Biotechnology Stock Drop Matter
Our client, a biotechnology company, was sued by shareholders after the Federal Drug Administration stopped clinical trials for the company's major drug due to questions about its safety and efficacy. Following this announcement, the company's stock price dropped by more than 50%. Shareholders sued, alleging that management knew more about the drug's problems than they had acknowledged. Analysis Group was hired by Harkins Cunningham; our team, led by Chairman Bruce Stangle, developed an approach to analysis that used option pricing techniques to identify the volatility of a biotechnology firm under the assumption that the firm is an intrinsic option on an underlying product. This methodology provided a theoretical basis for understanding why a biotechnology stock could experience large gains or losses -- absent any fraud -- as news about the FDA approval process is released. Our analysis showed that the stock price drop our client sustained was entirely within the range of normal stock price fluctuations for a biotechnology firm. Based on this analysis, our client reached a favorable settlement with its shareholders, and avoided further litigation costs.
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