The 8th U.S. Circuit Court of Appeals in St. Paul, Minnesota, has revived a lawsuit accusing Medtronic of defrauding shareholders by covering up adverse effects of its Infuse bone-growth product, according to a Reuters report. Writing for the appeals court, Judge Raymond Gruender said that a lower-court judge erred in finding that the plaintiff shareholders sued too late, waiting more than two years after learning information that could have suggested an intent to defraud.
The plaintiffs include the West Virginia Pipe Trades Health and Welfare Fund; the Employees’ Retirement System of the State of Hawaii; and Germany’s Union Asset Management Holding AG.
Medtronic developed Infuse (recombinant human bone morphogenetic protein-2 [rhBMP-2]) as an alternative to bone grafts. The FDA approved the product in 2002 for use in some spinal-fusion surgeries, but doctors began prescribing it for off-label uses, which eventually accounted for 85% of sales.
In June 2011, the Spine Journal reported that clinical studies by doctors with financial ties to Medtronic understated the risks associated with Infuse. Then, in October 2012, a report from the U.S. Senate Finance Committee found that Medtronic was “heavily involved” in shaping the content of such studies. The Medtronic shareholders claimed that this deception inflated the company’s stock price, causing them to suffer hundreds of millions of dollars in losses when the truth came out.
Gruender wrote that the shareholders might have had reason to be suspicious before the Spine Journal issue was published, but he said reasonable shareholders could have inferred merely that problems with the studies resulted not from fraud but from “the nature of corporate-sponsored research.”
Gruender also rejected Medtronic’s claim that the shareholders failed to properly allege that they relied on the company’s supposed misconduct.
“A company cannot instruct individuals to take a certain action; pay to induce them to do it; and then claim any causal connection is too remote when they follow through,” he wrote.
“In this way,” Gruender continued, “Medtronic’s alleged manipulative conduct directly caused the biased clinical trial results that the market relied upon.”
Medtronic is now based in Ireland but has offices in Minneapolis. In March 2012, the company agreed to pay $85 million to settle a separate shareholder lawsuit accusing it of concealing the extent of the off-label use of Infuse.
The case is West Virginia Pipe Trades Health & Welfare Fund et al v. Medtronic Inc et al, 8th U.S. Circuit Court of Appeals, No. 15-3468.
Source: Reuters; December 28, 2016.