A Cardiovascular Systems (NSDQ:CSII) shareholder filed a purported class action lawsuit last week, accusing the medical device company and its management of misleading investors about an alleged off-label promotion scheme she claims spurred a -70% plunge in the value of CSI’s stock.
“Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (1) CSI distributed illegal kickbacks to health care providers; (2) CSI engaged in the off-label promotion of its medical devices; and (3) CSI violated the Food & Drug Administration’s laws and regulations in connection with its medical devices. As a result of the foregoing, the company’s public statements were materially false and misleading at all relevant times,” plaintiff Caroline Paradis alleged in a lawsuit filed in the U.S. District Court for Central California.
The lawsuit seeks class action status for all CSII shareholders who owned stock between Sept. 12, 2011, and Jan. 21 of this year. The claims are based on a whistleblower lawsuit brought by a former CSI sales rep, Travis Thams, alleging that St. Paul, Minn.-based Cardiovascular Systems ran a kickbacks and off-label marketing scheme to boost sales of its orbital atherectomy devices in violation of the False Claims Act.
The Thams lawsuit, filed in July 2013, accuses the company of inducing physicians to use its products by offering free, all-expense-paid training programs “followed by explicit demands by CSI employees that attendees use CSI products on future patients,” giving away product for free, 3rd-party referral channel marketing, and “sham Speaker Bureau payments for high-prescribers and others whom CSI sought to cultivate,” according to a complaint filed in the U.S. District Court for Western North Carolina.
Thams worked for CSI as a district sales manager from 2012 to 2013, according to the complaint.
In May 2014, CSI revealed that the district attorney for western North Carolina opened a probe into Thams’s allegations “to determine whether the company has violated the False Claims Act, resulting in the submission of false claims to federal and state health care programs, including Medicare and Medicaid.”
That led to a -6% slide for CSII stock, which closed at $27.43 per share May 12, 2014. Another selloff occurred in October 2015, when the company issued preliminary 1st-quarter results that badly missed expectations, pushing CSII shares down -18% to a $13.62 close Oct. 8. By January of this year, when fiscal 2nd-quarter results again missed expectations, the stock plunged -30% to an $8.74 close Jan. 22 – off -69.9% since May 12, 2014.
Cardiovascular Systems, which has until March 25 to respond to the allegations in the Thams lawsuit, has said it “maintains rigorous policies and procedures to promote compliance with the FCA and other regulatory requirements and intends to vigorously defend this lawsuit.”
“The company believes that this lawsuit is without merit and intends to defend itself vigorously,” CSI said yesterday about the Paradis litigation.
CSII shares closed up 6.5% yesterday at $8.68 apiece.