According to a press release dated August 30, 2005, medical device maker Synovis Life Technologies Inc. said Monday that the shareholder class action brought against the company and its current CEO and former CFO has been dismissed with prejudice. The U.S. District Court for the District of Minnesota found the complaint failed to meet legal pleading requirements.
The complaint charges Synovis and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Synovis is a diversified medical device company that develops, manufacturers and markets products for the surgical and interventional treatment of disease. More specifically, the complaint alleges that during the Class Period, defendants issued a series of materially false and misleading statements about the Company's business and prospects which artificially inflated the price of the Company's securities. The true facts, which were known by the defendants, but concealed from the investing public, included: (a) the Company's surgical business was not on track for year-to-year growth but was actually declining; (b) the Company's Peri-Strips were actually losing market share to a competing device made by Gore-Medical; (c) even defendants' explanations for "why" the Company's Peri-Strips sales fell short were grossly false and misleading, as defendants claimed that sales fell due to capacity constraints, i.e., the number of surgeons qualified to perform procedures had declined, taking sales down as well, which claim was false for several reasons, including that Peri-Strips are only used in 25% of gastric by-pass procedures and therefore growth would track with market acceptance; and even if the number of gastric by-pass procedures did decline, the medical communities' conversion to the "laproscopic" method (which uses S-12 Peri-Strips) from the "open" method (which used 103 Peri-Strips), would have stemmed this decline in the Company's Peri-Strips sales; (d) the Company's "interventional" side had little to zero growth prospects; and (e) as a result of the above, the Company's projections of fiscal 2004 EPS of $.56-$.60 and revenues of $75-$79 million were false and misleading.
The complaint further alleges that on May 19, 2004, before the market opened, Synovis drastically cut its guidance for fiscal 2004 in a press release which stated, in pertinent part: "At the halfway point of the year, we have fallen behind our own expectations and have clearly not met the expectations of the market .... while the interventional business showed significant sequential improvement during the second quarter, it is not yet back to fiscal 2003 levels. In the surgical business, several factors affecting the gastric bypass market evolved during the second quarter, constraining recent Peri-Strips sales growth and near-term growth prospects for Peri-Strips use in gastric bypass surgery. The magnitude of the revenue shortfall in the interventional business, combined with changes in the gastric bypass market, significantly reduce the likelihood of the strong year-over-year growth we expected in fiscal 2004." On this news, Synovis stock fell from a close of $14.65 on May 18, 2004 to a close of $9.25 on May 19, 2004, for a single-day decline of more than 36% on very heavy trading volume.