A Medical Device Daily

Two shareholder class actions have been filed in Texas courts vs. Advanced Neuromodulation Systems (ANS; Dallas), a developer of implantable neuromodulation devices, on behalf of purchasers of the company's securities between April 24, 2003, and Feb. 16, 2005.

One complaint alleges that the company violated federal securities laws by issuing false or misleading public statements and that during the class period ANS was engaged in unethical marketing involving payment to "certain physicians" for implanting the company's products in patients.

On Feb. 17, 2005, the company disclosed that it had received a subpoena from the inspector general, Department of Health and Human Services, "requesting documents related to the company's sales and marketing, reimbursement, Medicare and Medicaid billing, and certain other business practices." With the news, the company's stock fell from a close of $37.60 a share on Feb. 16 to $29.37 on Feb. 17.

A similar class action was filed vs. ANS, Christopher Chavez and F. Robert Merrill III, for the same period, making substantially the same charges. It alleges that ANS "paid certain physicians a $1,000 incentive for each device implanted in patients," and that the company's relationship with its physicians "was based upon improper payments and not growing market acceptance of its products."

A class action suit also has been filed in the U.S. District Court for the District of Massachusetts on behalf of those who purchased the publicly traded securities of Epix Pharmaceuticals (Cambridge, Massachusetts) between July 10, 2003, and Jan. 14, 2005.

The complaint alleges that Epix, a developer of targeted contrast agents used in MRI, and certain of its officers and directors, concealed clinical quality issues with the underlying data for its MS-325 Phase III program. MS-325 is designed to provide imaging of the vascular system through a type of MRI known as magnetic resonance angiography. The suit charges that these issues "made difficult, if not impossible, the proper control of their clinical test results and statistical analysis of the data and results." Then, on Dec. 16, 2003, defendants announced the submission of their new drug application for MS-325, but continued to conceal the problems with the clinical program, "specifically the poor quality of the underlying clinical data and problems with the statistical analysis."

Epix "instead made positive and encouraging remarks about their 'extensive scientific and clinical development' activities and prospects for product approval."

Epix reported in late 2004 that the FDA had extended the action date for MS-325 by 90 days until mid-January. The company's stock closed at $17.73 on Oct. 5, down $2.27, or 11.4%. In addition, Wells Fargo & Co. (San Francisco) changed its rating for Epix stock from "buy" to "hold."

Then on Jan. 14, 2005, Epix reported that the FDA had determined that problems with the Phase III clinical trials for MS-325 were so serious that it was impossible for the agency to come to a conclusion about its efficacy. The FDA also cited problems with the underlying data that could not be resolved on the basis of data re-analysis. On this news, the price of Epix stock fell 27% to close at $10.67.

At least one other shareholder class action has been filed vs. Epix.