(CN) - Shareholders filed a derivative action against medical device maker Endologix over its failure to win FDA approval for an aneurysm sealing system - and the subsequent plummet of its share price.
Nick Cocco filed a derivative suit against Endologix, a company focused of minimally invasive treatments for aortic disorders, and its executives in California federal court for allegedly filing misleading proxy statements with the Securities and Exchange Commission.
Endologix's share price tanked in November 2016, falling 20 percent to $7.82 per share, after it announced that its Nellix Endovascular Aneurysm Sealing System would not be receiving FDA approval.
"During the relevant period, the individual defendants painted a falsely optimistic picture that premarket approval for Nellix was inevitable and right around the corner," the complaint states.
Endologix allegedly hid FDA concerns that the device was known to "migrate" from its initial placement within the body, causing catastrophic medical complications in some patients.
"The individual defendants, however, caused the company to downplay the severity of Nellix's migration problem, and instead conveyed to the market that the problem could be easily fixed," the complaint continues.
Then in May of this year, Endologix told investors it was no longer seeking FDA approval of its device at all, but instead would seek approval for a second generation "Gen2" device, which would require completely new clinical trials and push the timeline for approval to 2020.
"On this shocking news, the price of Endologix stock plummeted 36 percent, or $2.47 per share, to close at $4.26 on May 18, 2017 - falling to its lowest level in several years," Cocco says.
He claims that making a pre-suit demand on Endologix's board of directors would be futile because the board authorized the filing of false proxy statements and urged stockholders to approve compensation for executives who clearly failed to protect shareholder value.
Cocco is represented by Frank J. Johnson with Johnson & Weaver in San Diego.