Medtronic’s HeartWare to settle investor suit for $55m

Medtronic (NYSE:MDT) subsidiary HeartWare International agreed to settle a class-action lawsuit brought over a failed trial of its MVAD implantable heart pump.

The lawsuit’s origins lie in the July 2015 launch of a clinical trial aimed at winning CE Mark approval in the European Union for HeartWare’s next-generation MVAD pump. The company 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. (Medtronic acquired HeartWare for $1.1 billion in August 2016.)

The lawsuit, brought by the St. Paul Teachers’ Retirement Fund Assn., alleged that HeartWare and then-CEO Douglas Godshall ignored FDA directives ” to remedy dangerous deficiencies in its processes for manufacturing and testing its devices,” according to the amended complaint.

HeartWare moved to dismiss the case, arguing that “optimism does not become securities fraud when the hope wanes” after a failed clinical trial, but Judge Ronnie Abrams of the U.S. District Court for Southern New York ruled in March that evidence from six former HeartWare employees, who said the problems with the MVAD device were known to the company, was plausible enough to warrant a trial.

Last week the plaintiffs asked Abrams to approve a $54.5 million settlement the parties agreed to Nov. 13.

“Lead plaintiff believes that the proposed settlement represents a very favorable result for the class because it provides a significant recovery, particularly when compared to the risks that continued litigation might result in a smaller recovery, or no recovery at all,” according to the proposed settlement. “While lead plaintiff and lead counsel believe the claims asserted against defendants have merit, lead plaintiff would have faced substantial challenges in proving that defendants’ statements about the safety and commercial viability of HeartWare’s MVAD heart pump, and the company’s progress in remedying deficiencies identified in a warning letter from the FDA, were materially false and misleading when made, and were made with scienter. Lead plaintiffs also would have faced significant risks in establishing that defendants’ allegedly false statements led to the losses suffered by the class.”

For their part, HeartWare and Godshall admitted no guilt in agreeing to put the dispute to rest.

“Defendants, who deny all allegations of wrongdoing or liability whatsoever, are entering into the settlement solely to eliminate the uncertainty, burden and expense of further protracted litigation,” according to court documents.

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