A federal appeals court backed Wright Medical‘s (NSDQ:WMGI) BioMimetic Therapeutics subsidiary in a lawsuit filed by shareholders of BioMimetic, which Wright acquired in 2012, alleging that the then-independent company misled investors about the prospects for its Augment bone graft with the FDA.
A lower court dismissed the lawsuit, filed in 2011 after an FDA briefing document released ahead of an advisory panel meeting sent BioMimetic shares plunging. The complaint alleged that the company and its management concealed problems with the Augment clinical trial but "spoke optimistically to investors about the device’s prospects for FDA approval," according to court documents.
The U.S. Court of Appeals for the 6th Circuit upheld the lower court’s decision to dismiss the lawsuit, ruling that the plaintiffs failed to prove BioMimetic and its management misled investors about the clinical trial. The FDA allowed the company to base its pre-market approval application on a subset of patients that didn’t include subjects who were ruled out for the Augment procedure, according to court documents.
"The allegations in the complaint therefore indicate that the trials showed that the device was effective based on an analysis that BioMimetic believed the FDA had approved. All of the supposedly misleading statements are consistent with that interpretation. While BioMimetic may have ultimately been mistaken about which population the FDA wanted the company to use for the primary effectiveness analysis, there are no facts suggesting the company knew this at the time its representatives spoke," Judge John Rogers wrote. "Of course the lack of statistically significant results undoubtedly hurt Augment’s prospects – but BioMimetic fully disclosed the results of the study and told investors that the FDA wanted to see an analysis of both the ITT and mITT populations. And the market apparently understood the significance of the results of the study because BioMimetic’s stock price dropped 16% after the company released the data. It is doubtful that the company intended to defraud investors in light of its willingness to disclose information that harmed its share prices."
Wright acquired BioMimetic in November 2012 for $190 million in cash and stock and another $190 million in milestones. Despite a positive vote for Augment by the advisory panel, the FDA issued a non-approval letter in August 2013. Last November the federal watchdog agency granted Wright’s request for a dispute resolution panel, but the company remained pessimistic about its chances.
In March, the FDA agreed to let Wright submit supplemental data for the Augment PMA instead of proceeding with the dispute panel, which had need slated for the week of May 19.