization (at Merit’s expense) to analyze the company’s compliance systems and transactions.

Related links are available at: DOJ Press Release; Press Coverage; CIA Agreement.

Hou Liu v. Intercept Pharmaceuticals, Inc., 2020 WL 5441345 (S.D.N.Y. Sept. 9, 2020)

On September 9, 2020, Judge Lewis A. Kaplan of the Southern District of New York denied a motion to amend judgment and a request for leave to file a second amended complaint following the Court’s dismissal of an action against Intercept Pharmaceuticals, Inc. and certain of its executives.  The Court ruled that plaintiffs failed to identify any facts the Court overlooked in dismissing the action on March 26, 2020, and had not offered any newly-discovered evidence justifying leave to amend the complaint.

Continue Reading S.D.N.Y. Rejects Proposed Amended Complaint Alleging Manufacturer Of Liver Disease Drug Intended To Commit Fraud By Not Disclosing Serious Adverse Events