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Shareholders Can Pursue Claims Against MiMedx

ATLANTA (CN) - Shareholders may pursue claims that a biomaterials distributor caused them financial losses by falsely touting its products as exempt from federal drug regulation, a federal judge ruled.

Georgia-based MiMedx Group, a global processor and distributor of human amniotic tissue, developed several products that help regenerate damaged or diseased tissue, enhance healing, and reduce scar formation.

In a September 2013 class action lawsuit, shareholders claimed that MiMedx misrepresented to investors that AmnioFix and EpiFix, two products designed to speed up the healing process, would qualify as human cell and tissue-based products exempt from federal drug regulation, despite knowing that the products could not meet the "minimally manipulated" criterion for the exemption.

The company also failed to disclose that the Food and Drug Administration inspected MiMedx facilities in 2012 to determine if the injectable products qualified for the exemption, according to the complaint.

MiMedx stock fell 36 percent, from $6.06 per share to $3.85 per share, when the company released a September 2013 letter from the FDA stating that AmnioFix and EpiFix did not meet the requirements for the exemption, according to the lawsuit.

Although the stock price rebounded to $6.76 per share three months later, when MiMedx announced it would seek FDA approval for the injectable products, investors who bought stock between March 2012 and September 2013 claimed the company's misleading statements had caused them financial losses.

MiMedx and its executives countered that they had disclosed the risks of marketing the injectable products without FDA approval, and thus were not responsible for any economic losses shareholders allegedly suffered.

But U.S. District Judge Thomas Thrash refused to dismiss the claims in August, finding that the plaintiffs had offered sufficient evidence that MiMedx may have misled investors. The company continued to report in its securities filings that it believed the products would be exempt from drug regulation, despite an FDA report that showed the products were under increased scrutiny, according to the Aug. 13 ruling.

Since MiMedx executives knew the company was using procedures that generally disqualify biomaterials from the exemption, and were aware the FDA was scrutinizing their products, they likely knew the agency would not classify the products as exempt, according to the ruling.

Even though MiMedx stock prices recovered in less than three months after the disclosure, the court could not conclude that shareholders had suffered no economic losses due to the previous drop in value.

Thrash denied MiMedx's motion for reconsideration last week, finding that the company merely tried to repackage arguments that the court had previously dismissed.

MiMedx failed to show that the court improperly considered an executive's stock sales shortly before the drop in price as evidence that MiMedx knew the products would not be exempt, the Dec. 2 ruling states.

Moreover, MiMedx cannot ask the court to reconsider dismissing the shareholders' claims based on arguments it failed to raise in its original motion, Thrash ruled.

Attorneys for MiMedx did not respond to a request for comment.

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