The lawsuit alleges that Boston Scientific spiked the deal over a former Channel employee’s alleged scheme to embezzle nearly $3 million from the women’s health company.
Emeryville, Calif.-based Channel Medsystems developed Cerene, a cryogen-based endometrial ablation system designed to treat heavy menstrual bleeding that won CE Mark approval in the European Union in June 2017. In the U.S., the treatment phase is complete in a 242-woman pivotal investigational device exemption trial. The company has raised at least $47.6 million in a series of funding rounds that included Boston Scientific, which acquired a 20% stake for $20.6 million spread over two of the rounds.
Last November the companies agreed to a deal that would have seen Boston acquire the remaining 80% for $275 million if it won FDA approval by Sept. 30, 2019, according to the lawsuit, but by May the agreement had foundered in the wake of the alleged embezzlement scheme. Federal prosecutors indicted then-quality assurance VP Dinesh Shankar April 20, charging him with six counts of mail fraud. If convicted, he faces up to 20 years in prison and a fine of $250,000 or twice the gross gain for each count.
Boston Scientific spiked the merger May 11, according to the suit, accusing Channel Medsystems of fraudulently inducing it into the deal and breaching the agreement. Channel then sued to enforce the buyout, claiming that Shankar’s theft didn’t affect Channel’s pivotal trial or impede its bid for pre-market approval from the FDA, filed August 13.
Yesterday, the Delaware Court of Chancery granted a motion to expedite the case, according to court documents.