Securities Class Actions in Biotech: Assessing Risk and Returns Amid the Sarepta Therapeutics Saga

The biotech sector, long a hotbed of innovation and volatility, has entered a new era of legal and financial risk. From 2020 to 2025, securities class action lawsuits targeting biotech firms surged, driven by AI-related misrepresentations and inadequate risk disclosures. These cases have not only reshaped investor behavior but also exposed the fragility of valuations built on speculative promises. Nowhere is this more evident than in the ongoing litigation against Sarepta Therapeutics (NASDAQ: SRPT), a case that encapsulates the intersection of regulatory scrutiny, investor trust, and market volatility.

The Rise of AI-Driven Litigation in Biotech

The integration of artificial intelligence into drug discovery and diagnostics has been a double-edged sword for biotech firms. While AI promises faster innovation, it has also become a focal point for securities lawsuits. Courts and regulators are increasingly targeting companies that overstate AI capabilities or fail to disclose risks tied to third-party AI systems. For example, firms that claimed AI-driven “breakthroughs” in drug development without verifiable data have faced class actions for “AI-washing”—a practice akin to greenwashing but with sharper financial consequences.

In 2025, the total settlement value of securities class actions hit a record $4.10 billion, with biotech and pharma firms contributing a disproportionate share. The “Disclosure Dollar Loss Index” for the sector alone reached $403 billion in the first half of 2025, driven by cases involving AI misrepresentations and safety oversights. This trend underscores a critical lesson: investors are no longer willing to tolerate vague or unsubstantiated claims about AI's role in a company's pipeline.

Sarepta Therapeutics: A Case Study in Risk Exposure

Sarepta's securities class action, Dolgicer v. Sarepta Therapeutics, Inc., offers a stark illustration of how litigation can unravel a company's market value. The lawsuit alleges that Sarepta and its executives misled investors about the safety and regulatory prospects of ELEVIDYS, a gene therapy for Duchenne muscular dystrophy. Key events include:
- March 18, 2025: A patient treated with ELEVIDYS died from acute liver failure, triggering a 27% stock drop.
- June 15, 2025: A second patient death led to a 42% plunge in SRPT shares.
- June 24, 2025: The FDA's safety communication over ELEVIDYS caused an additional 8% decline.

The cumulative impact was devastating. By July 2025, Sarepta's stock had lost over 70% of its value since the start of the Class Period (June 2023–June 2025). The company also faced regulatory scrutiny, clinical holds, and a collapse in analyst confidence—H.C. Wainwright slashed its price target to $0.

Legal and Financial Implications for Shareholders

The Sarepta case highlights two critical risks for biotech investors:
1. Reputational and Regulatory Fallout: Companies that fail to disclose material safety risks or overstate AI-driven capabilities face not only lawsuits but also prolonged regulatory investigations. For Sarepta, the FDA's clinical holds and the European Union's demand for independent data reviews have created long-term uncertainty.
2. Investor Litigation Exposure: The lead plaintiff process, with a deadline of August 25, 2025, could result in a protracted legal battle. While settlements often follow, the financial burden of litigation—combined with lost revenue from halted trials—can erode shareholder value for years.

Strategic Considerations for Investors

For investors, the Sarepta saga serves as a cautionary tale. Here's how to navigate the risks:
- Due Diligence on AI Claims: Scrutinize a company's AI-related disclosures. Are claims supported by peer-reviewed data or third-party validation? Biotech firms that lack transparency in AI integration are more likely to face litigation.
- Diversification and Hedging: Given the sector's volatility, diversifying across therapeutic areas and balancing biotech exposure with more stable industries can mitigate downside risk.
- Monitoring Regulatory Signals: Early warnings from the FDA or EMA—such as requests for independent data reviews—can signal impending legal or financial trouble. Investors should treat these as red flags.

Conclusion: Navigating the New Normal

The biotech sector's legal landscape has evolved. As AI becomes central to drug development, the line between innovation and misrepresentation is blurring. Sarepta's case demonstrates that even companies with promising pipelines can face existential threats if they fail to align their disclosures with reality. For investors, the key is to balance optimism for breakthrough therapies with a healthy skepticism of unverified claims. In this environment, prudence—not just in portfolio construction but in legal preparedness—will define long-term success.

As the Sarepta litigation unfolds, one thing is clear: the days of unchecked hype in biotech are over. The future belongs to firms that can prove their promises, not just promise them.