United States District Court, D. Massachusetts
WANG YAN, individually and on behalf of all other similarly situated parties, Plaintiff,
REWALK ROBOTICS LTD., LARRY JASINSKI, AMI KRAFT, AMIT GOFFER, JEFF DYKAN, HADAR RON, ASAF SHINAR, WAYNE B. WEISMAN, YASUSHI ICHIKI, ARYEH DAN, GLENN MUIR, BARCLAYS CAPITAL INC., JEFFERIES LLC, and CANACCORD GENUITY INC., Defendants.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO
DISMISS FOR FAILURE TO STATE A CLAIM
DENNIS SAYLOR, IV UNITED STATES DISTRICT JUDGE
a putative class action alleging violations of Sections 11
and 15 of the Securities Act of 1933 and Sections 10(b) and
20(a) of the Exchange Act of 1934. The plaintiff class
purchased common stock of ReWalk Robotics, Ltd. between
September 12, 2014 (the date of its initial public offering
(“IPO”)) and February 29, 2016. The consolidated
amended complaint alleges that ReWalk, its officers and
directors, and the IPO underwriters concealed material
information in its IPO registration statement about
ReWalk's failure to comply with FDA regulations, in
violation of the Securities Act. It also alleges that after
the IPO, ReWalk and certain officers continued to make
material false statements after the initial offering, in
violation of the Exchange Act. It relies in part on
statements by three former ReWalk employees acting as
have moved to dismiss the complaint for failure to state a
claim pursuant to Fed.R.Civ.P. 12(b)(6) and the Private
Securities Litigation Reform Act of 1995
(“PSLRA”), 15 U.S.C. §§ 78u-4, 78u-5.
Defendants contend that the complaint fails to set forth a
Securities Act violation because it does not identify a
misleading statement or omission in the registration
statement. They also argue that the complaint fails to set
forth an Exchange Act violation because the lead plaintiff
lacks standing and the information allegedly omitted was not
material and was in fact disclosed. In addition, they contend
that the complaint fails to allege specific facts that give
rise to a strong inference of scienter and that it fails to
plead loss causation.
the complaint here fails to identify a false or misleading
statement in the registration statement, to the extent it
alleges violations of the Securities Act, it will be
claims under the Exchange Act, however, present different
issues. As a threshold matter, the lead plaintiff in this
case, Wang Yan, purchased shares only in September 2014, at
the time of the initial public offering; he can therefore
assert claims personally only under the Securities Act. Under
normal circumstances, he would not have standing to assert
claims under the Exchange Act, and those claims would
accordingly be dismissed.
case, however, is subject to the requirements of the PSLRA.
That statute requires the appointment of a lead plaintiff,
who may not be the party who actually filed the complaint (as
here), but who normally has the largest financial interest in
the litigation. Under some circumstances, courts have
permitted lead plaintiffs appointed under the PSLRA to assert
claims as to which they have no personal stake (and,
therefore, would not have standing under a traditional legal
complicating factor here is that the lead plaintiff, Yan, has
no valid claims remaining after dismissal of the
Securities Act claims. Because standing has a constitutional
dimension, in addition to the requirements of the PSLRA, it
is at least somewhat unclear whether Yan can continue to act
as lead plaintiff. Under the circumstances, and because the
parties have not briefed or otherwise addressed the issue,
the Court will not address the Exchange Act claims at this
time. Instead, plaintiffs will be given an opportunity to
persuade the Court that Yan remains an appropriate plaintiff;
to seek the appointment of a substitute or supplemental lead
plaintiff; or to take such other steps as they believe may be
proper under the circumstances. In the meantime, the Court
will grant the motion to dismiss as to the Securities Act
claims, and deny it as to the Exchange Act claims without
prejudice to its renewal once the standing issue has been
and for the reasons set forth below, defendants' motion
to dismiss will be granted in part as to Counts One and Two,
and denied in part without prejudice as to Counts Three and
facts are set forth as described in the consolidated amended
ReWalk Robotics, Ltd., formerly known as Argo Medical
Technologies, Inc., is a medical device company. It designs
and develops exoskeletons, which are devices that help
persons with spinal-cord injuries walk. (CAC ¶ 2). The
company is incorporated in Israel and has its U.S.
headquarters in Marlborough, Massachusetts. (Id.
¶ 26). It was founded by Amit Goffer, who served as CEO
and Chief Technical Officer from 2001 until 2012.
(Id. ¶ 30). Goffer resigned from the company on
November 18, 2015. (Id.).
time of its IPO in September 2014, ReWalk's CEO was Larry
Jasinski and its CFO was Ami Kraft. (Id.
¶¶ 27, 29). Hadar Ron, Jeff Dykan, Asaf Shinar,
Wayne Weisman, Yasushi Ichiki, Glenn Muir, and Aryeh Dan were
all members of ReWalk's Board of Directors. (Id.
¶¶ 31-37). In January 2015, Kevin Hershberger
replaced Kraft as CFO. (Id. ¶ 28).
currently sells two distinct products: ReWalk Personal, which
is designed for everyday use, and ReWalk Rehabilitation,
which is designed for clinical rehabilitation centers.
(Id. ¶ 46). Both devices are regulated in
various jurisdictions by the FDA, the European Union, or
other governmental agencies. (Id. ¶ 94). This
litigation concerns only the ReWalk Personal device, which
the Court will refer to as the “device.”
2014, ReWalk submitted the device to the FDA for “de
novo” classification. (Id. ¶ 47).
“De novo” classification allows manufacturers to
market devices that are low to moderate risk and not
substantially similar to devices that are already being
26, 2014, the FDA approved the ReWalk device for marketing.
It designated the ReWalk device “Class II, ”
requiring special controls. (Id. ¶¶
48-49). The FDA also ordered the company to
conduct a “post-market surveillance” study to
determine the product's risks, as required by Section 522
of the Food, Drug, and Cosmetic Act. (Id.
¶¶ 4, 48-49; 21 U.S.C. § 360L(a)(1)(A)). FDA
regulations require manufacturers to report results of such
studies, including important attributes such as the type of
test subjects, methodology, data collection plan, and patient
follow-up. 21 C.F.R. 822.10. The FDA required the study due
to concerns that a malfunction could result in serious injury
or death. (CAC ¶¶ 4, 49).
complaint alleges that defendants failed to disclose that
ReWalk was either unprepared or unable to comply with the
FDA's June 2014 directive that it perform post-market
surveillance. (Id. ¶¶ 16, 68).
to the IPO, ReWalk filed a registration statement with the
SEC, stating that it had developed a “breakthrough
product” that would “deliver a natural gait and
functional walking speed.” (Id. ¶ 90).
The complaint alleges that the registration statement failed
to disclose that the reason the FDA ordered the company to
conduct a post-market surveillance study was that the ReWalk
device posed a threat of serious injury or death.
(Id. ¶¶ 85-95).
initial public offering of ReWalk occurred on September 12,
2014. (Id. ¶ 5). The company issued 3 million
shares of common stock. (Id.). The IPO was
underwritten by defendants Barclays Capital Inc., Jefferies
LLC, and Canaccord Genuity Inc. (Id. ¶¶
38-40). Lead plaintiff Wang Yan purchased 3, 600 shares of
ReWalk in September 2014, shortly after the IPO. (Docket No.
7, Ex. C).
weeks after the IPO, on September 29, 2014, the FDA contacted
ReWalk to inform the company that its proposed post-market
surveillance study was deficient. (CAC ¶ 7). Notably,
the FDA's letter stated that although the plan was
deficient, because less than six months had elapsed since the
issuance of the 522 order, the study status would be marked
as “Plan Pending” on the FDA's website.
(Feldman Decl. Ex. F at 3). The FDA granted ReWalk 30 days to
file a response, which it failed to do in a timely fashion.
(CAC ¶¶ 7-8). ReWalk eventually filed a response on
November 6, 2014. (Id. ¶ 8). On February 13,
2015, the FDA found that the November 6 submission was also
deficient. (Id.). The FDA granted ReWalk another 30
days to file a further response, and ReWalk responded (late)
on May 22, 2015. (Id. ¶¶ 8-10). ReWalk
stated that it wanted to discuss an issue with the FDA before
submitting a formal reply to the February 13 letter.
(Id. ¶ 10).
to the complaint, during that time, ReWalk officials held
quarterly earnings calls, during which they failed to
disclose the company's failure to comply with the
FDA's requirement. Specifically, those calls were made on
February 12, 2015 (Q4 2014), May 7, 2015 (Q1 2015), August 6,
2015 (Q2 2015), November 11, 2015 (Q3 2015), and February 25,
2016 (Q4 2015). (Id. ¶¶ 99-110).
September 5, 2015, the FDA cautioned ReWalk that it still had
not submitted a revised study plan addressing the
deficiencies previously identified by the agency.
(Id. ¶ 13). Having received no response, on
September 30, 2015, the FDA issued a warning letter outlining
the company's substantial failure to comply with the
post-market surveillance requirement. (Id. ¶
14). Specifically, the letter stated that under the 522
order, ReWalk was required to begin its surveillance study
“not later than 15 months after the day on which [a 522
order] is issued.” (Pl. Ex. C at 2). The 15-month time
frame had closed on September 28, 2015. (Id.). The
letter went on to state that ReWalk had “committed a
prohibited act under section 301(q)(1)(C) of the [Food, Drug,
and Cosmetic Act]” and that the ReWalk device was
“currently misbranded.” (Id.). The
letter was eventually disclosed to the public by the FDA on
March 1, 2016. (CAC ¶ 18).
closing stock price the day before the FDA released the
letter was $10.48. (Id. ¶ 19). The closing
price the following day, on March 1, 2016, was $9.07,
reflecting a 13% decline in value. (Id.). The stock
price has steadily declined since, and ReWalk shares are
currently trading at around $0.75 to $1.25.
end of March 2016, the FDA exercised its enforcement
discretion and allowed ReWalk to continue to market its
device, provided that it would initiate the post-market
surveillance study by June 1, 2016. (Id. ¶
114). The FDA approved ReWalk's proposed protocol for the
study on May 5, 2016. (Id. ¶ 115). However,
ReWalk did not file timely monthly reports to the FDA in June
and July 2016. (Id. ¶ 116). Although the
approved protocol required 60 subjects from twelve U.S.
clinical areas, according to CW-3, ReWalk had only recruited
eight subjects from three areas by June 2017. (Id.
Confidential Witness Allegations
noted, the complaint alleges in substance that defendants
failed to disclose ReWalk's failure to comply with
various FDA regulations, both during and after the IPO. In
support of those allegations, the complaint relies in part on
statements from three confidential witnesses
(“CWs”), who were formerly employed by
was the Executive Assistant to CEO Jasinski between April
2015 and December 2016. (CAC ¶ 70). She described
Jasinski as “micromanaging” ReWalk's
day-to-day operations and involving himself in “every
single aspect of the business.” (Id.).
According to CW-1, ReWalk had a culture of procrastination,
which was “exacerbated by Jasinski's
micromanagement style.” (Id. ¶ 71).
sat in on weekly meetings between Jasinski and other
high-ranking ReWalk officials. (Id. ¶ 72). She
recalled a meeting where the FDA's September 30, 2015
warning letter was discussed. (Id.). Jasinski, CFO
Hershberger, and other officials were concerned about
possible consequences ReWalk could suffer if it failed to
meet FDA requirements. (Id. ¶ 73). At some
point, the warning letter was also brought to the attention
of ReWalk's Board of Directors, chaired by defendant
Dykan. (Id. ¶ 74).
was a Clinical Training Manager at ReWalk from November 2015
to August 2016. (Id. ¶ 75). CW-2 reported to
ReWalk's Worldwide Training Manager and trained physical
therapists at hospitals and rehabilitation centers on how to
use the ReWalk device. (Id.).
December 2015, Jasinski convened a company-wide
teleconference to discuss ReWalk's plan for a post-market
surveillance study. (Id. ¶ 76). At the
teleconference, defendants “showed no sense of urgency
at all to even start the post-market surveillance study
before February 2016.” (Id.). Two months
later, the FDA sent another letter to ReWalk citing
deficiencies in the company's proposed post-market
surveillance study. (Id. ¶ 77). Around that
time, ReWalk hosted a company-wide meeting in its Marlborough
headquarters. (Id. ¶ 78). At that meeting,
“CW-2 noticed for the first time that there appeared to
be some urgency at [ReWalk] to start post-market
surveillance.” (Id.). The Worldwide Training
Director instructed CW-2 to recruit subjects for such a
study. (Id. ¶ 79). However, ReWalk did not
recruit a sufficient number of subjects, in part because most
insurance companies declined to reimburse users for the
ReWalk device. (Id.).
was the Associate Director of Clinical Operations at ReWalk
from February 2016 to June 2017. (Id. ¶ 80).
CW-3 was hired to develop and execute ReWalk's
post-market surveillance study. (Id. ¶ 81).
CW-3 initially reported to John Hamilton, the Vice President
of Regulatory and Clinical at ReWalk. (Id. ¶
80). After Hamilton stepped down from his position in early
2017, CW-3 reported directly to Jasinski. (Id.).
stated that before the IPO, ReWalk hired Clinivation, a
third-party contract research organization, to prepare
documents necessary for a post-market surveillance study.
(Id. ¶ 82). However, upon joining ReWalk, CW-3
reviewed Clinivation's work and concluded that it was
“quite garbage.” (Id.). Eventually, CW-3
convinced Hamilton to terminate ReWalk's contract with
Clinivation; however, Hamilton appeared to have
“virtually no experience with clinical trials.”
(Id. ¶ 83). Like CW-2, CW-3 stated that
ReWalk's attempt to conduct a post-market surveillance
study was hampered by its failure to recruit a sufficient
number of subjects after insurance companies refused to
reimburse users for the ReWalk device. (Id. ¶
Defendants' Statements as to the Securities Act
complaint alleges that the following paragraphs in
ReWalk's September 12, 2014 IPO registration statement
were false and misleading:
Compelling Clinical Data. We believe that
ReWalk's clinical data differentiates us from our
competitors. Clinical data published in established medical
journals has demonstrated ReWalk's potential as a safe
ambulatory device. We are not aware of any comparable
clinical data generated in rigorous trials that has been
published with respect to competing exoskeleton products. In
addition, our interim analysis of an ongoing clinical study
demonstrates improvements in secondary physical conditions,
such as reduction in pain and spasticity and improvements in
bowel and urinary tract function, body and bone composition,
metabolism and physical fitness, as well as reduced
hospitalizations and dependence on medications. We believe
that continued results of this nature will greatly assist our
ability to obtain regulatory clearances and third-party
(CAC ¶ 86).
Continue Clinical Studies to Further Demonstrate
Health and Economic
Benefits to Support
Reimbursement. We intend to continue to work with
hospitals, rehabilitation centers, patient advocacy and
support groups and individual users to generate additional
data regarding functionality and that supports the health and
economic benefits of ReWalk. We will continue to engage and
fund researchers and organizations to conduct clinical
studies to demonstrate the functionality and utilization of
ReWalk and to highlight economic benefits of reductions in
medical complications ...