A Massachusetts federal judge dismissed most of a securities fraud class action case against Alere (NYSE:ALR) yesterday, saying that the complaint did not support the claim that Alere senior management had prior knowledge of the company’s alleged wrongdoing.
U.S. district judge Patti Saris did, however, allow one part of the complaint to move into discovery. The claim revolves around Alere’s INRatio blood testing devices, which the company voluntarily withdrew from the market in 2016 after years of problems with the product.
In 2014, the diagnostics company warned users with particular medical conditions not to use the INRatio device and later in 2015 it submitted a software enhancement to the FDA in the hopes of resolving ongoing problems.
The FDA later informed Alere that the software enhancements were not adequate and it recommended that the company voluntarily remove INRatio products from the market. When the company pulled its INRatio devices from the market, class action lawsuits were filed over the products’ reliability.
In its annual report for 2015, Alere noted a $38 million loss related to the INRatio recall in the fourth quarter of the 2015 fiscal year.
Lawyers arguing on behalf of the proposed class reportedly claimed that Alere’s senior management wanted a buy-out so they would receive large payouts and that problems revealed in 2016 had been ongoing for years, according to Law360.
But Saris decided that there wasn’t enough evidence to show that the company or executives named in the suit knew about various issues at the time of the proposed acquisition.
“There is no denying that a steady drumbeat of negative information about Alere was disclosed to the market beginning soon after the merger announcement. 2016 was a bad year for Alere,” the judge wrote. “However, most of the internal control problems involved far-flung operations all over the world and very different kinds of government regulatory problems facing different subsidiaries. With the exception of the problems related to INRatio, the complaint does not support a strong inference of prior knowledge on the part of senior management.”