Cardinal Health, Inc.
- Company Name
- March 2, 2015 and May 2, 2018
- Stock Symbol
- Class Period
- March 2, 2015 to May 2, 2018
- Motion Deadline
- September 30, 2019
- Southern District of Ohio
The complaint charges Cardinal and certain of its officers with violations of the Securities Exchange Act of 1934. Cardinal is a global integrated healthcare services and products company. In March 2015, Cardinal purchased Cordis Corp. (“Cordis”), a medical device manufacturer, from Johnson & Johnson.
The complaint alleges that, throughout the Class Period, defendants misled investors by stating that Cordis would benefit from Cardinal’s advanced inventory management and supply chain information technology solutions. Defendants also falsely represented that the Company properly “reserve[d] for inventory obsolescence” and that “[i]nventories presented in the consolidated balance sheets [were] net of reserves for excess and obsolete inventory.” As a result of these misrepresentations, the price of Cardinal stock was artificially inflated to more than $90 per share during the Class Period.
The truth began to emerge on August 2, 2017, when Cardinal reported weak earnings for its 2017 fourth quarter and fiscal year and lowered its earnings guidance for the 2018 fiscal year, due, in part, to “higher-than-planned write-offs for excess inventory” at Cordis. Defendants, however, falsely assured Cardinal investors that Cordis’s operational deficiencies had been addressed, that the Company had built the necessary infrastructure and IT systems for Cordis such that it now had “visibility” into Cordis’s inventory, and that the Cordis business was “going into a phase of a lot more stability.” Despite defendants’ attempt to soften Cordis’s poor performance, the price of Cardinal stock declined from $77.33 per share on August 1, 2017, to $70.99 per share on August 2, 2017.
Then, on May 3, 2018, Cardinal announced disappointing third quarter 2018 financial results and cut its fiscal 2018 earnings guidance. The Company explained that the “biggest variable driving these results” was the “disappointing performance” of the Cordis business. Contrary to the Company’s prior statements that it had visibility into Cordis’s inventory and that the Company had properly reserved for obsolete inventory, Cardinal revealed that after launching a new global supply chain IT platform over the last quarter at Cordis, it had discovered millions of dollars of unsellable and expired heart stents and catheters stationed overseas that had to be written off. As a result of these disclosures, the price of Cardinal stock declined from $64.65 per share on May 2, 2018 to $50.80 per share on May 3, 2018.