Globus Medical escapes securities class action

Globus Medical (NYSE:GMED) yesterday escaped a purported class-action lawsuit alleging that it misled investors about its plans to ditch one of its distributors and take those sales in house.

The lawsuit involves Vortex Spine, the exclusive Globus distributor for parts of Louisiana and Mississippi from 2004 until April 2014, according to court documents. The distribution deal was slated to expire in December 2013, but the companies inked a 4-month extension to cover early 2014.

During that time, according to the documents, Globus established its own sales operation to cover the Vortex territory and ended the relationship around April 18, 2014. In the meantime the company twice issued financial guidance called for earnings per share of 90¢ to 92¢ on sales of $480 million to $486 million. That changed in August 2014, when Globus cut its sales outlook to $460 million to $465 million, attributing the shift to end of Vortex deal and prompting investors to pare -17.9% from GMED’s share price.

Plaintiff Mark Silverstein sued Audubon, Pa.-based Globus in September 2015 on behalf of investors who owned GMED shares between Feb. 26 and August 5, 2014, alleging that the company’s management hid its plan to end the relationship with Vortex Spine and misled investors about the move’s financial impact. The U.S. District Court for Eastern Pennsylvania dismissed the case in August 2016 and denied Silverstein’s bid for reconsideration; Silverstein then appealed to the U.S. Court of Appeals for the 3rd Circuit.

Writing for the appeals court yesterday, Judge Anthony Scirica agreed with the Globus motion to dismiss the appeal, noting that the company ultimately posted 2014 EPS of 97¢ on sales of $474.4 million, “just 1.17% below the initial projection made in February 2014 and earnings per share exceeded the projection by 5.4%.”

The plaintiff failed to show that the initial revenue projections were false and that the company’s warnings about the potential impact of losing a distributor were inadequate.

“Further, at the end of the fiscal year, Globus achieved $474.4 million in sales — just less than its initial projection of $480 million to $486 million — and earnings of 97¢ per share — compared to an initial projection of 90¢ to 92¢,” Scirica wrote. “While the ultimate touchstone is whether the projections were false or misleading when made, plaintiffs’ claim that the projections were impossible to achieve is undermined by the fact that the company ultimately substantially achieved the challenged projections.”

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