Add a potential class action shareholder lawsuit to the challenges Medtronic (NYSE: MDT) is facing over its Diabetes business.
The law firm of Kessler Topaz Meltzer & Check announced last week that it has sued the medtech giant in U.S. District in Minnesota, claiming securities fraud over how it disclosed insulin pump problems.
The initial plaintiffs in the suit are the Trustees of the Welfare and Pension Funds of Local 464A – Pension Fund, the trustees of the Local 464A United Food & Commercial Workers’ Union Welfare Service Benefit Fund, and the trustees of the New York-New Jersey Amalgamated Pension Plan for Acme Employees.
The complaint, filed September 8, is also against present and former top Medtronic executives. It claims that they repeatedly assured investors from 2019 onward that FDA approval of the next-gen MiniMed 780G insulin pump was on track. Meanwhile, recall problems mounted with previous models.
In a statement shared with MassDevice, Medtronic spokesperson Erica Winkels said the company has been made aware of the shareholder lawsuit but has not been served or reviewed the complaint.
Medtronic stock dropped on Diabetes business news
Diabetes business problems culminated in the company’s mid-December announcement of an FDA warning letter claiming inadequate medical device quality system requirements at Medtronic’s Northridge, California facility. MDT shares fell more than 6% in value on the news.
Within weeks, CEO Geoff Martha added that the warning letter created uncertainty over when FDA would approve the 780G and Guardian 4 sensor system. During the company’s Q4 earnings call in May, CFO Karen Parkhill added that the company was no longer assuming 780G approval in its guidance, and that Diabetes business sales would decline in the new fiscal year. MDT shares dropped another 6%.
The lawsuit complaint alleges that Medtronic management made misrepresentations and concealed information, causing investors to lose money when the truth came out.
MDT shares are trading today at roughly $92 apiece, down more than 13% for the year. The performance, however, is better than the overall medtech industry. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, is down more than 23% year-to-date.
An improving situation?
During Medtronic’s Q1 earnings call in August, the company reported that the situation was improving for the Diabetes business. Martha said that the company has achieved 90% of the action items in FDA’s warning letter. Medtronic Diabetes continues to focus on achieving U.S. approval of the MiniMed 780G + Guardian 4 sensor and advancing its next-generation portfolio.
Stronger growth in international markets allowed Medtronic to reduce the sales losses it expects in the diabetes space during the present fiscal year. The decline is now expected to be 3% to 6%.