United States District Court, D. Massachusetts
WILLIAM M. CODY, THOMAS S. NELSON, and JAMES SCHAEFER, individually and on behalf of all others similarly situated Plaintiffs,
CONFORMIS, INC., PHILIPP LANG, and PAUL WEINER, Defendants.
OPINION AND ORDER
A. O’TOOLE, JR. United States District Judge.
plaintiffs, William M. Cody, Thomas S. Nelson, and James
Schaefer,  bring claims under the Securities Act of
1933 and the Securities Exchange Act of 1934 (the
“Securities Act” and the “Exchange Act,
” respectively) against the defendants, ConforMIS,
Inc., Philipp Lang, and Paul Weiner. ConforMIS is a medical
device company headquartered in Massachusetts. Lang is the
company’s President and Chief Executive Officer. Weiner
is its Chief Financial Officer.
defendants have moved to dismiss all claims against them. The
primary Securities Act claim, brought under Section 11,
see 15 U.S.C. § 77k, alleges material
misstatements in or omissions from ConforMIS’s
prospectus, issued in connection with its initial public
offering (“IPO”). The primary Exchange Act claim
alleges a violation of Rule 10b-5, see 17 C.F.R.
§ 240.10b-5,  and alleges material misstatements or
omissions in the company’s prospectus and in a post-IPO
earnings conference call that Lang and Weiner held with
analysts and investors. The plaintiffs also bring two
derivative claims for officer or director liability against
Lang and Weiner under Section 15 of the Securities Act and
Section 20(a) of the Exchange Act. It appears undisputed that
if the primary claims fail, so too do the individual
reasons explained in more detail below, the plaintiffs have
not adequately pled claims under either Section 11 or Rule
10b-5. Specifically, the Amended Complaint does not allege
facts that would support a plausible conclusion that any of
the challenged statements were false or misleading when made.
Nor, as to the Exchange Act claims, do the factual
allegations of the Amended Complaint support a strong
inference of scienter, an essential element of a claim under
Amended Complaint alleges the following: ConforMIS
manufactures and sells custom designed joint replacement
devices, particularly knee replacement devices. The
fundamental proposition of the company’s business plan
is that implants designed specifically for a particular
patient are superior in performance to mass-produced
“off-the-shelf” implants precisely because each
ConforMIS device is designed to match the unique anatomical
geometry of a specific person, leading to better clinical
outcomes. In addition to the implant device itself, the
company delivers to surgeons a set of instruments it dubs
“iJigs” to be used in the implant surgery.
first half of 2015, ConforMIS operated manufacturing
facilities in Bedford and Burlington, Massachusetts. At the
time of its IPO, July 1, 2015, the company was in the process
of shutting down its Burlington facility and transferring
those operations to a new facility in Wilmington,
Massachusetts. Primary manufacturing operations were
transferred after the IPO.
medical device company, ConforMIS must comply with the Food
and Drug Administration’s QSR (Quality System
Regulation) protocol. See generally 21 C.F.R., Part
820. The QSR does not itself establish a specific set of
quality control rules, but rather requires a manufacturer of
medical devices to establish and enforce policies and
procedures sufficient to achieve effective quality control.
In its prospectus, the company stated that it believed its
existing Burlington and Bedford facilities were in compliance
with the QSR. (The Wilmington facility was still in the
process of being validated.)
important part of ConforMIS’s manufacturing process is
the cleaning and sterilization of the iJigs, the surgical
instruments that accompany the knee replacement devices.
According to the Amended Complaint, the iJigs were first
cleaned in-house and then sent out to a vendor to be
sterilized. The Amended Complaint describes the process in
32. On information and belief, iJigs were cleaned
ultrasonically in ConforMIS’s facilities before being
33. Ultrasonic cleaning usually has four steps: (1)
submerging the item in cleaning solution; (2) introducing
ultrasonic sound waves over a specific time period, which
scrub the item clean as tiny bubbles rapidly form and then
implode around the item; (3) rinsing off the solution; and
(4) drying the item.
34. ConforMIS has used different sterilization methods at
different times, including hydrogen-oxide sterilization and
35. Ethylene-oxide sterilization is more efficient than
hydrogen-peroxide sterilization, but ethylene-oxide
sterilization has a much higher risk of leaving dangerous
residues, including ethylene oxide itself, ethylene
chlorohydrin, and ethylene glycol.
36. On information and belief, ConforMIS primarily used
hydrogen-peroxide sterilization before its IPO.
37. At some point in 2014, ConforMIS decided to outsource its
sterilization process to an outside vendor called STERIS.
38. After its IPO, ConforMIS began to rely more heavily on
(Am. Compl. ¶¶ 32-38 (dkt. no. 23).) According to
the Amended Complaint, the use of ethylene oxide in the
sterilization process presents a risk that if the item is not
thoroughly dried after its cleaning, the remaining moisture
may lead to the formation of ethylene glycol, a moderately
toxic type of antifreeze. (See id ¶¶
the “Risk Factors” section of the prospectus, the
plaintiffs cite the following statements by the company:
We may encounter problems or delays in the manufacturing of
our products or fail to meet certain regulatory requirements
that could result in a material adverse effect on our
business and financial results.
. . .
We may encounter other difficulties in increasing and
expanding our manufacturing capacity, including difficulties:
• acquiring raw materials for 3D printing;
• deploying new manufacturing processes, including DMLS
• acquiring 3D printers, especially DMLS 3D printers;
• managing production yields;
• maintaining quality control and
• maintaining component availability;
• maintaining adequate control policies and
• hiring and retaining qualified personnel; and
• complying with state, federal and foreign regulations.
(Mem. of Law in Supp. of Defs.’ Mot. to Dismiss, Ex. A,
at 31-32 (dkt. no. 29-2) (bold face supplied by
plaintiffs); Am. Compl. ¶¶ 95-96.)
“Business” section of the prospectus, under
“Manufacturing, ” the plaintiffs point to the
We conduct our manufacturing activities in state-of-the-art
design and manufacturing facilities in Bedford, Burlington