In Re Boston Scientific Corporation Securities Litigation.

• Decision Date: 27 April 2010
• Docket Number: Civil Action No. 05-11934-DPW.
• Citation: 708 F.Supp.2d 110
• Parties: In re BOSTON SCIENTIFIC CORPORATION SECURITIES LITIGATION.
• Court: U.S. District Court — District of Massachusetts

708 F.Supp.2d 110

In re BOSTON SCIENTIFIC CORPORATION SECURITIES LITIGATION.

Civil Action No. 05-11934-DPW.

United States District Court D. Massachusetts.

April 27, 2010.

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David Pastor, Gilman and Pastor, LLP, Boston, MA, John C. Martland, Martland & Brooks LLP, Saugus, MA, David S. Nalven, Thomas M. Sobol, Hagens Berman Sobol Shapiro LLP, Cambridge, MA, Nathan D. Prosser, Grindal Nauen P.L.L.P., Patricia A. Bloodgood, Timothy J. Becker, Anne T. Regan, Carolyn G. Anderson, Kirsten D. Hedberg, Zimmerman Reed, PLLP, Gregg M. Fishbein, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, James E. O'Neil, North Kingstown, RI, for Plaintiffs.

John Gueli, Stuart J. Baskin, Christopher R. Fenton, Kirsten Nelson Cunha, Shearman & Sterling LLP, New York, NY, Miranda Hooker, Timothy J. Perla, William H. Paine, James T. Lux, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, for Defendants.

MEMORANDUM

DOUGLAS P. WOODLOCK, District Judge.

This securities fraud class action was brought by Plaintiff Mississippi Public Employees' Retirement System (“PERS”) against Boston Scientific Corporation, a publicly traded manufacturer of medical devices (“Boston Scientific” or the “Company”), and its executives (collectively, the “Defendants”). Plaintiff alleges that the Company withheld material information and made misleading statements about a medical product that was eventually recalled, thereby leading to artificial inflation of the market price of Boston Scientific stock, in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a). Defendants have moved for summary judgment on all of Plaintiff's claims.

The matter was transferred to my docket upon remand from the First Circuit following reversal of Judge Tauro's grant of Defendants' motion to dismiss. See generally Miss. Pub. Employees' Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75 (1st Cir.2008) rev'g In re Boston Scientific Corp. Sec. Litig., 490 F.Supp.2d 142 (D.Mass.2007). Taking advantage of the broad grant of permission under the remand order to shape discovery Miss. Pub. Employees' Ret. Sys., 523 F.3d at 79, I have allowed full development of the factual issues. I now have before me a record appropriate to determine whether the Plaintiffs can present sufficient evidence to show that their claims have merit to proceed to trial. Finding that they do not, I will grant summary judgment in favor of Defendants.

I. BACKGROUND

A. Parties

Defendant Boston Scientific is a publicly traded manufacturer and distributor of medical devices. Individual defendants include Peter M. Nicholas (Co-Founder of the Company and Chairman of the Board of Directors), James R. Tobin (Chief Executive Officer), Paul A. LaViolette (Senior Vice President and Group President of Cardiovascular), Fredericus A. Colen (Senior Vice President and Chief Technology Officer), James H. Taylor, Jr. (Senior Vice President of Corporate Operations), Paul W. Sandman (Senior Vice President, Secretary, and General Counsel), Lawrence C. Best (Senior Vice President and Chief Financial Officer), Robert G. MacLean (Vice President of Human Resources), and Stephen F. Moreci (Senior Vice President and Group President of Endosurgery) (collectively, the “Individual Defendants”).

Plaintiff PERS is a Mississippi-based pension fund, which sues on behalf of a putative class of individuals and entities, which purchased Boston Scientific stock between November 20, 2003 and July 15, 2004 (the “Class Period”).

B. Factual Background

Discovery has developed a substantial evidentiary record against which to measure the merit of Plaintiff's claims as alleged in its complaint. I will recite from that record in some detail, at all points considering the evidence in the light most favorable to the Plaintiff as non-moving party.

1. The Non-US Launch of the TAXUS Stents

In 2001, the Company decided to sell a new drug-eluting coronary stent called TAXUS® Express ² Paclitaxel-Eluting Coronary Stent System (the “TAXUS stent”), which would compete with a similar product manufactured by Johnson & Johnson. Coronary stents are tiny, mesh tubes used in angioplasty procedures for the treatment of coronary artery disease, i.e., clogged arteries, as an alternative to open heart surgery. The TAXUS stent was virtually identical to another of the Company's stents, the “bare metal” Express ² stent,¹ except that the TAXUS stent was drug-eluted, i.e., coated with a polymer containing a drug which helped ease complications associated with stent implant. Both the Express ² and the TAXUS stent were implanted in arteries using the delivery Express ² catheter, on which sat a tiny balloon designed to inflate the artery and permit the stent to be inserted. TAXUS stents were first distributed outside of the United States in February 2003.

2. The PIR Team's Investigation

Beginning in 2001, the Company had received a few no-deflate complaints regarding Express ² stents, suggesting that the balloons did not deflate or deflated too slowly. Due to the fact that the number of no-deflate complaints on Galway-manufactured ² Express ² stents increased in early 2003, the Company opened up a Product Inquiry Report (“PIR”) to investigate into potential quality issues, identify “root causes,” and make recommendations for corrective actions or possible field actions (e.g., recall) to the Company's Field Action Committee (“FAC”).³ Because it appeared that no-deflate affected the catheter, and because Express ² and TAXUS stents were mounted on the same catheter, the PIR investigation was subsequently extended to include TAXUS stents in addition to Express ² stents.

By May 2003, the PIR team's ⁴ investigation determined that the no-deflate incidents were attributable to a manufacturing problem with the stents known as “focal neckdown.” ⁵ The PIR team concluded that the root cause of the focal neckdown was a combination of two factors: (1) excessive heat at the bond of the balloon and the catheter, and (2) a subsequent excessive tensile force exerted in the area of the bond. However, the PIR team was not able at the time to ascertain definitively whether the specific tensile forces were being introduced during manufacture or in the field (i.e., by physicians). Paul Weiss, an engineer in the Quality function and leader of the no-deflate investigation, explained that “[o]ne of the early concerns we had was is there a handling issue by the physician that they could be introducing pulling forces beyond which we specify.”

3. The May 2003 Corrective and Preventive Actions

As a result of its investigation, the PIR team identified several corrective and preventive actions to improve the quality of the Galway devices, including (1) using only Maple Grove-manufactured distal outers, which had been determined to be more robust and less susceptible to focal neckdown than Galway-manufactured distal outers,(2) lowering the temperature on the laser and improving a mechanism for aligning the laser more precisely, and finally (3) eliminating to the extent possible all potential sources of tensile that could be identified.

The Company implemented these corrective and preventive actions in April and May 2003. Specifically, the Company's decision to cease using Galway-produced distal outers in the manufacture of TAXUS and Express ² stents was implemented on May 12, 2003.

4. The PIR Team's Recommendations

In a May 23, 2003 report, the PIR team recorded twenty-one no-deflate complaints on Galway Express ² stents, and one no-deflate complaint on the Express ² stents manufactured in Maple Grove. None of these complaints related to TAXUS stents (which at the time were manufactured only in Galway). As of a result of these incidents, the PIR team discussed whether any field action should be taken, in particular whether to recall the Express ² products that had been manufactured in Galway prior to the implementation of the corrective and preventive actions.

Members of the PIR team ultimately concluded that “[n]o field action is recommended at this time,” explaining that “[t]he low rate of occurrence combined with the limited severity observed in all but one case does not warrant a field action at this time.” The finding of “low rate of occurrence” was based on the PIR team estimate that the overall rate on Galway-manufactured devices was 69 parts per million. Similarly, the finding of “limited severity” was based on the conclusion that only three of the twenty-one no-deflate incidents resulted in what could be classified as serious injuries, and that the remaining deflates had resulted in limited health consequences for the patient.

5. The FAC's Decision Not To Recall

On May 27, 2003, the FAC, whose ultimate responsibility was to decide on any field action, met to discuss the PIR team's recommendations and consider whether a recall was warranted. Specifically, the minutes of the May 27 FAC meeting provide that:

After discussion surrounding the events described in the PIRs, the FAC came to a decision to accept the recommendations contained therein to not institute field action at this time. This decision was based on the facts that the product in the field was within all of its established specifications, the frequency of the issues reported from the field were extremely low, and the consequences, while potentially severe in some cases are not outside those expected with this type of procedure.

During this meeting, the FAC also discussed the results of the investigation conducted by the PIR, in particular the fact that the no-deflate incidents were attributable to focal neckdown.

While the FAC declined to “take any specific actions in terms of a recall,” the FAC decided to continue to monitor no-deflate complaints through bi-weekly reports. Later bi-weekly reports disclosed that no-deflate complaints continued to be filed on Galway devices manufactured before May 2003; however, only very few...