Class Action Lawsuit Claims Baxter International Inflated Stock Price, Misled Investors

By on September 28, 2010

Baxter CEO Robert Parkinson, Jr.A securities class action complaint has been filed against Illinois-based Baxter International, Inc. (NYSE: BAX) in the U.S. District Court for the Northern District of Illinois on behalf of all common stockholders during the period between September 17, 2009 and May 3, 2010.  According to the lawsuit, Baxter failed to disclose to investors that it violated the conditions of a 2006 consent decree with the Food and Drug Administration (FDA) related to the remediation of its Colleague Volumetric Infusion Pumps (Colleague Pumps).

In the mid-’90s, Baxter began developing an electric infusion pump named Colleague, which automatically delivered intravenous fluids such as nutrients and medication to patients.  In early 1999, the pump attracted government scrutiny because of numerous deficiencies, including inaccurate delivery of fluid amounts.  In June 2006, Baxter entered a consent decree with the FDA to correct the product’s deficiencies.

During a September 2009 conference call with analysts, Baxter was questioned on the progress of Colleague, to which Chairman and CEO Robert Parkinson, Jr. (pictured)  responded:

We continue to work with the FDA on how we move forward and complete the remediation .… There has been a number of things that as we have conducted the remediation that was a basis of some follow-on field corrective actions that we announced earlier in the year ….

However, on May 3, the FDA issued a press release disclosing that it sent a letter to Baxter on April 30, instructing the company to recall and destroy all of its Colleague Pumps currently in use in the United States.  The statement said the recall is based on a longstanding failure to correct many serious problems with the pumps and that there may be as many as 200,000 of the pumps currently in use.

The Colleague Pumps were linked to more than 56,000 complaints of injuries from 2005 to 2009, including more than 500 deaths.  An FDA analysis determined the adverse events were caused by “software defects, user interface problems and mechanical and electrical failures.”

In response to the FDA’s orders, Baxter released a statement noting that the recall will result in “a pre-tax special charge of $400 to $600 million in the first quarter.” 

In reaction to the news, Baxter shares fell 5.09% on May 4, down to $45.08, wiping out more than $1.4 billion in total shareholder value.

Details of the Colleague recall and the financial ramifications can be viewed here.

The FDA recall came at an already difficult time for Baxter, which slashed its annual guidance on April 22, citing a negative impact from the health-care reform law and an overestimated growth in the plasma market, which accounts for 22% of its total sales.

The Wall Street Journal reported that Baxter lowered its January per-share earnings forecast of between $4.20 to $4.28, to $3.92 to $4 per share, largely due to a 2-3% loss in market share in the plasma market.  Baxter’s plasma products are used to treat problems such as immune-deficiency disorders and hemophilia.

Parkinson said Baxter “simply miscalled” growth in the market for antibodies and other blood products.

Shares fell 13.27% on April 22, the largest one-day decline since March 2003.

If you purchased any class of shares of Baxter International from September 17, 2009 through May 3, 2010, you may file a motion with the court no later than November 22 and request that the court appoint you as lead plaintiff.  A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation.  To be appointed lead plaintiff, the court must decide that your claim is typical of the claims of other class members and that you will adequately represent the class.  Your share in any recovery will not be enhanced or diminished by your decision of whether or not to serve as a lead plaintiff.  You can recover as an absent class member without moving for lead plaintiff.

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