Stockholders v Thoratec Corporation
Thoratec Corporation Paints Too-Rosy Picture
Several class actions have been filed against biotechnology company Thoratec Corporation (Nasdaq:THOR) and certain of its officers and directors by stockholders who purchased the company's common stock between April 28, 2004, and June 29, 2004. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.
Thoratec is a leading supplier of implantable heart pumps and left-ventricular assist devices. The company manufactures these circulatory support products for use by patients with congestive heart failure, including "end-stage" patients. Traditionally, these products have been used in late stage patients as a "bridge to transplant," for patients awaiting a heart transplant. In contrast, "Destination Therapy," or permanent support, is the company's flagship new treatment option for patients with end-stage heart failure.
The company claims that its HeartMate XVE is an approved ventricular assist device designed to provide permanent support. The lawsuit alleges that, during the applicable period, the defendants made a number of false and misleading statements regarding expected sales and the market for the HeartMate as a "Destination Therapy" treatment for end-stage heart failure patients. As a result of these statements, Thoratec's stock traded at artificially inflated levels and defendants were able to complete a $143.7 million note offering.
The defendants allegedly knew but concealed from the investing public the following adverse material facts:
• even as the company estimated that as many as 100,000 patients per year in the U.S. could be helped by the Heartmate treatment option, the actual "true" market for the product was far less than claimed, because it was severely constrained by limited reimbursement dollars available under Medicare and Medicaid service guidelines;
• although the defendants claimed that there were approximately 900 hospital centers in the U.S. qualified for the practice of Destination Therapy and implantation of the HeartMate, less than 75 centers have actually been designated as Medicare-approved for Destination Therapy;
• Medicare had rigid preset reimbursement guidelines and schedules for Destination Therapy that could only translate into a serious negative impact on the company's FY2004 sales projections for the HeartMate;
• cardiothorasic surgeons were rejecting or not accepting the HeartMate as a viable device for Destination Therapy patients because of issues with the device's reliability in a long-term setting;
• demand for the company's Destination Therapy implants was not growing at the rate claimed;
• the company's Destination Therapy implant estimate for FY2004 of between 300 to 500 pumps was grossly overstated and was internally projected to be a fraction of this estimate;
• the company's FY2004 projections of $200 million were overstated by tens of millions of dollars;
• not only were CMS reimbursement charges delaying the number of implants, implantation centers and medical professionals had delayed any significant expansion of the existing implant programs until after October 1, 2004, (the expected date of the availability of a significant increase in the CMS reimbursement rate); and
• sales of the HeartMate implants would be depressed until Q4 2004, and as a result, Thoratec's earnings shortfall experienced in Q1 2004 (versus Q4 2003 and Q1 2003) would not be made up for nearly one year, until Q1 2005, at best.
On June 29, 2004, after the market closed, Thoratec released its preliminary results for the quarter ended June 30, 2004. These results were much worse than previous forecasts. On this news, the price of Thoratec stock dropped precipitously to $10.74 per share, more than 25% from the previous day's close, on extraordinarily heavy volume of over 11 million shares.
If you purchased securities issued by Thoratec during the applicable period, you may request appointment by the court as a lead plaintiff if you do so by October 4, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiffs. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve you in this action, or you may choose to do nothing, and remain in the class as a silent member.
