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Innocoll Misleads on Drug/Device Classification Securities Class Action

Innocoll Collagen Matrix

Is the Innocoll Public Holdings sponge containing a local anesthetic a drug or a medical device? The complaint for this class action claims that the company tried to test it as a drug only, claiming that it had discussed the pathway to approval with the Food and Drug Administration (FDA). Unfortunately, the complaint says that this, and the failure to disclose that its testing was inadequate, were violations of the Securities Exchange Act of 1934.

The class for this action is all persons and entities who acquired the publicly-traded securities of Innocoll between July 25, 2014 and December 29, 2016.

Innocoll is a small biotech company that makes products based on collagen technologies, such as medical sponges, films, powders, and other products. The collagen products are meant to be put into the body and later absorbed, so that no surgery is needed to remove them at a later date.

Innocoll’s lead product during the class period was XaraColl, a collagen sponge soaked with a local anesthetic. It was meant to be installed in the body during surgery, to slowly release its anesthetic to treat post-surgery pain, and then to be absorbed. Since collagen has generally been regulated as a device, the product therefore involved both a drug and a device.

Drugs are subjected to three phases of trials before they can be reviewed for approval by FDA. The requirements for devices are more diverse, but they must also demonstrate safety and effectiveness. The FDA claims it is a company’s responsibility to correctly categorize its products, and it offers an Office of Combination Products to help inventors to decide how best to proceed.

However, the complaint claims that Innocoll has had financial difficulties and that an offering of its stock raised less cash than expected. The complaint claims that the company did not have enough money even to get XaraColl through the filing of a New Drug Application (NDA) with the FDA and decided to cut corners on testing, without disclosing that this might pose problems with approval.

According to the complaint, Innocoll claimed to have had two meetings with the FDA and suggested that the FDA had approved its pathway to XaraColl approval. The complaint says that the company told investors that there were no difficulties other than Phase III trials and that approval was “not in question.” It filed its NDA in October 2016.

In December, the company announced that it had received a Refusal to File letter from the FDA—not a rejection, but a determination that the application was so deficient it would not be reviewed. Innocoll finally admitted that the reason was that XaraColl was not a drug but a drug/device combination, and it had not done device testing on it.

The following day, the company’s stock price fell by over 61%. Much later, the complaint says, the company admitted that it had never even brought up the subject of classification of XaraColl with the FDA. 

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