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Invuity Misleading Statements on Medical Product Sales Securities Class Action

Invuity Ad for Lighting Product

Invuity, Inc. makes medical products, but it seems to have difficulty making money. The complaint for this securities class action claims that the company made false or misleading statements during the class period, anticipating “exponential” growth while knowing that its prospects were limited.

The class for this action is all persons or entities who acquired the common stock of Invuity between February 24, 2016 and November 3, 2016.

Invuity makes single-use and reusable medical technology. It concentrates on advanced illumination products to help surgeons better envision the surgical cavity during minimally-invasive and minimal-access procedures.

Invuity had never become profitable, the complaint says, and originally relied on gaining new customers, but it had begun to speak of “going deeper” into existing accounts.

At the beginning of the class period, on a February 24, 2016 conference call on the fourth quarter of 2015, the company’s CEO said that its results showed the company’s “ability to execute against an aggressive growth model.” He claimed the company was going deeper in accounts by selling higher-margin disposable products, and talked of the “predictability and profitability” of this business. The company’s revenue guidance was for 2016 revenues of between $35 million and $37 million, and its representatives spoke of the possibilities for “exponential” growth.

According to the complaint, however, these and other public statements during the class period were false and misleading. The complaint claims the following:

  • The company’s possibilities for growth were limited, because it could only expand into a limited number of specialties.
  • First sales to an account were higher than later sales, because they included a non-recurring capital purchase, while later sales were only for disposables.
  • The company was not really going deeper but temporarily boosting sales by offering discounts that encouraged early purchasing.
  • The company’s sales were not actually seasonal, as it claimed, because its products were for non-elective specialties, such as breast cancer. This meant that revenue guidance figures, which relied on larger third- and fourth-quarter sales, were not attainable.

Also, the complaint says the company conducted another stock offering, after telling investors that it had enough revenue to support the rest of the year. This was followed by significant sales of the stock by insiders, suggesting they knew of the company’s problems.

On November 3, 2016, the company reported its third-quarter earnings, with lower-than-expected revenues, saying, “The primary reason for the shortfall was lower revenue per active account than anticipated.” It also said that “the continued increase in active accounts has made it difficult to significantly increase the average revenue per account.” That is, the company had not been able to increase sales of disposables enough to compensate for the drop-off in each account after the first capital purchase.

The complaint claims that the company’s previous statements, not admitting to its problems and limitations, were violations of the Securities Exchange Act of 1934.

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