Insulet (NSDQ:PODD) shareholder Frank Carnazza filed a derivative suit against the Billerica, Mass-based company last week in a Massachusetts federal court, alleging that Insulet misrepresented the success of its OmniPod Eros roll-out in 2013, which eventually caused the shares in the company to plummet.
Carnazza named a number of former and current executives in the suit, including ex-CEO Duane DeSisto and chairman & chief executive Patrick Sullivan.
Insulet launched its Eros insulin delivery device in 2013 and said that initial customer feedback was strong, telling investors and analysts that all of its new customers had adopted the technology, according to the shareholder’s complaint.
“Defendants’ statements, however, were materially false and misleading. In truth, from the beginning of its introduction in early 2013, Insulet encountered significant manufacturing and quality issues with Eros – notably with regard to defective needle and alarm mechanisms. Those defects appeared in a significant number of manufactured lots of Eros. As a result of the defects, Eros units did not meet the company’s own quality standards, and Eros experienced frequent production shortfalls,” the complaint claims.
“However, when discussing Insulet’s manufacturing capabilities and production quality, defendants repeatedly misrepresented or failed to disclose that the company was experiencing significant production problems.”
When the company did admit to the existence of any quality problems, Carnazza alleged that Insulet’s leadership classified the problems as unexceptional. Prior to DeSisto’s departure in 2014, the former CEO allegedly said that the company’s quality control operations caught any defective Eros devices before they reached distributors or patients.
But in mid-2015, the company revealed that the FDA had issued a warning letter over some of its Eros devices, which had been manufactured in a facility that did not meet current good manufacturing practice requirements.
By the end of August, Insulet had recalled more than 40,000 boxes of its OmniPod Eros products manufactured between the second half of 2013 and 2015.
Carnazza’s complaint points to a slew of problems with the Eros device, including needle mechanism failures, leaking pods and defective alarms.
Demanding a trial by jury, the plaintiffs said they are seeking changes to Insulet’s corporate governance and internal procedures, as well as restitution from the named defendants.
The company told Drug Delivery Business News that it doesn’t comment on litigation.