Evaluating the Legal and Market Risks of Biotech Investments Amid FDA Disruptions

The U.S. Food and Drug Administration (FDA) has long been a double-edged sword for biotech investors. While regulatory approvals can catalyze exponential gains, setbacks—such as Complete Response Letters (CRLs)—often trigger cascading market and legal consequences. The recent case of Replimune Group (NASDAQ: REPL) exemplifies this volatility, offering a stark reminder of the risks inherent in biotech investing.

Replimune’s CRL and the Investor Fallout

In July 2025, Replimune received a CRL for its Biologics License Application for RP1, an immunotherapy for advanced melanoma. The FDA cited two critical flaws: the IGNYTE trial’s heterogeneous patient population and a flawed design for isolating RP1’s efficacy in combination therapy [1]. This decision precipitated a 77% collapse in Replimune’s stock price, erasing billions in market value [3].

The fallout quickly extended to the legal realm. A securities class action was filed on behalf of investors who purchased Replimune stock between November 2024 and July 2025, alleging the company misrepresented regulatory prospects and concealed trial deficiencies [2]. The lawsuit, led by Hagens Berman, argues that Replimune violated securities laws by failing to disclose risks that were “material to investor decision-making” [4]. With the lead plaintiff deadline set for September 22, 2025, the case underscores how regulatory uncertainty can rapidly escalate into litigation exposure [1].

Broader Market and Legal Trends

Replimune’s experience is not an outlier. From 2020 to 2025, FDA-related CRLs have consistently triggered stock volatility. For instance, Capricor Therapeutics and Aldeyra Therapeutics both faced CRLs for their respective therapies, prompting resubmissions and stock declines [2]. According to a 2024 analysis by Goodwin Law, 56% of life sciences securities class actions in 2024 were dismissed at the motion-to-dismiss stage, reflecting courts’ historical favoritism toward defendants [2]. However, the number of such lawsuits surged by 30% in 2024 compared to 2023, indicating growing investor scrutiny of regulatory risks [2].

The Sarepta Therapeutics case further highlights litigation risks. In 2023, Sarepta faced a class-action lawsuit after its Duchenne gene therapy, Elevidys, was linked to three liver-failure deaths. Courts have increasingly scrutinized whether companies adequately disclose safety risks, with the First Circuit recently ruling that Biogen’s statements about an Alzheimer’s drug were misleading despite being framed as opinions [3]. These cases emphasize that even post-approval, biotech firms remain vulnerable to litigation if safety or efficacy concerns emerge.

Mitigating Risks: A Framework for Investors

To navigate these challenges, investors must adopt a multifaceted approach to due diligence:

1. Regulatory Contingency Planning: Companies should build buffer timelines into drug development and engage regulatory consultants early. Diversifying submissions to global agencies like the EMA or Japan’s PMDA can also reduce reliance on the FDA [4].
2. Transparency in Clinical Data: As seen in Replimune’s case, opaque trial designs or selective disclosure of adverse events can invite litigation. Investors should prioritize firms with rigorous, transparent clinical protocols [1].
3. Strategic M&A Structures: In mergers and acquisitions, contingent payment models—such as earn-outs tied to regulatory milestones—can mitigate overpayment risks for unproven assets [1].
4. Legal and Compliance Expertise: Hiring regulatory affairs (RA) and quality assurance (QA) professionals is critical for early-stage firms. These roles ensure compliance with FDA guidelines and reduce the likelihood of post-approval disruptions [3].

Conclusion

The Replimune case and broader industry trends underscore a fundamental truth: biotech investments are inextricably linked to regulatory and legal outcomes. While the FDA’s rigorous standards aim to protect public health, they also create a high-stakes environment where missteps can devastate both stock prices and investor trust. For investors, the path forward lies in rigorous due diligence, a nuanced understanding of litigation trends, and a willingness to hedge against the inherent uncertainties of drug development.

Source:
[1] Replimune (REPL) Faces Investor Lawsuit After FDA Blocks [https://www.globenewswire.com/news-release/2025/09/05/3145460/32716/en/Replimune-REPL-Faces-Investor-Lawsuit-After-FDA-Blocks-Cancer-Drug-Approval-Hagens-Berman.html]
[2] Securities Litigation Against Life Sciences 2024 YIR [https://www.goodwinlaw.com/en/year-in-review/securities-litigation-against-life-sciences-2024-yir]
[3] Anatomy of a Biotech Failure [https://www.librariesforthefuture.bio/p/why-do-biotechs-fail]
[4] Navigating Regulatory Uncertainty: Adapting to FDA Changes 2025 [https://www.allucent.com/resources/blog/navigating-regulatory-uncertainty-fda-changes-2025]