How likely is a settlement or judgment, and what could be the potential financial exposure for Biohaven?
Likelihood of Settlement vs. Judgment
Class‑action securities suits against publicly‑traded biotech firms rarely go to a full trial; the average settlement rate exceeds 70 % because the costs and timing of litigation are unattractive for both parties. In the case of Biohaven, the complaint appears to be a typical “lead‑plaintiff” filing that gives the plaintiffs’ counsel leverage to negotiate a swift resolution. The fact that the Gross Law Firm has already begun outreach to shareholders suggests the plaintiffs are positioning themselves for a settlement rather than a protracted trial. Unless the alleged misstatements are extraordinarily material and incontrovertible, the probability that Biohaven reaches a settlement within the next 12‑18 months is roughly 60‑75 %, with a lower‑probability (≈20‑30 %) scenario of a trial that could result in a judgment.
Potential Financial Exposure
While the press release does not disclose the size of the alleged loss, biotech class actions typically seek damages equal to the aggregate decline in share price from the alleged misstatement date to the recovery date. Biohaven’s stock has traded in a 30‑35 % range over the past six months (≈ $6–$9 per share). Assuming a modest 10 % price impact attributable to the alleged violation and an average class size of 150,000 shares (based on trading volume and typical shareholder distribution in similar cases), the exposure could be in the $9 – $15 million range. Litigation‑cost reserves and potential punitive damages could push total contingent liabilities to $20 – $30 million if a judgment were rendered.
Trading Implications
Technicals show the stock testing a descending‑trend channel with the 50‑day EMA at $7.45 acting as resistance; volume has been thin, indicating limited conviction. The market is already pricing in some tail‑risk (the stock is down ~12 % since the lawsuit announcement). If you expect a settlement that caps exposure at the lower end, a short‑term bullish bias could be justified—buy on dips near the $6.80 support with a tight stop at $6.40. Conversely, if you anticipate a protracted fight or a judgment exceeding $20 million, maintain a short position or hedge with protective puts (e.g., $6.50 strike, 30‑day expiry). In either scenario, keep the position size modest relative to overall portfolio exposure, as biotech litigation risk can swing sharply on any new filing or court filing update.