Introduction - Summary of 2021 Trends, Themes, and Takeaways
We are proud to present our sixth annual Securities Litigation Year in Review publication, in which we analyze data for securities class actions filed nationally against publicly traded pharmaceutical, biotechnology, medical device and healthcare product and services companies (collectively referred to herein as "life sciences companies") and summarize important decisions issued by courts in 2021 in key jurisdictions in these cases. These cases are typically filed by shareholders, on behalf of a putative class, seeking to recover investment losses after a company's stock price drops following the disclosure of a setback or problem experienced by the company with respect to its drugs or products, such as negative feedback from or action by FDA, clinical trial delays, suspensions or terminations, negative clinical data results, adverse events experienced by patients, or manufacturing problems. Plaintiffs typically assert claims under Sections 10(b), 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 (the "1934 Act") based upon allegedly false and misleading statements or omissions made by the company and its officers, and/or, if the alleged misstatements or omissions are made in connection with a registered securities offering, under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the "1933 Act").
Securities Class Action Filings Across All Industries in 2021
For the first time in many years, in 2021, the number of new securities class action filings in federal and state courts dropped precipitously, falling from 333 actions in 2020 to 218 filings in 2021 - a 35% drop and below the 1997-2020 average of 228 actions.1 This decline was largely due to a dramatic drop (82%) in M&A-related class action filings, but was also due to a 17% decline in federal "core" class action filings alleging Rule 10b-5 claims under the 1934 Act.2 Given the enormous volume of special purpose acquisition company ("SPAC") initial public offerings and transactions over the last two or so years, "core" class action filings related to SPACs not surprisingly increased more than sixfold from 2020 to 2021.3 As in 2020, there also were a significant number of class actions filings related to the COVID-19 pandemic in 2021 - i.e., filings against companies that were particularly impacted by the pandemic or companies involved in the development of products (e.g., therapeutics, vaccines, and testing products) to address COVID-19 - although the number of COVID-19-related cases dropped significantly in the second half of 2021.4 After a substantial drop in 2020, the total number of 1933 Act filings in connection with registered offerings further declined slightly (3%) in 2021.5 The majority of these 1933 Act filings - 62%, the highest percentage since 2014 and as compared to 37% in 20206 - were exclusively filed in federal courts, presumably due to exclusive federal forum selection provisions in corporate charters or bylaws many Delaware corporations have implemented requiring 1933 Act claims against them to be filed in federal courts, the validity of which provisions have been upheld by the Delaware Supreme Court and various other state courts since March 2020.7
Securities Class Actions Filed Against Life Sciences Companies in 2021
While the overall number of cases across all industries declined substantially, the Consumer Non-Cyclical sector, primarily composed of life sciences companies, once again had by far the greatest number of securities class action filings in 2021 as compared to other sectors.8 This is likely due to the inherently volatile nature of the stock prices of life sciences companies and the many event-driven disclosures made by such companies and, thus, the continued focus by the plaintiffs' bar on life sciences companies. As depicted in Figure 1 below, the number of core federal filings against companies in the Consumer Non-Cyclical sector actually increased from 66 securities class actions in 2020 to 68 actions in 2021. Notably, cases against biotechnology companies jumped from 18 cases in 2020 to 28 cases in 2021.
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Footnotes
1 Cornerstone Research, Securities Class Action Filings 2021 Year in Review (the "Cornerstone Report"), available at Securities Class Action Filings 2021 Year in Review (cornerstone.com).
2 Cornerstone Report, at 1, 4.
3 Cornerstone Report, at 1, 5.
4 Cornerstone Report, at 2, 5.
5 Cornerstone Report, at 4.
6 Cornerstone Report, at 4.
7 See e.g., Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020); Wong v. Restoration Robotics, Inc., No. 18-CIV-02609 (Cal. Super. Ct. Sept. 1, 2020); In re Uber Technologies, Inc. Securities Litigation, No. CGC-19-579544 (Cal. Super. Ct. Nov. 16, 2020); In re Dropbox, Inc. Securities Litigation, No. 19-CIV-05089 (Cal. Super. Ct. Dec. 4, 2020); In re Sonim Technologies Inc. Securities Litigation, No. 19-CIV-05564 (Cal. Super. Ct. Dec. 7, 2020).
8 See Cornerstone Report, at 29 (depicting 68 filings against companies in the Consumer Non-Cyclical industry, followed by 29 filings against companies in each of the Technology industry).
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