Medtronic’s HeartWare can’t slip investors class action over failed MVAD trial

A federal judge in New York City last week shot down a bid by Medtronic subsidiary HeartWare to dismiss a class-action lawsuit brought over a failed trial of its MVAD implantable heart pump.

Framingham, Mass.-based HeartWare in July 2015 launched a clinical trial aimed at winning CE Mark approval in the European Union for the next-generation MVAD pump, but hit the pause button in September 2015 after running into an issue with the manufacturing process for the device’s controller. The problems persisted into January of the following year, when the company said it couldn’t predict when it would be able to get the MVAD program back on line.

That prompted the class-action suit by lead plaintiff the St. Paul Teachers’ Retirement Fund Assn., alleging that HeartWare and then-CEO Douglas Godshall “failed to heed directives by the U.S. Food & Drug Administration to remedy dangerous deficiencies in its processes for manufacturing and testing its devices,” according to the amended complaint.

“Instead, HeartWare disregarded serious defects in MVAD and implanted the flawed device in patients enrolled in a pivotal clinical trial. Defendants nevertheless stated that the company fixed the defects found by the FDA and repeatedly emphasized MVAD’s purported commercial value, superior safety profile and cutting edge technological enhancements. None of these statements were true. As a direct result of this misconduct, HeartWare’s clinical trial of MVAD ended in disaster, with nearly half the patients experiencing serious adverse side effects, and the company’s stock price losing more than two-thirds of its value.”

HeartWare, which was acquired for $1.1 billion by Medtronic in August 2016, moved to dismiss the case, arguing that “optimism does not become securities fraud when the hope wanes” after a failed clinical trial.

The lawsuit, “brought in the wake of a disappointing development in a clinical trial for a new medical technology” is based “entirely on implausible and impermissible hindsight inferences that plaintiff asks the court to draw from the trial results,” according to the motion to dismiss.

“Plaintiff asks the court to infer, for example, that HeartWare and its CEO, Douglas Godshall, were misleading investors when, throughout the class period, they updated investors on when they expected to complete remediation of certain documentation issues identified by the FDA, when they expected initiation of clinical trials for their development-stage medical technology, and how well the new technology was performing in lab and in animal testing. Plaintiff also asks the court to infer that the company and Godshall rushed the new technology into a clinical trial that they supposedly knew was doomed to fail, all the while allegedly misleading investors about the prospects for success. These hindsight inferences make no sense,” the company alleged in the motion.

But Judge Ronnie Abrams of the U.S. District Court for Southern New York ruled from the bench last week that evidence from six former HeartWare employees, who said the problems with the MVAD device were know to the company, was plausible enough to warrant a trial.

Abrams gave the defendants until May 16 to respond to the lawsuit, according to court documents.

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