Tvardi Therapeutics and the Legal Risks Impacting Biotech Valuations

In October 2025, Tvardi Therapeutics, Inc. (NASDAQ: TVRD) became the latest clinical-stage biotech firm to face securities litigation after its stock plummeted 83.9% following the announcement that its Phase 2 REVERT trial for TTI-101 in idiopathic pulmonary fibrosis failed to meet its primary endpoints, according to a Rosen Law Firm notice. The sharp decline triggered investigations by law firms such as Faruqi & Faruqi, LLP and Rosen Law Firm, which are probing whether the company misled investors with "materially misleading business information," as detailed in a Faruqi & Faruqi investigation. This case exemplifies the heightened legal risks facing biotech firms in a volatile market, where unmet clinical expectations can rapidly translate into litigation and valuation erosion.

The Broader Context: Biotech's Legal Vulnerabilities

The Tvardi case is not an isolated incident. From 2023 to 2025, the biotech sector has faced a surge in securities lawsuits, driven by macroeconomic headwinds and regulatory shifts. A 2025 overview in a Yahoo Finance report highlights how interest rate hikes, global economic volatility, and the policies of U.S. President Donald Trump-including tariffs and drug pricing pressures-have created a climate of uncertainty. These factors have exacerbated investor skepticism, particularly in clinical-stage firms that rely on speculative growth narratives. The sector's recovery in 2024, fueled by a 70.9% increase in venture funding, has not fully restored confidence, as companies now face heightened scrutiny over their clinical trial disclosures and M&A activities, the Yahoo Finance report notes.

Historical Precedents and Legal Nuances

Historical data underscores the financial toll of securities litigation on biotech firms. According to a Woodruff Sawyer report, in 2024 biotech companies accounted for 17% of all securities class action filings, second only to technology firms. Notable settlements include Teva Pharmaceuticals' $420 million payout in 2022 for price-fixing and Alexion's $125 million resolution in 2023 for fraudulent sales practices, the Woodruff Sawyer report notes. However, courts have increasingly dismissed cases where plaintiffs failed to prove "scienter"-the legal standard requiring evidence of fraudulent intent. For example, lawsuits against BioXcel, Revance, and AcelRx were dismissed because courts determined that unmet clinical trial results did not constitute fraud. This legal nuance is critical for firms like Tvardi, which must navigate the fine line between optimistic projections and actionable misrepresentation.

Market Reactions and Investor Implications

The impact of litigation on biotech valuations is stark. Savara Inc. (NASDAQ: SVRA) and MoonLake Immunotherapeutics (NASDAQ: MLTX) both saw stock price drops exceeding 80% after lawsuits alleged failures to disclose material information about their clinical candidates, according to a Howard G. Smith notice and a subsequent GlobeNewswire release. For Tvardi, the REVERT trial's failure has not only triggered legal action but also raised questions about its pipeline's credibility. Investors must weigh the likelihood of litigation settlements against the company's ability to pivot-such as by repurposing TTI-101 for other indications or securing new partnerships.

Conclusion: Navigating a High-Risk Landscape

Tvardi's situation reflects the precarious position of clinical-stage biotechs in a litigious environment. While securities lawsuits often hinge on proving intent, the reputational and financial costs of litigation remain significant. For investors, the key takeaway is the importance of rigorous due diligence, particularly in firms with high-stakes clinical trials. As the biotech sector continues to grapple with regulatory and economic pressures, companies that prioritize transparent communication and robust risk management will be better positioned to weather the storm.