(CN) – Shares in medical technology company Axogen Inc. have not recovered since the company conducted two secondary initial public offerings knowing that its multibillion-dollar market claims were overstated and unreasonable, a shareholder derivative alleges.
Florida-based Axogen develops nerve repair technologies, and the lawsuit names Axogen’s CEO Karen Zaderej and several other top executives as defendants. The company completed two public offerings of its stock on Nov. 20, 2017 and May 11, 2018, however, Axogen executives allegedly approved untrue statements between Aug. 2, 2017 and Dec. 18, 2018 about the company’s future prospects.
The lawsuit alleges that on Aug. 2, 2017, the defendants calculated the market for Axogen’s products at $1.8 billion and later increased that figure to $2.7 billion. However, “the company’s multibillion-dollar market claims contrasted starkly with its comparatively paltry 2017 revenues of just $60 million,” the complaint states. In actuality, Axogen is close to market saturation and the multibillion-dollar outlook is nonexistent, the suit says.
Problems with Axogen’s outlook and finances came to light when investment management firm, Seligman Investments, issued a report concluding that Axogen’s trauma market was only $52 million, much less than the $1.8 billion previously touted by the company, and found that the company was hiding news of decreasing sales “with aggressive and unsustainable price increases, which were alienating its customers and threatening its future sales.” Seligman’s report is backed up by reviews of Axogen’s own public statements and information such as scientific journals, in addition to interviews with surgeons and former Axogen employees, according to the derivative complaint.
Shortly after the Seligman report, Axogen’s stock plummeted more than 35 percent on Dec. 20, 2018, to close at $17.89, compared to closing at $27.53 on Dec. 17. The crash wiped out roughly $372 million in market capitalization and Axogen’s stock has not been the same since, the lawsuit maintains. The suit further alleges that the defendants pocketed more than $34.7 million in insider trading of the company’s stock.
Among other relief, shareholders seek an order for Axogen to employ an independent, third-party expert to calculate the company’s market value, resolutions and amendments to the company’s by-laws and articles of incorporation, as well as stricter controls on insider selling.
Lead plaintiff Joseph Novitzki is represented by Gabriel A. Costa of Callahan & Fusco, LLC in Ft. Lauderdale and Brian J. Robbins, Craig W. Smith and Shane P. Sanders of Robbins LLP in San Diego.