Updated Dec. 13, 2012, at 3:30 p.m. with comment from St. Jude Medical.
Named alongside the company are CEO Daniel Starks, executive vice president John Heinmiller and CFO Donald Zurbay, according to court documents.
The lawsuit is another blow to the St. Jude and its Durata line, which has increasingly become a target of scrutiny following a negative FDA inspection report and a product recall affecting a similar product.
"We believe the lawsuit is without merit and we will vigorously defend against the allegations," St. Jude spokeswoman Amy Jo Meyer told MassDevice.com today. She added that the company will provide updates on the lawsuit in its next quarterly SEC filing, which it expects to file in February.
The medical device company has been busy calming fears about its next-generation Durata leads since recalling its Riata defibrillator wires amid much controversy about revision rates and potentially device-related deaths.
Wall Street investors are keeping their eyes peeled for any sign of a problem with the Durata leads. In June, a single report (later debunked) of a Durata lead failure similar to the kind that sank the Riata sent STJ shares plunging 6% in a single day.
Last month the FDA released a report chiding St. Jude on 11 problems discovered at a Sylmar, Calif., manufacturing plant inspected in September and October, news of which sent STJ shares down more than 11% in 1 day as investors recoiled from what some perceived as a potential withdrawal of the Durata products.
The FDA dispatch followed a St. Jude report proclaiming low failure rates among its Durata and Riata ST Optim leads, which use a more durable insulated coating than the troubled Riata devices, according to St. Jude. The company has issued many statements and hosted presentations on the Durata wire, highlighting the differences between it and its recalled predecessor.
The company hosted several events at the Heart Rhythm Society meeting in Boston earlier this year, distancing the Durata leads from their forebears. In a highly attended talk entitled "Should we trust Durata?" Dr. Chuck Love told listeners that "Durata is 85% different from Riata," noting that the Durata device has a more robust coating than the Riata’s silicone insulation.
Shareholders this week accused the company of issuing false information about Durata as far back as October 2011, alleging that Durata leads suffer the same design flaws that brought down the Riata line.
Norfolk Country Retirement System led the case against St. Jude, claiming that the company and its leadership issued misleading statements in its regulatory filings, securities analysts’ reports and advisories, press releases and in other public statements and media reports.
"Defendants misled investors by consistently presenting Durata as a well-researched, well-designed improvement to the Riata Lead design, statements that led investors to push St. Jude’s share prices higher," according to the filed complaint.
The plaintiffs further alleges 3 "true facts" that were allegedly known by company leadership but concealed from shareholders, the combination of which form the basis of the lawsuit. The lawsuit claims:
- "Durata Leads were subject to the same or similar design flaws that had led to abrasion and wire exposure risks in Riata and Quick Leads;
- the company’s design, manufacturing, testing, and quality control processes for leads, including Durata Leads, was flawed by such significant deficiencies – including the disregard of St. Jude’s own quality control policies that effectively bypassed 80% of certain design element tests – that the company’s leads presented a material risk to patients and would not be a commercial success; and
- as a result of the foregoing, St. Jude lacked a reasonable basis to tout the testing and manufacturing processes underlying Durata and Optim, to characterize its Durata Leads as an improvement over its previous generation of leads, and to project that Durata Leads would be a commercial success."