Securities Litigation Risks in Biotech Investing: Lessons from Savara and Governance Best Practices

The biotechnology sector, long a magnet for speculative capital, has seen a sharp rise in securities litigation risks in 2024–2025. Recent developments involving Savara Inc. (NASDAQ: SVRA) underscore the vulnerabilities inherent in the industry's high-stakes environment. A class action lawsuit filed in September 2025 alleges that Savara and its executives misled investors by concealing critical flaws in its Biologics License Application (BLA) for MOLBREEVI, a treatment for pulmonary alveolar proteinosis. The case, which spans from March 2024 to May 2025, highlights how regulatory setbacks and opaque disclosures can trigger legal and financial turmoil for biotech firms and their stakeholdersSpecial Report: Biotechnology Companies & Securities …^[1].

The Savara Case: A Microcosm of Industry Risks

Savara's legal troubles stem from its handling of the MOLBREEVI BLA. According to the lawsuit, the company allegedly withheld material information about deficiencies in the drug's chemistry, manufacturing, and controls data, which rendered FDA approval improbable. These omissions, coupled with delayed timelines, allegedly inflated investor expectations before the FDA issued a refusal-to-file (RTF) letter on May 27, 2025, causing the stock to plummetSavara Inc. Sued for Securities Law Violations - Investors Should^[3]. The case exemplifies a recurring pattern in biotech litigation: plaintiffs target firms that overstate progress in regulatory or clinical milestones, only to face harsh reality checksCorporate Governance in the Biotechnology Industry: Regulatory ...^[5].

This episode aligns with broader trends. According to the D&O Databox™ from Woodruff Sawyer, biotech companies accounted for 17% of all securities class action filings in 2024, the second-highest share after financial servicesSpecial Report: Biotechnology Companies & Securities …^[1]. Courts, however, have grown more skeptical of such suits. For instance, cases against BioXcel, Revance, and AcelRx were dismissed due to plaintiffs' inability to prove scienter—the legal standard requiring intent to deceiveSpecial Report: Biotechnology Companies & Securities …^[1]. This judicial caution underscores the importance of precise, transparent communication from biotech executives, particularly when disclosing complex scientific or regulatory developmentsCorporate Governance in the Biotechnology Industry: Regulatory ...^[5].

Corporate Governance: A Critical Defense Against Litigation

Weak governance structures amplify litigation risks in biotech. Altimmune, Inc. (NASDAQ: ALT), another recent litigation target, exemplifies this. Following allegations of misrepresenting clinical trial results for pemvidutide—a drug for metabolic dysfunction-associated steatohepatitis (MASH)—its stock dropped 53%. An analysis of Altimmune's governance revealed an ISS Governance QualityScore of 7, signaling vulnerabilities in board independence and shareholder rightsBiotech & Pharma Due Diligence Best Practices^[6]. Between 2023 and 2025, biotech firms accounted for 20% of U.S. securities class actions, with 4.7% directly tied to clinical data misrepresentationBiotech & Pharma Due Diligence Best Practices^[6].

To mitigate such risks, biotech companies must prioritize board independence, rigorous data validation, and transparent shareholder communication. The Sidley report emphasizes that internal confidence in public statements is critical; even well-intentioned errors can attract scrutiny if they mislead investorsSpecial Report: Biotechnology Companies & Securities …^[1]. For example, Savara's alleged failure to disclose BLA deficiencies—despite internal awareness—could expose executives to liability, regardless of intentSavara Inc. Sued for Securities Law Violations - Investors Should^[3].

Investor Due Diligence: Navigating Complexity with Precision

Investors must adopt multidisciplinary due diligence frameworks to assess biotech opportunities. Technical due diligence should focus on three pillars:
1. Clinical Data Validation: Scrutinize trial protocols, raw data integrity, and alignment with regulatory expectations.
2. Governance Metrics: Evaluate board composition, shareholder rights, and historical transparency.
3. Regulatory Readiness: Assess the feasibility of meeting FDA or EMA requirements, including manufacturing and controls.

Specialists like PlexoA and Alacrita recommend engaging experts in clinical trial design and intellectual property (IP) defensibility to identify hidden risks, such as discrepancies between public presentations and underlying data. For instance, Savara's investors might have flagged risks by analyzing the BLA's chemistry and manufacturing data prior to the May 2025 RTFSavara Inc. Sued for Securities Law Violations - Investors Should^[3].

Moreover, diversification remains a key risk-mitigation strategy. Given the sector's volatility, concentrated bets on single assets—particularly those reliant on unproven therapies—can expose portfolios to catastrophic lossesBiotech & Pharma Due Diligence Best Practices^[6].

The Path Forward: Governance and Due Diligence in Action

For biotech firms, proactive governance reforms are essential. This includes:
- Enhanced Internal Review: Cross-checking public statements with regulatory and scientific advisors.
- Document Retention Policies: Ensuring records of decision-making processes are preserved to defend against litigationKey Updates: Life Sciences Securities Class Actions 2024-2025^[2].
- Investor Education: Clearly delineating speculative risks in disclosures to manage expectationsCorporate Governance in the Biotechnology Industry: Regulatory ...^[5].

Investors, meanwhile, should integrate legal and compliance risk assessments into their due diligence. As Adviser Society notes, securities class action filings in life sciences remain 40% above historical averages in 2025, driven by clinical setbacks and regulatory actionsKey Updates: Life Sciences Securities Class Actions 2024-2025^[2]. By prioritizing transparency and rigor, both companies and investors can navigate the sector's inherent uncertainties more effectively.