Opinion ID: 2777754
Heading Depth: 4
Heading Rank: 7

Heading: The February 2013 FDA Close-Out Letter

Text: On February 19, 2013, the FDA issued a Close-Out Letter to Abiomed stating that the agency had completed its evaluation of Abiomed's corrective actions taken in response to the Warning Letter and had determined that Abiomed had adequately addressed those violations. Abiomed's stock price recovered from the November 2012 fall. As of May 20, 2013, the stock was trading at $23.11 per share. E. Defendants' Allegedly False and Misleading Statements Plaintiffs allege that, between August 4, 2011, and October 31, 2012, defendants made specific false and misleading statements that deceived the investing public and caused the plaintiffs to purchase Abiomed stock at artificially inflated prices. These statements fall into three principal categories. -16- First, plaintiffs allege that several of defendants' statements about the growth of Impella product revenues were false and misleading because Abiomed failed to disclose that the reported revenue growth was substantially the result of off-label marketing. Defendants either provided no explanation for the growth or attributed the revenues to sources such as increased Impella 2.5 utilization in the cath lab. Plaintiffs allege these statements were misleading because they failed to disclose that Abiomed's continued revenue . . . was at risk should the Company be forced to discontinue [its marketing] practices. Defendants allegedly made these statements in an August 2011 press release and conference call announcing Abiomed's first quarter 2012 (Q1 2012) earnings; in Abiomed's Q1 2012 10-Q; in a November 2011 press release and conference call announcing Abiomed's Q2 2012 earnings; in Abiomed's Q2 2012 10-Q; in a February 2012 press release and conference call announcing Abiomed's Q3 2012 earnings; in Abiomed's Q3 2012 10-Q; in a May 2012 press release and conference call announcing Abiomed's Q4 2012 earnings; in Abiomed's 2012 Form 10-K; and in an August 2012 press release and conference call announcing Abiomed's Q1 2013 earnings. Second, defendants allegedly continued to compare the Impella 2.5 to the IABP based on the results of the Protect II Study, even though FDA regulations prohibited Abiomed from doing so. For example, plaintiffs cite Minogue's statements in an August -17- 2011 conference call that, according to the study, Impella patients had significantly better outcomes at 90 days relative to IABP patients. Defendants allegedly made similar statements in Abiomed's Q1 2012 10-Q; in Abiomed's Q2 2012 10-Q; in a February 2012 press release and conference call concerning Abiomed's Q3 2012 results; on the February 7, 2012, episode of Mad Money; in Abiomed's 2012 Form 10-K; and in an August 2012 conference call. Plaintiffs also allege that Abiomed's May 2012 disclosure of the February 24, 2012, meeting with the FDA was false and misleading because it failed to disclose that the purpose of the meeting was to discuss Abiomed's improper marketing of the Impella 2.5 . . . and the FDA's safety concerns with the device related to the Protect II Study. Third, plaintiffs allege that many of defendants' statements concerning the regulatory back-and-forth between Abiomed and the FDA were false and misleading. Defendants claimed that Abiomed policy was to refrain from off-label marketing and that Abiomed was taking steps to resolve the FDA's concerns, but in fact Abiomed was engaged in widespread management-directed off-label marketing and promotion of the Impella 2.5 . . . and was not properly addressing the FDA's issues. In particular, plaintiffs cite the following statement, some version of which was contained in Abiomed's Q1 2012 10-Q, Q2 2012 10-Q, and Q3 2012 10-Q: Although our policy is to refrain from statements that could be considered off-label -18- promotion of our products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In June 2011, we received a warning letter from the FDA stating that some of our promotional materials marketed the Impella 2.5 for uses that had not been approved by the FDA. We have cooperated with the FDA in addressing its concerns and believe that we have resolved the matter without any penalties. Although we believe that this issue has been resolved, if similar matters come up in the future, we may not be able to resolve them without facing significant consequences. Abiomed's 2012 Form 10-K, filed on June 4, 2012, used similar language, and added: [I]n April 2012, we received a follow up letter from the FDA stating that some of our promotional materials continued to market the Impella 2.5 in ways that are not compliant with FDA regulations. We are cooperating with the FDA in addressing its concerns. While we hope to be able to resolve this matter without incurring penalties, we may not be able to resolve it, or any similar matters that may come up in the future without facing significant consequences. Such matters could result in reduced demand for our products and would have a material adverse effect on our operations and prospects. Finally, the complaint alleges that the certifications of Minogue and Bowen contained in the Form 10-Qs and the Form 10-K were false and misleading because the forms did not fairly present in all material respects the financial condition [of Abiomed], including the reliance on off-label marketing, and that the revenue and growth reported therein was the result of undisclosed, illicit and unsustainable off-label marketing. -19- Plaintiffs make additional allegations that they argue bolster the inference that defendants had the requisite scienter (that is, that they had the conscious intent to defraud investors or acted with a high degree of recklessness). First, they contend that Minogue, Bowen, and other senior Abiomed executives sold an uncharacteristically large amount of stock during the Class Period. Minogue allegedly sold 586,149 shares of Abiomed stock, representing 48% of his holdings, for a total of $9,636,124 from January 2010 through the end of the Class Period. Bowen sold 57,919 shares, representing 6.5% of his holdings, for $1,302,878 during that period, after having sold no stock before January 2010. Plaintiffs cite similar figures for five other non-defendant Abiomed executives, who collectively earned approximately $5.6 million by selling stock during this period. Defendants counter that many of the trades cited by plaintiffs were made pursuant to 10b5-1 plans which were entered into before the Class Period (August 4, 2011, to October 31, 2012) and Minogue in fact increased his holdings of Abiomed stock during the Class Period. Defendants also counter that the reason Bowen made no trades prior to the cited period was because he only became eligible to trade Abiomed stock during that period. Plaintiffs also allege that, because the Impella 2.5 was part of Abiomed's core business, Minogue and Bowen must have been aware of the fact that Abiomed was unlawfully promoting the device, -20- and that the pervasiveness of the illicit and off-label marketing and promotion of the Impella 2.5 . . . further supports a strong inference of scienter. F. Summary Distilled to its essence, plaintiffs' complaint tells the following story: For a 38-month period, beginning with the FDA's Untitled Letter in January 2010 and ending with the FDA's Close-Out Letter in February 2013, the FDA repeatedly raised concerns that Abiomed's marketing of the Impella 2.5 did not comply with applicable regulations. Abiomed responded to these concerns by making limited changes to its promotional tactics, but the FDA was not satisfied until the summer of 2012, when Abiomed conducted an internal compliance audit and pulled all of its marketing and training materials, to be replaced with entirely new ones. Confidential witnesses cited in the complaint state that Abiomed's senior management was aware that its promotional practices before that audit were in violation of FDA regulations and willfully chose not to alter them. We note that might raise issues under FDA regulations. What raises securities law concerns, according to plaintiffs, is that management allegedly misled investors during this period by (1) failing to attribute the growth in Impella revenues to unlawful off-label marketing practices; (2) improperly comparing the Impella 2.5 to the IABP by touting the results of the -21- Protect II Study; (3) stating that it had a policy of not engaging in off-label marketing; and (4) stating that Abiomed was taking steps to address the agency's concerns, when in fact the company was engaged in intentional and pervasive off-label marketing, contrary to its stated policy.