(CN) – Shareholders claim in a class action that life sciences company OvaScience Inc.’s stock went on a free-fall when the company revealed that one of its fertility treatments was not as successful as originally touted.
The Massachusetts-based company, formerly known as Ovastem Inc., along with several top executives, directors and underwriters, are being sued by the Westmorland County Employee Retirement System for violations of the Securities Exchange Act.
OvaScience develops and markets new treatments for infertility, one of which is called Augment, a treatment available in certain IVF clinics in select international regions. The lawsuit alleges that since January 2015, in connection with the company’s second public offering, the individual defendants caused the company to issue untrue statements, such as registration documents filed with the Securities Exchange Commission.
According to the complaint, the SEC statements failed to disclose that the very science behind Augment was untested and in doubt. Meanwhile, patients who underwent treatment in 2014 allegedly did not achieve significantly better results than patients who did not, and the company failed to undertake studies outside of the U.S. as reported, but was forced to do so because it did not want to adhere to stringent and expensive federal regulations.
“The company was far from being profitable, or even approaching profitability,” the lawsuit says, rendering the $50 per share price in the offering artificially inflated.
The truth about Augment began to come to light on March 26 and 28, 2015, after the offering was complete, when the company reported that the success rate from clinics using the procedure was comparable or lower than the success rate of women using IVF without Augment. The company’s shares began a dramatic decline after the news, closing at $31.15 per share from $48.29 over four days of trading – March 26 to April 1, 2015. The stock plummeted further from $16.47 per share on Sept. 25, 2015 to $8.57 per share, and currently trades below $1.50 per share, the lawsuit says.
Investors claim that the defendants knew the true state of Augment all along but chose to not tell them, and had they been aware of the “risks and uncertainties plaguing Augment” they would have refrained from buying OvaScience shares or paid less for them.
Investors are seeking recovery for “millions of dollars in losses” from OvaScience which they claim made over $100 million in proceeds from the offering.
The class is represented by Theodore M. Hess-Mahan of Hutchings Barsamian Mandelcorn LLP in Wellesley Hills, Mass., David R. Scott and Amanda F. Lawrence of Scott+Scott, Attorneys At Law LLP in Colchester, Conn., and Thomas L. Laughlin, Donald A. Broggi and Andrea Farah in New York.