Although he tossed some claims, Judge John Tunheim ruled that the suit can proceed against Medtronic and several of its top executives, including former chairman & CEO William Hawkins, CFO Gary Ellis and CSO Dr. Richard Kuntz. The plaintiffs include institutional investors West Virginia Pipe Trades Health & Welfare Fund, Union Asset Management Holding AG and Employees’ Retirement System of Hawaii.
The suit alleges that Medtronic executives misled investors about Infuse’s commercial prospects and safety profile; the complaint also alleges that Hawkins misled analysts about the prospects of a planned follow-on product called Amplify.
The suit claims investors bought Medtronic shares based on the misrepresentations and were subsequently injured when the stock dropped after Infuse’s safety issues came to light.
Approved in 2002 for use in spinal fusion surgery, Infuse at 1 point had annual sales of nearly $1 billion. The bone-grafting product has since been linked to abnormal bone growth, certain cancers and male reproductive problems. Medtronic has been accused of not only downplaying the product’s risks but also promoting it for off-label use.
In May, Medtronic said it had agreed to settle approximately 950 product liability lawsuits for $22 million, but admitted no wrongdoing.
A month later, health insurer Humana (NYSE:HUM) leveled a racketeering lawsuit against Medtronic, accusing it of rigging the presentation of Infuse scientific data and of pushing its use in off-label procedures.
If the plaintiffs are able to prove that Medtronic executives deliberately misled investors about Infuse’s safety issues, it could open the door to the filing of thousands of personal injury lawsuits against the company, according to the Minneapolis Star Tribune.
Based in the Minneapolis area, Medtronic is in the midst of a $43 billion merger with Covidien (NYSE:COV). If the shareholders lawsuit over Infuse opens the floodgates, the tsunami of lawsuits could derail the merger, which the companies expect to close late this year or early in 2015.