Sunday, December 19, 2010
The Sitting Ducks of Securities Class Action Litigation: Bio-Pharmas and the Need for Improved Evaluation of Scientific Data, by Stuart R. Cohn, University of Florida - Fredric G. Levin College of Law, and Erin M. Swick, White & Case LLP, was recently posted on SSRN. Here is the abstract:
Rule 10b-5, a powerful weapon against any publicly-listed company whose share price drops on adverse news, is particularly skewed against pharmaceutical and other bio-technology companies (bio-pharmas). It is not a coincidence that there is a disproportionate number of class actions filed against bio-pharmas. The volume and complexity of data underlying most bio-pharma cases create enormous outcome uncertainties, settlement pressures, and potentially huge contingent liabilities over substantial periods of time. The vulnerability and risks that bio-pharmas face in Rule 10b-5 class actions are unique among all publicly-traded industries, yet many cases proceed along traditional grounds without courts employing either their statutory or inherent powers to obtain objective expert assessment of the data underlying plaintiffs' claims. Most judges have neither the training nor the capacity to differentiate between the positions of opposing experts or to reach their own independent assessment of the research data.
The unstated premise of the Supreme Court's Daubert v. Merrell Dow Pharmaceuticals opinion is that courts have an obligation to fully understand the evidence prior to any decision-making, and that the use of court-appointed experts will allow judges to decide motions to dismiss with greater confidence and accuracy. The early appointment of such experts may also have the salutary effect of causing plaintiffs to pause and consider whether the claims are sufficient to warrant the up-front imposition of court-appointed expert costs. If courts begin to recognize in greater numbers the importance of obtaining objective expert testimony, we believe that a more level playing field will evolve to reduce the disproportionate vulnerability of bio-pharmas to securities law class actions.