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Merit Medical Systems, Inc.

Case Details

Class Period: February 26, 2019 - October 30, 2019
Date Filed: December 03, 2019
Case Number: 8:19cv02326
Jurisdiction: Central District of California
icon-casetype Case Type: Securities Case

Case Summary

The Complaint brings forth claims for violations of the Securities Exchange Act of 1934 against Merit Medical Systems, Inc. (“Merit,” or the “Company”), and certain of its senior executives. The Complaint alleges that Defendants made false and misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Merit common stock during the Class Period.

Merit is a medical device company whose entire business model was predicated on a “growth-by-acquisitions” strategy. In late-2018, Merit set its sights on two acquisitions that Defendants told investors would significantly bolster the Company’s upward trajectory: (i) Cianna, a manufacturer of devices for the treatment of breast cancer that was by far the largest acquisition in the Company’s history; and (ii) ClariVein, a device for varicose vein treatment that was Vascular Insights’ crown jewel.

Throughout the Class Period, Defendants repeatedly assured investors that Merit was timely and successfully integrating Cianna and Vascular Insights. However, unknown to investors, the Cianna and Vascular Insights integrations were a disaster. Furthermore, while Defendants had touted sales generated by the acquisition of ClariVein, they concealed from investors that Merit had not had a single order for ClariVein during the entire first half of 2019.

The truth began to be revealed on July 25, 2019, when Defendants shocked investors by disclosing the truth about the lack of ClariVein orders. Investors were further blindsided by Defendants’ announcement that instead of retaining the entirety of Cianna’s sales force—as Defendants had expressly represented during the Class Period—there had been “attrition” among Cianna’s sales representatives and, as a result, post-integration sales for Cianna were well below expectations. On this news, Merit’s stock price fell 25%. Then, on October 30, Merit disclosed that sales for ClariVein and Cianna had lagged so far behind that Merit was forced to slash year-end revenue guidance and withdraw entirely its guidance for 2020. Defendant Lampropoulos also admitted that Merit was “nine or ten months behind” in integrating ClariVein, which it had acquired ten months earlier. In response, the Company’s stock price plummeted 29%.

On February 24, 2020, the Court appointed City of Atlanta Police Pension Fund, City of Atlanta Firefighters’ Pension Fund, and Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge as Lead Plaintiffs and Saxena White P.A. as Co-Lead Counsel.

On May 11, 2020, the Court denied Defendants’ Motion to Transfer Venue to the District Court of Utah, finding “that (A) this Action could have been brought in the District of Utah, (B) the convenience and justice factors do not weigh in favor of transfer, and, on balance, (C) the convenience and justice factors do not outweigh any deference afforded to Plaintiffs’ choice of litigating this Action in the Central District of California.”

Lead Plaintiffs filed their Consolidated Class Action Complaint on June 30, 2020. Defendants filed a motion to dismiss the Complaint on August 14, 2020.  Briefing on the motion to dismiss concluded on October 22, 2020.

On March 3, 2021, the Court referred Defendants’ motion to Magistrate Judge Autumn D. Spaeth for a Report and Recommendation.

On March 16, 2021, Magistrate Judge Spaeth issued a 30-page Report and Recommendation that the Court deny Defendants’ motion to dismiss the Complaint.   Magistrate Judge Spaeth found that Lead Plaintiffs adequately alleged under the applicable “heightened pleading standard” for securities fraud claims over a dozen false or misleading statements relating to Merit acquisitions of Cianna and Vascular Insights.  Judge Spaeth further found that investors presented “extensive allegations” supporting a “strong inference” of Defendants’ fraudulent intent, including: (1) the importance of the Cianna and Vascular Insights acquisitions to Merit’s growth strategy; (2) Merit senior executives’ receipt of “real-time sales information” and attendance at meetings where the sales problems were discussed; and (3) Merit senior executives’ awareness of “serious” regulatory and reimbursement issues that presented a roadblock to sales. Finally, Judge Spaeth found that Lead Plaintiffs sufficiently pleaded loss causation, the “causal connection between the deceptive acts … and the injury suffered by the plaintiff,” noting the Complaint’s allegations that investor losses were a “’direct result’ of Defendants’ [] misrepresentations being revealed.”

On March 29, 2021, , the Honorable David O. Carter issued an Order Accepting the Report and Recommendation of United States Magistrate Judge.