The Trustees of Welfare & Pension Funds of Local 464A – Pension Fund v. Medtronic PLC, 726 F. Supp. 3d 938 (D. Minn. 2024).
Case Highlights
On March 28, 2024, a federal district court held that positive statements about the prospect of U.S. Food and Drug Administration (FDA) approval of a company’s latest product were not sufficiently alleged to be false or misleading even though the company did not disclose that it had received a Form 483—a form issued by the FDA following an inspection that lists objectionable conditions an investigator believes violate the Food, Drug, and Cosmetic Act and other related acts. The plaintiffs in The Trustees of Welfare & Pension Funds of Local 464A – Pension Fund v. Medtronic PLC (“Medtronic”), 726 F. Supp. 3d 938 (D. Minn. 2024), filed a lawsuit alleging that Medtronic misled investors when it disclosed that the application process for FDA approval for its next generation insulin pump designed to manage type 1 diabetes—the MiniMed 780G (780G)—was “on track.” The plaintiffs alleged that this statement led investors to believe that FDA approval was likely when, in fact, Medtronic had received a Form 483 following the FDA’s inspection of a Medtronic facility, which ultimately led to an FDA warning letter and a decision to delay approval. Medtronic’s stock price dropped when it announced that it could no longer include FDA approval of 780G in its guidance for fiscal year 2023. The plaintiffs claimed that the defendants had a duty to disclose Medtronic’s receipt of Form 483—which it had received approximately six months before the warning letter was disclosed—given Medtronic’s disclosures that its submission for FDA approval of 780G was “on track.” While the court acknowledged that this was a “close[ ] question,” it found that the complaint did not allege that the “on track” statement was false or misleading. The court distinguished Public Pension Fund Group v. KV Pharmaceutical Company (“KV Pharmaceutical”), 679 F. 3d 972 (8th Cir. 2012), where the Eighth Circuit held that defendants in that case had a duty to disclose the receipt of Form 483 when they told shareholders that the company was compliant with FDA regulations given “numerous, severe, and pervasive objectionable conditions” covering “the entire range of the defendants’ operations and products.” Here, unlike KV Pharmaceutical, the Medtronic complaint did not allege how the issues raised in Form 483 would necessarily doom or impact the timeline for FDA approval and the defendants never represented that Medtronic was in compliance with all FDA regulations.
The Medtronic court has since allowed the plaintiffs to file an amended complaint, observing that it “allege[d] more clearly” the defendants’ interactions with the FDA and the Form 483’s potential connection to approval of the 780G. The defendants’ motion to dismiss the amended complaint is pending. The ultimate destiny of the plaintiffs’ claim remains to be seen.
Key Takeaways
The court’s decision in Medtronic offers helpful guidance as to when a duty may arise to disclose a company’s receipt of potentially or partially negative feedback from FDA. The Supreme Court recently affirmed that there is no affirmative duty to disclose material facts under the antifraud provision of the federal securities laws unless the omission makes another statement misleading, Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. 257 (2024), and this applies equally to receipt of FDA feedback. Medtronic and KV Pharmaceutical suggest that companies need to disclose their receipt of FDA feedback if they have made any affirmative representations about being in compliance with FDA regulations or if the regulatory issues may ultimately affect timing or possibility of receiving FDA approval. The question of whether and when companies may need to disclose certain FDA communications is fact specific and depends on the other disclosures the company has made, the overall context of the communications, and even market and investor expectations. Given the fact-specific nature of such inquiry, companies should consult with experienced securities litigation counsel in making these determinations.