Consultations:
According to Willis Towers Watson (WTW), life science companies face a higher likelihood of being sued than almost any other industry class. In fact, the number of securities fraud class action lawsuits filed against the sector has steadily increased every year since 2012.
A review of federal securities class actions revealed that there were 97 new D&O class action securities cases filed against life science companies in 2019, accounting for nearly 24% of all new filings that year — a 13% increase from 2018. In fact, 2019 saw the fifth-highest number of D&O filings since 1996.
However, when COVID-19 hit in 2020, the sector experienced a slight decrease in D&O lawsuits compared to 2019, although the scale of the cases remained unchanged. According to an annual survey conducted by the law firm Dechert LLP, nearly one in four fraud class action lawsuits in 2020 was filed against life science companies. The law firm survey showed that nearly half of these claims involved either IPOs, mergers, sales or other transactions. In addition, research indicates that cannabis firms are becoming the next fastest-growing target for costly D&O lawsuits.
In addition to IPOs/mergers, the WTW report reveals that other significant factors driving D&O claims for life science companies include:
- Alleged misrepresentations regarding regulatory hurdles to (or timing of) FDA approval.
- Alleged misrepresentations about product efficacy or safety of either approved products or candidates for FDA approval.
- Alleged unlawful conduct such as illegal kickback schemes and anticompetitive conduct.
Today, the science and biotech industries continue to follow an upward trajectory similar to that in previous years, with lawsuits against life science companies most common in the Ninth, Second and Third circuits – primarily encompassing New Jersey, California and New York, according to WTW research.
Conclusion
It was George Washington who originally coined the phrase “The best defense is a good offense.” Unfortunately, even the most diligent life science and biotech companies can find their executives or directors & officers involved in a class action lawsuit. If it happens, a D&O liability insurance policy can help businesses to be better prepared to mitigate the risk.
The current increase in D&O class action lawsuits against life science and biotech companies makes it worth examining the risk exposure of a firm’s directors & officers. If you are a business in need of D&O insurance or would like to learn more about D&O liability insurance, please contact the experts at Oakwood D&O. We have over 15 years of experience specializing in all aspects of management liability, with an ardent focus on D&O liability insurance.
Get in touch – email Eli Solomon, CEO, at eli@oakwooddno.com or call (323) 686-7519.
You can also follow Oakwood D&O on LinkedIn.
