A class action lawsuit was filed against Outset Medical (OM) by Levi & Korsinsky on August 29, 2024. The plaintiffs (shareholders) alleged that they bought OM stock at artificially inflated prices between August 1, 2022 and August 7, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Outset Medical stock during that period can click here to learn about joining the lawsuit.
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Outset Medical is a medical technology company that boasts pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The company’s claims about its Food and Drug Administration (FDA)-approved Tablo Hemodialysis System are the focus of the lawsuit.
Outset Medical’s Misleading Claims
According to the lawsuit, Outset Medical and two of its senior officers (Individual Defendants) are accused of deceiving investors by lying and withholding crucial information about the company’s business and prospects during the Class Period. In particular, they are accused of omitting truthful information about certain marketing claims and ancillary issues from SEC filings and related material.
In a press release dated August 1, 2022, Outset Medical announced that it received the FDA’s clearance of its previously disclosed 510(k) submission and resumed the shipments of Tablo Hemodialysis System for home use. Further, Outset’s CEO stated that the company’s guidance reflected staffing and inflationary pressures and the work that needs to be done to regain commercial momentum following the release of the pause in Tablo shipments.
Finally, in a quarterly report filed with the SEC on May 4, 2023, the company mentioned its sales organization, which was responsible for generating new customer demand for Tablo, and its clinical sales team, responsible for driving utilization and flat expansion of Tablo consoles.
However, subsequent disclosures revealed that the company faced the risk of potential pauses in Tablo’s product shipments pending FDA clearances for certain uses that were not approved and lacked the necessary sales team to effectively scale up Tablo sales.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants made false and misleading public statements throughout the Class Period.
The truth came out in a series of events that occurred between July 7, 2023 and August 7, 2024. In a filing on July 7, 2023, Outset Medical disclosed that it received a warning letter from the FDA, asserting that the regulator found certain materials on the company’s website that promote continuous renal replacement therapy (CRRT), which is a modality outside of the current indications for the Tablo Hemodialysis System. The FDA also asserted that the TabloCart with Prefiltration requires prior 510(k) clearance for marketing authorization.
Then in a press release issued on August 2, 2023, Outset Medical announced a shipment pause of TabloCart with Prefiltration, pending the 510(k) clearance.
Finally on August 7, 2024, Outset Medical announced dismal Q2 2024 results, significantly missing expectations. Consequently, the company lowered its full-year revenue guidance by $39 million at the midpoint. OM stock tanked 50% on August 8 in reaction to the weak financials and outlook.
To conclude, Outset Medical allegedly misled investors about the prospects of its business. Consequently, OM stock has plunged over 89% so far this year, causing damage to shareholder returns.
