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Outset Medical, Inc.

Case Details

Class Period: September 15, 2020 - June 13, 2022
Date Filed: July 08, 2022
Case Number: 3:22-cv-04016
Jurisdiction: California Northern District Court
icon-casetype Case Type: Securities Case
Days Left to
Seek Plaintiff:
29

Case Summary

Outset Medical is a medical technology company focused on kidney dialysis, the primary treatment for acute and chronic kidney failure. The Company’s flagship product is the Tablo Hemodialysis System (“Tablo”), a dialysis machine that purifies tap water and then artificially purifies and removes toxins from the blood of patients suffering from kidney failure.

Throughout the Class Period, Outset Medical touted that Tablo can “serve as a dialysis clinic on wheels” that had been “cleared by the [U.S.] Food and Drug Administration [(the “FDA”)] for use in the hospital, clinic or home setting” under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (the “FDCA”). Devices used by non-professionals outside of a clinical setting and that can present serious health consequences like Tablo are subject to heightened scrutiny by the FDA, including post-market surveillance studies pursuant to the FDCA. While performing further regulatory studies during the Class Period, the Company assured investors that it was conducting the studies “in accordance with the FDA approved protocol,” which required an appropriate demonstration of “real-world” human testing given that the device would be used at home by non-professionals.

The Class Action alleges that, during the Class Period, Defendants misled investors and/or failed to disclose that (1) Defendants had “continuously made improvements and updates to Tablo over time since its original clearance” that required an additional 510(k) application; (2) as a result, the Company could not conduct a human factors study on a cleared device in accordance with FDA protocols; (3) the Company’s inability to conduct the human factors study subjected the Company to the likelihood of the FDA imposing a “shipment hold” and marketing suspension, leaving the Company unable to sell Tablo for home use; and (4) as a result, Defendants’ positive statements about the Company’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

The truth began to emerge on May 5, 2022, when the Company announced disappointing results for the first quarter of 2022, which analysts attributed, inter alia, to the untested nature of Tablo in the home setting. In response to this disclosure, and as the market digested this news, the price of Outset Medical common stock declined more than 40% over the three trading days that followed, from a closing price of $39.94 per share on Wednesday, May 4, 2022, to a closing price of $23.06 per share on Monday, May 9, 2022.

Then, after the markets closed on June 13, 2022, Outset Medical announced that the FDA had forced the Company to hold all shipments of Tablo for use in the home until Tablo received proper regulatory clearance. During an “FDA Review Call” held that day with analysts, the Defendants acknowledged the “ship hold” had already been in place for weeks before investors were provided this material information, and that as a result of the shipment hold, the Company was “suspending our prior full-year and long-term guidance.” On this news, the price of Outset Medical stock fell an additional 33%, from a closing price of $20.41 per share on June 13, 2022, to a closing price of $13.46 per share on June 14, 2022.