A Medical Device Daily

The maker of the CyberKnife system, an image-guided, robotic radio surgery system for the treatment of solid tumors, is facing a class action suit for allegedly making false and misleading statements regarding its business, operations, and prospects.

Glancy Binkow & Goldberg said it has filed a class action lawsuit in the U.S. District Court for the Northern District of California on behalf of a class consisting of anyone who purchased the common stock of Accuray (Sunnyvale, California) pursuant and/or traceable to the company's initial public offering beginning on or about Feb. 7, 2007, including purchasers of the company's common stock between Feb. 7, 2007 and Aug. 19, 2008.

The complaint charges Accuray and certain executive officers and directors with violations of federal securities laws. The complaint alleges that throughout the class period defendants "knew or recklessly disregarded" that their public statements concerning Accuray's business, operations and prospects were materially false and misleading. Specifically, the plaintiff alleges that defendants knew or recklessly disregarded and failed to disclose material adverse information, including, among other things: that defendants overstated the amount of the company's backlog by millions of dollars; that defendants reported as backlog a large percentage of contingent and non-contingent orders for the CyberKnife system that did not have a substantially high probability of being booked as revenue; that Accuray sales personnel entered into contingent contracts for CyberKnife systems that did not have a substantially high probability of being booked as revenue; that Accuray did not have adequate internal controls and procedures to ensure that potential orders reported as backlog had a substantially high probability of being booked as revenue; and, based on the foregoing, that defendants lacked a reasonable basis for their positive statements about the company's backlog, operations and financial condition.

On Jan. 30, 2008, Accuray reported a reduction in its earning guidance for fiscal year 2008 and that roughly $30 million of orders were taken out of backlog. As a result, Accuray shares plummeted nearly 36% from the previous day's close of $14.98 a share, to close on Jan. 31, 2008 at $9.52 a share on extremely high volume of more than 10 million shares traded.

Then, on Aug. 19, 2008, Accuray revealed that another $39 million had been removed from backlog. The next day, Accuray shares fell as low as $6.90 a share, or roughly 9% below the previous day's close, and eventually closed at $7.71 on Aug. 20, 2008, on volume of more than 2.2 million shares traded.

The plaintiff seeks to recover damages on behalf of class members.

In other legal matters, a Texas attorney reported that he has filed 29 lawsuits against Medtronic (Minneapolis) in connection with the October 2007 recall of the company's Sprint Fidelis heart defibrillator leads (Medical Device Daily, Oct. 16, 2007). The leads were recalled because of the potential for fracture, which can result in serious injury or death.

Fort Worth personal injury attorney John David Hart said that filing deadlines are approaching as the statute of limitations may expire on Oct. 15 in many states. He said he has filed suit on behalf of clients from seven states, including Texas, Florida, Michigan, Ohio and Pennsylvania.

"Many patients with these devices may not be aware of these deadlines," Hart said. "This device is dangerous and we plan on protecting our clients' rights in court."

In March, Medtronic reported that U.S. District Judge Richard Kyle in Minneapolis had dismissed a securities class action lawsuit related to the withdrawal of the Sprint Fidelis leads (MDD, March 12, 2009). That complaint, which was filed initially by Stanley Kurzweil on behalf of all shareholders and amended on April 18, 2008, after consolidation with other similar shareholder suits. In a 42-page ruling, Kyle analyzed each of the allegations against Medtronic and concluded that, even assuming the allegations were true, they could not support a claim for securities fraud under the laws governing shareholder class actions.