Five years ago, we surveyed a decade’s worth of federal district court decisions on motions to dismiss securities claims brought against development-stage biotech companies to answer an important question: are these cases more likely to survive a motion to dismiss—and therefore riskier to insure against—than other securities class actions, as D&O insurers have traditionally assumed?
The answer was a resounding no: our analysis showed that securities claims brought against small, clinical-stage biotech companies were actually more likely to be dismissed at an early stage than other types of securities class actions between 2005 and 2017. These companies have historically been considered attractive targets for securities actions given the inherent risks of the industry and the volatility of their stock prices, and, as a result, often have relatively limited D&O insurance options. But our study found the assumptions that have acted to limit their options to be incorrect—biotech startups do not in fact pose greater securities class action risk than other companies.
This spring we set out to analyze another 5 years’ worth of data to see whether the patterns we observed in our prior study have held true in more recent years. Not surprisingly, they have.