Defending against class action lawsuits has unfortunately become an accepted fact of doing business in America. Yesterday, drugmaker Discovery Laboratories (NASDAQ:DSCO) announced that a federal court had dismissed a class action suit against the company. The suit alleged violations of the Securities Exchange Act, related to public statements Discovery made in regards to its attempts at bringing respiratory compound Surfaxin to market.
Discovery was smart to defend itself in this suit. Among other things, the plaintiffs in the case alleged that Discovery's management made statements about the Surfaxin manufacturing difficulties that they knew were false or misleading. In many cases, these suits are simply attempts to obtain a quick settlement, allowing the litigants to move on to the next victim, err, public company.
While I can't comment on the substance of these claims (investors can search online to read the complaint), I can empathize with the drug developers' managers. They must constantly balance between the demand for more information from investors, the competitive pressure not to give away any secrets, and other issues like the embargoes placed on releasing clinical study results before major medical conferences.
On the other hand, plenty of development-stage pharmaceutical firms are alive today because of the hopes and dreams of investors fueled by the promises of billion-dollar market opportunities -- even though the company's science or drug candidates may be completely trash. As fellow Fool and Rule Breakers analyst Charly Travers pointed out in 2004, litigation targeting pharmaceutical companies is a particularly common practice that probably won't go away anytime soon, regardless of whether the suits have merit or not.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
