As I have noted in numerous posts on this site, since the initial outbreak of COVID-19 in March 2020, plaintiffs’ lawyers have filed a host of coronavirus-related securities class action lawsuits. As I also noted, the plaintiffs’ track record in these cases has been mixed at best, with a number of the cases being dismissed. In the latest example of the hurdles the plaintiffs are facing in these cases, a federal court has entered an order dismissing the COVID-19 related securities suit that was filed against the pharmaceutical company AstraZeneca relating to the company’s troubled efforts to develop a COVID-19 vaccine. A copy of the September 12, 2022 opinion in the case can be found here.
In April 2020, AstraZeneca announced a partnership with Oxford to develop a COVID-19 vaccine candidate known as AZD1222. Over the following months, the company undertook testing through a series of Phase I/II clinical trials. While the trials were in progress, the company made a number of statements concerning the safety and efficacy of AZD1222, as well as the progress the company was making during the trials and the company’s commitment to public safety and equitable access.
Initially, the company was able to report positive results as well as an acceptable “tolerability” profile. However, in the course of the clinical trials, a third-party manufacturer’s error resulted in the production of half-strength doses. This development led to alterations of the testing regime and schedule, with some patients receiving half-dose first shots and full-dose second shots, while others received two full doses. In addition, difficulties arose regarding dose timing as well as the demographics of the testing pool (in particular, the extent to which the pool contained participants over age 55).
In November 2022, the company released an interim analysis of the ongoing trials, in which, among things, the company disclosed the dosing issues, as well as the questions concerning the involvement in the trials of older participants. In subsequent days, the company and government regulators disclosed further details about the issues arising out of the clinical trials. According to the subsequently filed securities complaint, the company’s share price declined on this news.
As discussed here, in January 2021, plaintiff shareholders filed a securities class action lawsuit against AstraZeneca and certain of its executives. The complaint alleged that the company had made misrepresentations and omissions regarding its clinical trials, particularly with respect to the dosage anomalies and the extent of involvement of disparate subgroups in the trials, as well as with respect to the efficacy of the candidate for various subgroups. The defendants moved to dismiss the complaint.
The September 12, 2022 Opinion
In a September 12, 2022 Opinion and Order, Southern District of New York Judge J. Paul Oetken granted the defendants’ motion to dismiss, with prejudice.
In reaching his ruling, Judge Oetken first addressed the plaintiffs’ allegations that the defendants had made misleading statements or omissions with respect to the clinical trial dosage issues. Judge Oetken said that the plaintiffs “have not identified any accurate, misleading or incomplete statement relating to AZ1222’s dosing”; rather, the “plaintiffs have identified only accurate statements describing the launch and historical progression of the Phase II/III trials.” Similarly, with respect to the plaintiffs’ allegations of misrepresentations or omissions with respect to the involvement of participants over the age of 55 in the clinical trial, Judge Oetken similarly concluded that the plaintiffs “have not identified any statement made inaccurate, misleading, or incomplete by that omission.”
With respect to various statements the plaintiff alleged were misleading such as that the company was “moving quickly but without cutting corners,” “on track,” or that the company was committed to “follow the science” and to “put patients first,” Judge Oetken concluded that these allegations were inactionable as mere “puffery,” and that the statements were “too general to cause a reasonable investor to rely on them.” Judge Oetken also rejected the plaintiffs’ claims based on the defendants’ statements about the likelihood of U.S. regulatory approval, finding that the statements were accompanied by adequate cautionary language and therefore were protect forward-looking statements.
Finally, Judge Oetken concluded that the plaintiffs’ allegations fail to state a claim because the complaint does not raise a strong inference of fraudulent intent. In particular, he concluded that the plaintiffs have failed to allege that the defendants received a concrete and personal benefit for the alleged misrepresentations or omissions and did not present sufficient allegations to suggest that the defendants had acted with conscious misbehavior or recklessness.
So much has happened since then that it is hard to remember how high-profile AstraZeneca’s clinical trial setbacks were when they were first made public. Because of the publicity at the time, it arguably is no surprise that the circumstances attracted a securities lawsuit. However, Judge Oetken’s opinion is a succinct reminder that merely because a company experiences a big setback in its intended plans does not mean that it committed securities fraud. I was particularly struck in reading the opinion about Judge Oetken’s recognition that the “historical progression” of the company’s statements tracked the progression of the clinical trials, and his unwillingness to find actionable omissions, based on that progression, with respect to prior statements.
As I noted at the outset, this ruling represents yet another case in which the plaintiff’s allegations in a COVID-19-related securities suit have fallen short. To be sure, they have been cases that have survived the motions to dismiss and that have resulted in significant settlements. In August, Inovio Pharmaceuticals announced that it had reached an agreement to settle the COVID-19-related securities suit that had been filed against the company for cash and stock totaling $44 million. Also in August, Vaxart announced that it had agreed to settle the COVID-19 related securities suit pending against the company for $12 million. Both the Inovio case and the Vaxart case had survived dismissal motions.
The prior dismissal denials in those other cases shows that the hurdle for plaintiffs in establishing an actionable COVID-19-related securities suit is not insurmountable. But just the same I do think just Oetkin’s opinion does reflect a certain amount of judicial skepticism about the allegations. I think his opinion reflects that company’s were making decision, taking actions, and describing what they were doing in the midst of a major health crisis. Thinks were moving fast and evolving. The events were, as Judge Oetken put it, going through an “historical progression.” If the company’s disclosures kept pace with that progression, then Judge Oetken was not going to look back and find prior statements insufficient based on the subsequent events.
Special thanks to a loyal reader for sending me a copy of Judge Oekten’s opinion.