Medtronic wins dismissal in insulin-pump investor suit

Medtronic has faced litigation from a group of investors over the last three years over alleged “schemes” that deceived investors. For a second time, a putative class action was dismissed Sept. 30 by a Minnesota federal district court judge.

Medtronic has its corporate headquarters in Ireland, though its operational headquarters is in Fridley. The company, which is a leading international health care technology corporation specializing in the development of medical devices, is composed of four groups. One of these is the Diabetes Group. Central to this group is advancements in insulin pump development, and the company commanded a significant portion of the insulin pump market.

In 2017, Medtronic introduced the MiniMed 670G. The product was unique because it was the first-ever hybrid closed-loop system, which allowed it to respond to blood glucose level variations by adjusting the basal rate of insulin.

The 670G contributed notably to sustaining strong revenue forecasts for the Diabetes Group. However, it lacked the sophistication of an advanced hybrid closed-loop system, a feature introduced by a rival, which led to slower financial growth for the group. In response, Medtronic began developing the MiniMed 780G.

Medtronic stated at the time that this project was “very close to its launch phase” and that “the regulatory timelines are all on track.” However, Medtronic faced significant challenges when several older insulin pumps were subject to a Class I recall in 2020. Following an FDA inspection at its Northridge, California, facility, the agency issued a Form 483, noting that Medtronic had not implemented proper corrective and preventive action procedures and had inadequate risk-analysis processes. After Medtronic failed to address these issues, the FDA issued a formal warning letter, which could potentially block approval of new Class III medical devices linked to the same deficiencies.

In 2022, Medtronic informed investors during a fourth-quarter earnings call that the MiniMed 780G would not receive FDA approval on schedule. As a result, the company projected a 6% to 7% drop in earnings for its Diabetes Group. Share prices fell sharply, causing significant losses for investors who had purchased Medtronic stock between June 8, 2019, and May 25, 2022, and who claimed damages once the delayed approval was publicly disclosed.

Investors filed suit, arguing that Medtronic orchestrated a concealment scheme with respect to issues with the product and the resultant financial implications for Medtronic’s operations. They asserted that Medtronic overstated the likelihood of on-time FDA approval for its newest insulin pump to artificially boost the company’s stock price.

But in 2024, U.S. District Court Judge Katherine Menendez found for Medtronic. The court found that the plaintiffs failed to show actionable misrepresentations by Medtronic. Plaintiffs had highlighted statements about the MiniMed 670G’s financial impact and the 780G pipeline, alleging the company concealed 74,000 complaints and problems that could delay FDA approval and U.S. sales in 2023.

However, the court ruled that truthfully reporting revenue from overseas 670G sales and stating the pipeline was “on track” did not mislead investors. The court also rejected the claim that Medtronic assured timely FDA approval for the 780G, noting no reasonable investor would interpret such statements as guarantees.

Menendez also found that plaintiffs failed to allege sufficient facts showing scienter. The court emphasized that information available in May 2019 did not ensure an FDA recall or inspection, and any alleged intent to conceal was only apparent in hindsight.

Plaintiffs filed then a motion for leave to file an amended complaint. Medtronic moved to dismiss the amended complaint, arguing that the misrepresentation theory was inadequate because it presumed hindsight about delay in FDA approval. Additionally, it claimed that plaintiffs did not adequately plead that there was a “scheme.”

Ultimately, the second court found that plaintiffs did not present any actionable misrepresentations. The court examined eight statements that the plaintiffs alleged were misleading after the FDA’s inspection and issuance of the Form 483. These statements fell into three main categories: those concerning the FDA approval process for the MiniMed 780G, those describing Medtronic’s compliance with regulatory standards, and those relating to risk disclosures.

With respect to the 780G approval process, the plaintiffs challenged comments made by Medtronic executives that the device’s approval was “on track,” that the company was engaged in “really good interactive back and forth review” with the FDA, and that there was “active dialogue” between the parties.

The court found that there was no showing that the opinions were false. “[A]ll three statements, when read in context, essentially say nothing more than that Medtronic was engaged in ‘good’ dialogue with the FDA about the 780G, to be untrue there would need to be some showing that the dialogue was not ‘good,’” Judge Laura Provinzino wrote.

Provinzino also addressed Medtronic’s statements in its Integrated Performance Report (IPR) asserting that the company “adhere[s] to regulatory requirements” and “update[s] procedures in line with emerging regulations and standards.” Plaintiffs also cited a statement that Medtronic had received “0.02 findings per U.S. FDA inspection.”

Provizino wrote, “The Court struggles to see how a reasonable investor would take that statement as an implicit promise that Medtronic was not under FDA investigation.”

Additionally, the court rejected the plaintiffs’ challenge to Medtronic’s risk disclosures in its Form 10-Q filings. These warned that regulatory inspections might result in Form 483s, warning letters, recalls, or delayed approvals. Finding that Form 483 was not shown to put Medtronic on notice that risk of delay or regulatory denial had been realized, the court found the statements inactionable.