NERA Economic Consulting recently published their annual report examining trends in securities class action litigation in 2021. Although the report found that filings in 2021 decreased overall, the proportion of claims targeting life science firms increased for the second year in a row, following a spike in suits connected to the COVID-19 pandemic.
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.
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.”
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.
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.
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.
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.
On September 8, 2021, the U.S. Attorney’s Office for the District of New Jersey announced a settlement with BAYADA, BAYADA Home Health Care Inc., BAYADA Health LLC, and BAYADA Home Care (collectively, the BAYADA Companies) for $17 million. The settlement resolves allegations under the False Claims Act and Anti-Kickback Statute. No admissions of liability were made pursuant to the settlement.
On Monday, August 2, the Department of Justice announced that Arriva Medical LLC (“Arriva”) and its parent company, Alere Inc. (“Alere”), agreed to pay $160 million to settle claims that they violated the False Claims Act. Arriva was one of the largest mail-order diabetic supply companies in the nation until it ceased business operations in December 2017. Alere is a medical device company based in Abbott Park, Illinois, which acquired Arriva in November 2011. In 2013, a whistleblower brought suit against Arriva and Alere under the qui tam provisions of the False Claims Act. The United States subsequently intervened in the suit.
On July 21, 2021, a group of state attorneys general proposed a $26 billion settlement proposal to resolve claims that McKesson Corp., Cardinal Health, Inc., AmerisourceBergen Corp., and Johnson & Johnson (“J&J,” and together with McKesson Corp., Cardinal Health, Inc., and AmerisourceBergen Corp., the “Settling Parties”) contributed to the opioid epidemic in the United States.
On April 1, 2021, the DOJ announced that Bristol Meyers Squibb agreed to pay $75 million to resolve allegations that the company underpaid rebates owed under the Medicaid Drug Rebate Program. Of the total settlement amount, Bristol Meyers Squibb will pay approximately $41 million, plus interest, to the United States, and $34 million to participating states.
This settlement resolves a lawsuit filed in 2013 in the Eastern District of Pennsylvania by Ronald Streck under the whistleblower provisions of the False Claims Act. Streck alleged that, from 2007 to 2013, Bristol Meyers Squibb underreported the “average manufacturer prices” for a number of its drugs, thereby reducing the amount it owed in quarterly rebates to state Medicaid programs under the Medicaid Drug Rebate Program. This alleged underpayment of rebates caused the United States to be overcharged for its payments to the states for the Medicaid program. The government declined to intervene, and Streck and his counsel proceeded with the case on their own.
On April 27, 2021, the California Attorney General announced that Invidior plc and Invidior Inc. (collectively, “Invidior”) agreed to pay $300 million to settle claims that it falsely and aggressively marketed Suboxone, a drug product approved for use in recovering opioid addicts.
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.
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.”