|Meyer, et al. v. Organogenesis Holdings Inc., Gary S. Gillheeney, Sr., and David C. Francisco
|United States District Court for the Eastern District of New York
|Honorable Diane Gujarati
|Donald Martin Meyer, Manishkumar H. Bhagat, and Dustin L. Lineweber
|Organogenesis Holdings Inc. (“Organogenesis”), Gary S. Gillheeney, Sr., and David C. Francisco
|August 10, 2020 through August 9, 2022
This securities fraud class action case arises out of Defendants’ false or misleading statements and omissions of material fact regarding Organogenesis’s revenue growth between August 10, 2020 and August 9, 2022. Organogenesis primarily manufacturers and sells skin substitute products used in the treatment of chronic and acute wounds. During the Class Period, Plaintiffs allege that Organogenesis and Defendants Gillheeney and Francisco, the Company’s Chief Executive Office and Chief Financial Officer, respectively, engaged in a scheme to game the Medicare reimbursement system for two of Organogenesis’s skin substitute products—Affinity and PuraPly XT—to boost revenues and inflate the Company’s stock price. Defendants’ scheme centered on illegal marketing efforts that sought to induce physicians to purchase Affinity and PuraPly XT over competing products by marketing the difference, or “spread” between the amount Organogenesis charged physicians for these products and the amount physicians were reimbursed by certain Medicare Administrative Contractors (“MAC”). Plaintiffs further allege that Defendant Gillheeney personally profited from Defendants’ scheme by selling $16.8 million of Organogenesis common stock during the Class Period while the Company’s stock price was inflated as a result of Defendants’ misstatements and omissions.
Defendants’ scheme gradually unraveled beginning on October 12, 2021, when a market analyst issued a report alleging that Organogenesis’s rapid growth was the result of Defendants’ undisclosed marketing of the Medicare reimbursement “spread” for Affinity and PuraPly XT–i.e., the difference between the price paid by a physician and the amount reimbursed by Medicare. This disclosure caused Organogenesis’s stock price to decline approximately 14%. Defendants, however, continued to mislead the market and reassure investors that Organogenesis’s revenue growth was genuine and sustainable.
Defendants’ scheme was thwarted when Medicare set a national Average Selling Price (”ASP”) for Affinity that was significantly lower than the amount physicians were reimbursed by the MACs, leading to a rapid decline in Affinity sales. On August 9, 2022, Organogenesis announced its second quarter 2022 financial results, which disclosed that Affinity sales had declined substantially as a result of the recently established ASP. Following this revelation, Organogenesis’s stock price declined 20%.
Following an intensive investigation by Kessler Topaz, which included interviews with former Organogenesis employees and obtaining Medicare reimbursement data through the Freedom of Information Act, on October 24, 2022, Plaintiffs filed an Amended Complaint on behalf of a putative class of investors alleging that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On March 13, 2023, Defendants filed a motion to dismiss the Amended Complaint. Briefing on that motion is complete and pending before the Court.
Read Amended Class Action Complaint Here