A derivative suit filed on Wednesday in the Northern District of California by Jeffrey Edelman, on behalf of CareDx, Inc against CareDx, Inc. and each member of its board of directors alleges that the medical diagnostics company violated securities laws.
CareDx is described in the complaint as a “diagnostics company that provides services and products to the organ transplant recipient community, offering diagnostic testing services, products, and digital healthcare software for transplant patients and care providers.” Through their services, CareDx allows clinicians to determine effective treatments for organ transplant recipients, the complaint says.
Kidney and heart transplant recipients make up over 85% of CareDx’s total revenue since they market an AlloSure blood test for transplant recipients. Because CareDx reports a higher average sales price for their testing services, they receive higher Medicare reimbursements from commercial payers, according to the derivative plaintiff.
In February 2021, CareDx reported a 51% year-over-year increase in total revenue, which they attributed to their testing services sector. In addition to the testing services sector, CareDx’s board of directors emphasized the success of their RemoTraC service.
Edelman alleges that the individual defendants “caused the company to issue materially false and misleading statements regarding testing services.” Specifically, the board of directors failed to disclose the improper and illegal schemes that had been used to inflate testing services revenue. CareDx officers purportedly pushed surveillance of organ rejection protocol, offered inducements or kickbacks to physicians, and improperly billed certain testing services as part of others.
CareDx revealed in October of 2021 that they were the subject of three government investigations due to their misconduct. This news led to a 33% decline in stock price. The stock price continued to decline as more of the defendants’ misconduct came to light.
Plaintiff Edelman asserts that the defendants’ misconduct “has caused substantial damage to CareDx’s reputation, goodwill, and standing in the business community and has exposed CareDx to substantial potential liability for violations of federal securities laws and the costs associated with defending itself.”
The complaint cites violations of the Exchange Act, breach of fiduciary duties, insider trading, and unjust enrichment. The plaintiff is seeking a declaration that they can maintain the action on behalf of CareDx, favorable judgment on each count, awarding damages to CareDx, pre- and post-judgment interest, restitution, and more.
The plaintiff is represented in the litigation by Levi & Korsinsky, LLP.
