Opinion ID: 223134
Heading Depth: 3
Heading Rank: 3

Heading: Statements Regarding Recall Risk

Text: Plaintiff claims that the July recalls were foreseeable and that BSC should have disclosed the risk sooner. They state that a recall of Taxus was not merely in the universe of risks recognized by Defendants, it was a certain risk known to the Defendants, thus transforming this case from one of mere negligence to one of deliberate indifference. Plaintiff's proposed inference of scienter is not only based on what defendants failed to say about the introduction of the laser shift, discussed above, but also on what they did say about the risk of recall. Plaintiff argues that defendants affirmatively misled the market about this risk. Plaintiff claims that starting in April 2004, BSC told the market that there would be no recall of devices manufactured prior to the implementation of the FDA-approved manufacturing change, and that [e]ven on June 22, the date the Company had determined a recall was necessary, the Company continued to make statements that there would be no recall. The evidence does not support these claims. Plaintiff points to the fact that a June 22 Dow Jones Newswires article reported Paul Donovan as saying there would not be a recall, while a June 22 PIR recommended the recall of one batch of Taxus devices manufactured in Maple Grove. However, the PIR was not completed until the evening of June 22, while the article was published in the morning. It is also unclear from the article when Donovan made this statement. Further, standard company protocol required that PIR recommendations be evaluated and approved by the FAC, and the FAC did not make its final decision to institute the recall until about a week later on June 30. Plaintiff also argues that CEO Jim Tobin misrepresented the known risk of a second recall when, during the analyst call on July 2, he said that he did not believe that the recall was a tip of the iceberg sort of situation. Plaintiff argues that this statement is inconsistent with an email that Tobin sent earlier in the day in which he mentioned that he was not totally confident that everything was under control, expressing concern that he had just learned that twenty more lots were being tested in Galway. The two statements are not inconsistent and do not support an inference of scienter. Subsequent emails made clear that the company was assessing the risk of receiving additional complaints on the twenty lots for which there had been only one complaint, and was not in fact testing any of these devices in these lots. Further, plaintiff fails to note that Tobin expressly discussed this during the conference call. In response to a question about future recalls, Tobin explained: We're looking at those batches for which we have complaints, which is 25 batches, or some number like that, out of 1,223. Of those 25, these two we're not happy with and we're pulling them back. The analysis is not complete, so it is possible that you would find another batch or two, but unlikely, I would say. [19] During the July 2 conference call, Tobin even expressly identified the risk that there could also be complaints for the lots produced after the introduction of the laser shift. He explained that BSC had not received any complaints about devices manufactured after the introduction of the laser shift, but emphasized that this doesn't mean we won't. This discussion with analysts made clear that because only 20,000 post-laser shift devices had shipped, and the historical rate of error was very low, the fact that there had been no complaints so far meant [n]othing, because the sample is too small. Defendants were clear about the risk of another small recall. [20] There is no evidence that management had reason to suspect a recall on the order of the second recall, much less that they recklessly or intentionally misled the market about it, such as to permit an inference of scienter. Rather, the evidence is that it was not until after July 2 that the company recognized the significance of the factors that provided the basis for the second recall. Defendants testified that it was not until after the first recall that the company recognized that the cone puffing process was creating tensile forces on the devices significant enough to cause focal-necking, and plaintiff fails to identify any evidence that draws this testimony into question. Plaintiff argues that defendants' account of when they learned of the role of cone puffing is contradicted by an internal report circulated on March 23, 2004 stating that the loading of the balloon protector after folding and after cone puffing has been highly suspected as a source of high tensile forces during processing. But plaintiff fails to note that the report then states but we have not been able to draw direct correlation to focal necking and concludes that additional research activities need to be started to assess the tensile forces that are being applied at various processes (i.e. balloon folding & cone puffing). Plaintiff also argues that defendants' account of the role of cone puffing in no-deflates and the recall is contradicted by an email from BSC engineer Ken Pucel on August 24, 2004 stating that there was too much uncertainty to draw a definitive conclusion about whether cone puffing was causing the rate-increase for Taxus no-deflates. However, Pucel's email also stated that there is good reason to suspect conepuffing, noting that Galway's no-deflate complaint rate increased from 15 ppm to 240 ppm after the introduction of cone puffing and concluding that the company need[ed] to have a six sigma black belt further analyze the data. Even if this August email indicated what defendants knew in early July, rather than late August, it would do nothing to undermine defendants' evidence that the second recall was instituted in part because of new information they learned about the risk of focal necking due to cone puffing. [21]