UNITED STATES DISTRICT COURT All Others Similarly …shareholdersfoundation.com/system/files/complaints/...BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) today announced it has ... On

UNITED STATES DISTRICT COURTMIDDLE DISTRICT OF TENNESSEE

T, Individually and On Behalf of )All Others Similarly Situated, ) Case No.

Plaintiffs, ) CLASS ACTION

V . ) COMPLAINTFOR VIOLATIONS OF

BIOMIMETIC THERAPEUTICS, INC., ) FEDERAL SECURITIES LAWSSAMUEL E. LYNCH, and LAWRENCE E. )BULLOCK, ) DEMAND FOR JURY TRIAL

Defendants. )

CLASS ACTION COMPLAINT

Plaintiff individually and on behalf of all other persons similarly situated,

by his undersigned attorneys, for his complaint against defendants, alleges the following based

upon personal knowledge as to himself and his own acts, and information and belief as to all

other matters, based upon, inter alia, the investigation conducted by and through his attorneys,

which included, among other things, a review of the defendants' public documents, conference

calls and announcements made by defendants, United States Securities and Exchange

Commission ("SEC") filings, wire and press releases published by and regarding BioMimetic

Therapeutics, Inc. ("BMTI," `BioMimetic" or the "Company"), analysts' reports and advisories

about the Company, and information readily obtainable on the Internet. Plaintiff believes that

substantial evidentiary support will exist for the allegations set forth herein after a reasonable

opportunity for discovery.

Case 3:11-cv-00653 Document 1 Filed 07/06/11 Page 1 of 31 PageID #: 1

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all persons

other than defendants who purchased BMTI securities between October 14, 2009 and May 11,

2011, inclusive (the "Class Period"), seeking to recover damages caused by defendants'

violations of the federal securities laws and to pursue remedies under the Securities Exchange

Act of 1934 (the "Exchange Act").

2. BMTI's product, AugmentTM Bone Graft ("Augment"), is a fully synthetic, off-the-

shelf bone growth factor product for the treatment of bone defects and injuries. The Company's

primary focus is obtaining market approval for Augment, and preparing for the anticipated

commercial launch of Augment in the United States, the European Union and Australia.

3. Throughout the Class Period, Defendants conditioned investors to believe that FDA

approval of Augment would be forthcoming through a host of materially false and misleading

statements regarding the status of Augment's ongoing clinical studies, and the safety and

efficacy of the Company's product. Specifically, Defendants made false and/or misleading

statements and/or failed to disclosure material facts regarding: (a) the Company's business,

operations, management, future business prospects and the intrinsic value of BMTI's common

stock; (b) the safety and efficacy of Augment and its prospects for FDA approval; and (c) the

woeful inadequacies of Augment's clinical trials. As a result of the foregoing, the Company's

statements were materially false and misleading at all relevant times.

4. On May 10, 2011, in advance of a meeting by the FDA's Orthopedic and

Rehabilitation Devices Panel of the Medical Devices Advisory Committee (the "Panel") on May

12, 2011, the FDA published briefing documents on Augment. The briefing documents were

scathing in their assessment of the conduct of the clinical trial, stating that the "FDA still has

clinical concerns with the safety and overall risk/benefit of the device at this time, primarily due

2Case 3:11-cv-00653 Document 1 Filed 07/06/11 Page 2 of 31 PageID #: 2

to the unanswered question of safety in regards to the potential for cancer formation versus an

unproven benefit in the current standard for care." In addition, the FDA cited a number of

concerns regarding the results of the clinical trial, and the manner in which it was conducted,

including: 1) the pool of participants in the trial was too small; 2) Augment was not as successful

as autologous grafts in an important group of patients called the "intent to treat" group; and 3)

the results of the trial were not statistically significant compared to autologous grafts after three

years.

5. Investors were shocked to learn the truth regarding the safety and efficacy of

Augment, and the glaring deficiencies in the Company's clinical trials. As a result, BMTI's

stock price plummeted approximately $4.73 or over 35% and closed at $8.66 on unusually heavy

volume.

6. On May 13, 2011, the Company disclosed that the Panel voted by a narrow margin

of 10-8 in favor of Augment's efficacy. Such a narrow Panel vote makes it highly unlikely that

the device will receive FDA approval without requiring additional trials, substantially delaying

the launch of the product.

7. As a result of the news regarding the narrow Panel vote, BMTI shares declined

nearly 12% or $1.095 and closed at $8.105.

8. As a result of Defendants' wrongful acts and omissions, and the precipitous decline

in the market value of the Company's securities, Plaintiff and other Class members have suffered

significant losses and damages.

JURISDICTION AND VENUE

9. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule lOb-5 promulgated thereunder by the

SEC, 17 C.F.R § 240.1Ob-5.


10. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

11. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28

U.S.C. § 1391(b). BMTI maintains its principal place of business in this District and many of

the acts and practices complained of occurred in substantial part herein.

12. In connection with the acts alleged in this complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications, and the facilities of the national

securities markets.

PARTIES

13. Plaintiff, as set forth in the accompanying certification, incorporated by reference

herein, purchased BMTI securities BMTI at artificially inflated prices during the Class Period

and was damaged thereby.

14. Defendant BMTI is a corporation organized under the laws of the state of Delaware,

maintaining its principal place of business at 389 Nichol Mill Lane, Franklin, Tennessee 37067.

15. Defendant Samuel E. Lynch ("Lynch") is the founder, President and Chief

Executive Officer of BMTI and has served as a director since the Company's inception in 1999.

Defendant Lynch also served as Chairman of the Company's board of directors from the

Company's inception until August 2005.

16. Defendant Lawrence E. Bullock ("Bullock") at all relevant times herein was the

Company's Chief Financial Officer.

17. The defendants referenced above in ¶¶15 and 16 are referred to herein as the

"Individual Defendants."


SUBSTANTIVE ALLEGATIONS

BACKGROUND

18. BMTI's Augment is a combination product (device and biologic drug) consisting of

Recombinant PDGF-BB (becaplermin) packaged together with B-TCP in the surgical fusion

treatment of foot and ankle bone defects. The product is as an alternative to autograft in hindfoot

and ankle fusion procedures that require supplemental graft material, including tibiotalar,

tibiocalcaneal, talonavicular, and calcaneocuboid fusions. The Company's Investigational

Device Exemption ("IDE") describes the device "as an alternative bone grafting substitute to

autologous bone graft in applications to facilitate in the ankle and foot without necessitating an

additional invasive procedure to harvest the graft."

19. On June 17, 2009, the Company issued a press release announcing the submission

of its first two Premarket Approval ("PMA") modules to the Food & Drug Administration

("FDA"). The release stated, in part, the following:

BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) today announced it hassubmitted both the pre-clinical pharmacology/toxicology andquality/manufacturing modules of its Premarket Approval (PMA)application for marketing of Augment Bone Graft in the U.S. These aretwo of the three parts, or modules, required for a complete PMAapplication to the FDA. The Company intends to file the third and finalmodule, containing the clinical data, in the fourth quarter of 2009.

"The submission of the first two PMA modules is a significantaccomplishment for BioMimetic," commented Dr. Samuel Lynch,president and CEO of BioMimetic Therapeutics. "These submissionsallow FDA to begin their review of these modules well in advance ofreceiving the final clinical data later this year. We believe this modularstrategy will facilitate the most efficient and timely review and ultimateFDA approval of Augment Bone Graft for orthopedic applications."


MATERIALLY FALSE AND MISLEADINGSTATEMENTS MADE DURING THE CLASS PERIOD

20. On October 13, 2009, after the market closed, BMTI issued a press release

announcing positive top-line data from its Augment Bone Graft North American Pivotal trial.

The release stated, in part, the following:

BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) today announcedpositive top-line results from its North American pivotal (Phase III)randomized controlled trial comparing its fully synthetic, off-the-shelfbone growth factor product, Augment Bone Graft ("Augment"), toautograft for use in hindfoot and ankle fusion surgery. The primary studygoal was to establish non-inferiority of Augment compared to autograft.Autograft is the historical standard of care but has the limitation that itmust be obtained and transplanted from another bone in the patient's body,often requiring a second surgical procedure. These positive top-line resultsindicate that, with the use of Augment, patients can expect a comparabletreatment outcome while being spared the pain and potential morbidityassociated with traditional autograft bone harvesting and transplantation.

21. On November 5, 2009, BMTI reported its financial results for the third quarter

ended September 30, 2009. The release stated, in part:

In October, the Company announced positive top-line results from itsNorth American pivotal (Phase III) randomized, controlled trial comparingAugment to autograft, the historical standard of care, for use in hindfootand ankle fusion surgery. The study goal was to establish non-inferiorityof Augment compared to autograft. The primary endpoint of the study isthe percentage of patients fused at 24 weeks, with fusion defined as 50%or greater bone bridging on CT scans, as evaluated by an independentmusculoskeletal radiologist. For the pre-specified primary endpoint,patients treated with Augment experienced a similar fusion rate (61.2%)compared with those receiving autograft (62.0%). These data metstatistical non-inferiority (p=0.037; n=397 patients). Since many patientshad multiple joints treated, analysis was also performed on a per jointbasis. Non-inferiority was also established on a per joint basis, with66.5% of joints treated with Augment fused on CT scans compared to62.6% of joints treated with autograft (p=<0.001; n=597 joints). TheCompany expects to file the third and final PMA module, containing thedata from the clinical trial, to the FDA around the end of 2009.


"During the third quarter we made strong progress towards the goal ofachieving our first orthopedic product approval in the United States," saidDr. Samuel E. Lynch, president and CEO of BioMimetic Therapeutics."We released positive, pivotal data on Augment, our lead orthopedicproduct candidate, which, we believe demonstrates a clear picture of non-inferiority to autograft. We expect to submit the third and final PMAmodule for submission to the FDA around the end of this year."

22. On November 5, 2009, the Company filed a quarterly report for the period ended

September 30, 2009 on Form 10-Q with the SEC, which was signed by Defendants Lynch and

Bullock and represented the Company's quarterly financial results and financial position. In

addition, pursuant to Sarbanes-Oxley Act of 2002 ("SOX"), the Form 10-Q contained signed

certifications by Defendants Lynch and Bullock, stating that the financial information contained

in the Form 10-Q was accurate, and that they disclosed any material changes to the Company's

internal control over financial reporting.

23. In addition, the 10-Q represented the following concerning the Augment:

We have reported the results of a number of these studies, includingpositive top-line results from our North American pivotal (Phase III)randomized controlled trial comparing Augment to autograft for use inhindfoot and ankle fusion surgery. The primary study goal of this clinicalstudy was to establish non-inferiority of Augment compared to autograft.Autograft is the historical standard of care but has the limitation that itmust be obtained and transplanted from another bone in the patient's body,often requiring a second surgical procedure. The positive top-line resultsindicate that, with the use of Augment, patients can expect a comparabletreatment outcome while being spared the pain and potential morbidityassociated with traditional autograft bone harvesting and transplantation.

24. On February 17, 2010, BMTI issued a press release announcing the submission of

the third and final module of its Premarket Approval (PMA) application for marketing of

Augment in the United States, which contained "a comprehensive review of the clinical data

related to Augment." The release stated, in part:

"The Augment PMA submission is an important milestone forBioMimetic and our commitment to advance first-in-class, innovative


biologics that stimulate tissue regeneration in bone, ligaments andtendons," said Dr. Samuel Lynch, president and CEO of BioMimeticTherapeutics. "We are very encouraged by the results seen to date inAugment's clinical development program and look forward to workingwith the FDA to facilitate the review and approval of this noveltherapeutic."

25. On March 11, 2010, the Company reported its financial results for the fourth quarter

and year ended December 31, 2009. The release also represented additional data from the

pivotal human clinical study during the American Academy of Orthopedic Surgeons ("AAOS")

meeting. The release stated, in relevant part:

These data are based on the "modified intent-to-treat" ("mITT") patientpopulation, which is the pre-specified primary study population. Theresults are shown for the full complement of joints in which are treatedjoints within a patient must meet the success criteria as well as on anindividual joint basis in which each treated joint is scored separately.

Therapeutic failures are patients who were assessed as having non-unionor delayed union at 24 weeks, or required secondary therapeuticintervention for non-union or delayed union

"We have now seen the full 24 week data set and believe it demonstratesthat Augment is as effective as autograft for these fusion indications, whilehaving the advantage of reducing serious complications from theprocedure. Moreover, the use of Augment has the additional benefit ofsparing patients the pain and potential morbidity resulting from anautograft harvest surgery," said Dr. Samuel Lynch, president and CEO ofBioMimetic Therapeutics. "The complete PMA is currently under reviewby the FDA, and we look forward to the Orthopedic Advisory Panelmeeting later this year." 2009 and Recent Product

26. On March 12, 2010, the Company filed an annual report for the year ended

December 31, 2009 on a Form 10-K with the SEC, which was signed by Defendants Lynch and


addition, pursuant to SOX, the Form 10-K contained signed certifications by Defendants Lynch

and Bullock, stating that the financial information contained in the Form 10-K was accurate, and


that they disclosed any material changes to the Company's internal control over financial

reporting.

27. In addition, the 10-K represented the following concerning the Augment:

Our product candidates have been the subject of numerous orthopedicclinical studies that have been completed or are ongoing which seek todemonstrate the safety, clinical utility and/or efficacy of the productcandidates in our pipeline, including our lead orthopedic product candidateAugment, a fully synthetic and off-the-shelf bone growth factor productfor the treatment of bone defects and injuries. Augment is the subject ofour North American pivotal (Phase III) randomized controlled trial, whichcompares Augment to autograft for use in hindfoot and ankle fusionsurgery. This trial will be the primary data set used to support regulatoryapproval in the United States, the European Union ("EU") and Australia.In addition, we have pre-clinical programs focused on the development oftreatments for bone defects in the spine and various sports injuryapplications, including those requiring ligament, tendon and cartilagerepair.

In October 2009, we announced positive top-line results from ourAugment pivotal study. The primary endpoint of the study is thepercentage of patients achieving fusion at 24 weeks, with fusion defined as50% or greater bone bridging on CT scans, as evaluated by an independentmusculoskeletal radiologist. For the pre-specified primary endpoint,patients treated with Augment experienced a similar fusion rate comparedwith those receiving autograft, and the data met statistical non-inferiority.Since many patients had multiple joints treated, analysis was alsoperformed on a per joint basis, and that data also establishednoninferiority. Clinical healing status at the patient level for patientstreated with Augment was comparable to patients treated with autograft.These positive top-line results indicate that, with the use of Augment,patients can expect a treatment outcome comparable to autograft whilebeing spared the pain and potential morbidity associated with traditionalautograft bone harvesting and transplantation.

In March 2010, we announced additional data from our Augment pivotalstudy at the annual meeting of the American Academy of OrthopedicSurgeons ("AAOS"). The lead investigator of the Augment NorthAmerican pivotal study, Dr. Christopher DiGiovanni, presented additionaldata regarding the 24 week results of the study. These data are based onthe "modified intent-to-treat" ("mITT") patient population, which is thepre-specified primary study population. The results are shown for the fullcomplement of joints in which all treated joints within a patient must meet


the success criteria as well as on an individual basis in which each treatedjoint is scored separately.

28. On May 10, 2010, the Company reported financial results for its first quarter ended

March 31, 2010. The release stated, in relevant part:

The Company has performed an additional analysis of the primaryeffectiveness endpoint in the pivotal study comparing AugmentTM BoneGraft to autograft in foot and ankle fusion procedures. This analysisincluded 17 patients who were treated but removed from the primaryanalysis due to pre-specified protocol exclusion criteria. Adding these 17excluded patients back to the mITT group resulted in a total "safetypopulation" (all patients who had surgery performed in the study) of 414patients, including 272 Augment treated patients and 142 autograftpatients. When this population was analyzed for the primary endpoint ofCT fusion at 24 weeks, the results remained statistically significant fornon-inferiority (p=0.048), consistent with what was previously reportedfor the pre-specified mITT population (p=0.038).

29. On May 10, 2010, the Company filed a quarterly report for the period ended March

31, 2010 on Form 10-Q with the SEC, which was signed by Defendants Lynch and Bullock and

represented the Company's quarterly financial results and financial position. In addition,

pursuant to SOX, the Form 10-Q contained signed certifications by Defendants Lynch and

Bullock, stating that the financial information contained in the Form 10-Q was accurate, and that

they disclosed any material changes to the Company's internal control over financial reporting.

30. The 10-Q also represented the following concerning the Augment:

Augment U.S. Pre-Marketing Application — In February 2010, wesubmitted to the U.S. Food and Drug Administration ("FDA") the thirdand final Pre-Marketing Application ("PMA") module, which supplementsthe pre-clinical pharmacology/toxicology and quality/manufacturingmodules submitted in the second quarter of 2009, for approval of Augmentin the United States. This third PMA module contains the 24-week clinicaldata from the North American Augment pivotal trial. This submission wasconsistent with the FDA approved Investigational Device Exemption("IDE") for Augment, which states that the "study will be submitted forPMA review after all patients complete 24 weeks of follow-up with anupdate provided once all patients complete the 12 month follow-up visit."The FDA has requested that we submit 12-month safety data for at least


85% of the Augment study patients in addition to the requirementspreviously set forth and agreed upon in the IDE. In response to thisrequest, in May 2010, we submitted to the FDA safety data on all patientsthat received surgery through the final 12-month endpoint of the study,which, importantly, demonstrates no new product related serious adverseevents. The FDA's request appears to be based on a growing desire by theFDA for longer term follow-up data on all new products. The FDA staffhas informally represented to us that submission of these 12-month dataalone should be sufficient to allow the FDA to begin review of the clinicaldata section of our PMA. We expect an official PMA filing letter from theFDA in the second quarter of 2010.

31. On June 28, 2010, the Company announced that the FDA had accepted its PMA

application for Augment. The press release stated, in relevant part:

Following the Company's submission of its PMA in February, the FDArequested 12 month safety data for at least 85% of the Augment NorthAmerican pivotal study patients in addition to the requirements previouslyset forth and agreed upon in the Investigational Device Exemption (IDE).In response to that request, in early May, the Company submitted to theFDA 12 month data on 100% of the patient safety population, whichdemonstrate no new product related serious adverse events or any othersafety concern.

32. On July 7, 2010, the Company issued a press release updating investors on its North

American Pivotal Study comparing Augment Bone Graft to autograft in foot and angle fusion

surgery. The release stated, in part:

The presentation of the data by Dr. Timothy Daniels, associate professorof orthopedic surgery at the University of Toronto and St. MichaelsHospital, will take place at the American Orthopaedic Foot and AnkleSociety (AOFAS) summer meeting. As previously reported, the trial metits pre-specified primary endpoint of non-inferiority of Augment toautograft at six months, and the Company's Premarket Approval (PMA)application for Augment was recently accepted by the FDA.

In Dr. Daniels' presentation, he will report the entire 52-week data set,highlighting key 52-week endpoints, which demonstrate that out of 16secondary endpoint measures at the 52-week time point, 15 werestatistically significant for non-inferiority. Further, Augment comparedfavorably to autograft with clinical healing rates of 87.8% and 88.3%, anda therapeutic failure rate of 7.3% and 8.0%, respectively. Importantly,


safety outcomes favored the Augment treatment group, which had fewercomplications and infections compared to patients treated with autograft.

"We are very pleased with the consistently positive results of all studiesrelated to Augment's clinical performance. We are also encouraged by theresults of Dr. Abidi's economic study which provides valuable insight intothe cost burden in U.S. hospitals related to the use of autograft, the currentstandard of care," commented Dr. Samuel Lynch, president and CEO ofBioMimetic Therapeutics. "The 52 week data from the Augment NorthAmerican pivotal clinical trial demonstrate that patients treated withAugment have just as good an outcome after one year, and a favorablesafety profile, compared to patients treated with autograft. And, thepatients treated with Augment have the added benefits of not having theadditional pain and risk of a procedure to harvest the autograft fromanother bone in their body. The European trial further confirms the clinicalbenefits and safety of Augment, and brings the total number of patientswho have been safely treated with the product candidate to over 500.Finally, the autograft cost study confirms the significant cost of autograftharvesting and will provide us with valuable economic data as weformulate our strategy for commercial launch of Augment."

33. On July 20, 2010, the Company announced the closing of a public offering where it

sold a total of approximately 5.64 million shares of its common stock at $8.50 per share. The

Company received net proceeds of approximately $45 million and expected "to use the net

proceeds of the offering for development and commercialization of its product pipeline,

including AugmentTM Bone Graft, AugmentTM Injectable Bone Graft and product candidates

indicated for sports medicine applications, as we as for general corporate purposes.

34. On August 5, 2010, BMTI reported its financial results for the second quarter ended

June 30, 2010. The release also presented Company's recent product development and corporate

highlights in 2010:

In June 2010, the Company announced the Food & Drug Administration(FDA) accepted for review its Premarket Approval (PMA) application forAugment Bone Graft for use in foot and ankle fusions in the U.S. TheFDA has now filed the application and begun the comprehensive reviewof the clinical module.


In July 2010, the Company announced the final results of its NorthAmerican Pivotal Study comparing Augment to autograft in foot and anklefusion surgery. The Company reported the entire 52-week data set, whichdemonstrate that 15 out of 16 secondary endpoints were statisticallysignificant for non-inferiority. This conclusion reinforces the previouslyannounced 24-week study findings. Clinically and radiographically,Augment was comparable to autograft with 52-week clinical healing ratesof 87.8% and 88.3%, and therapeutic failure rates of 7.3% and 8.0%,respectively.

35. On August 5, 2010, the Company filed a quarterly report for the period ended June

30, 2010 on Form 10-Q with the SEC, which was signed by Defendants Lynch and Bullock and

represented the Company's quarterly financial results and financial position. In addition,

pursuant to SOX, the Form 10-Q contained signed certifications by Defendants Lynch and

Bullock, stating that the financial information contained in the Form 10-Q was accurate, and that

they disclosed any material changes to the Company's internal control over financial reporting.

36. The 10-Q also represented the following regarding Augment:

In July 2010, we announced the one-year results of our North AmericanPivotal Study comparing Augment to autograft in foot and ankle fusionsurgery. The data was presented by Dr. Timothy Daniels, associateprofessor of orthopedic surgery at the University of Toronto and St.Michael's Hospital, at the American Orthopaedic Foot and Ankle Society("AOFAS") summer meeting. We reported the primary endpoint andsecondary endpoint 52-week data set, which demonstrates that out of 16secondary endpoints measured at the 52-week time point, 15 werestatistically significant for non-inferiority. Clinically and radiographically,Augment was comparable to autograft with 52-week clinical healing ratesof 87.8% and 88.3%, and therapeutic failure rates of 7.3% and 8.0%,respectively.

37. On September 8, 2010, the Company issued a press release representing to investors

that its PMA remained on track. The release stated, in part:

BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) today announced itcompleted its 100 day Premarket Approval Application (PMA) meetingwith the Food and Drug Administration (FDA) regarding the review ofAugment(TM) Bone Graft for the treatment of foot and ankle fusions inthe U.S. The FDA generally meets with the PMA sponsor approximately


100 days after the filing of the PMA with the purpose of discussing thestatus of the application. During its recent discussion with the Company,the FDA raised no unexpected issues that would impact the timing for anupcoming Orthopedic Advisory Panel Meeting or potential approval ofAugment. The Company continues to anticipate that the panel meetingwill be held by early 2011. If the panel determines the product to be safeand effective, the Company expects approval of Augment by the FDA inmid-2011.

BioMimetic also announced today that the FDA has completed review ofthe Company's request for designation (RFD) for Augment(TM)Injectable Bone Graft, the Company's second generation bone graftingproduct. The Company recently received a determination letter from theFDA's Office of Combination Products (OCP) indicating that theAugment Injectable review will follow a medical device pathway andaccordingly has been assigned to the FDA's Center for Devices andRadiologic Health (CDRH) Division of Surgical, Orthopedic andRestorative Devices for lead review. The device will be reviewed throughthe premarket approval process to confirm reasonable assurance of safetyand effectiveness. The Company expects to initiate patient enrollment in aU.S. pivotal trial when the IDE is approved by the FDA, potentially in thefourth quarter.

38. On November 3, 2010, the Company reported its financial results for the third

quarter ended September 30, 2010. The press release also provided highlights regarding the

approval process for Augment:

In September 2010, the Company announced that it completed its 100-dayPremarket Approval (PMA) application meeting with the Food & DrugAdministration (FDA) regarding the review of Augment for the treatmentof foot and ankle fusions in the United States. To date, the FDA has raisedno unexpected issues that would impact the timing for an upcomingOrthopedic Advisory Panel meeting or potential approval of Augment.The Company anticipates that the panel meeting will be held in early2011. If the panel determines the product to be safe and effective and ifthe FDA finds the PMA information satisfactory, the Company expectsapproval of Augment will occur within six months after the panel meeting.

The Company remains focused on preparing for the commercialization ofAugment. During the third quarter, the Company completed a detailedanalysis of commercialization infrastructure required for the U.S. launchof Augment and began to implement the necessary systems andcapabilities. In Canada, seventeen institutions have either used or haveapproved the use of Augment, and the Company remains on track to meet


the goal of 20 to 25 unique institutions approved to use the product byyear-end. In addition, the Company is changing its distribution strategy inCanada and is currently transitioning from a single exclusive distributor toa network of independent sales agents who will be more closely managedby the Company's Canadian national sales manager. Currently, theCompany anticipates it will have approximately 25 sales representativescovering all of Canada by the end of 2010.

39. On November 3, 2010, the Company filed a quarterly report for the period ended

September 30, 2010 on Form 10-Q with the SEC, which was signed by Defendants Lynch and


addition, pursuant to SOX, the Form 10-Q contained signed certifications by Defendants Lynch

and Bullock, stating that the financial information contained in the Form 10-Q was accurate, and


reporting.

40. The 10-Q also stated the following concerning the Augment:

A key priority requiring our management's attention is the approval ofAugment in the United States. Augment is the subject of our NorthAmerican pivotal (Phase II1) randomized controlled trial which comparesAugment to autograft for use in hindfoot and ankle fusion surgery. Thistrial will provide the primary data set used to support regulatory approvalin the United States, as well as in the EU and Australia. Earlier this year,we submitted the data from this trial to the U.S. Food and DrugAdministration ("FDA") as part of our Pre- Marketing Approval ("PMA")application for Augment, which has been accepted by the FDA for review.We continue to have informal discussions with the FDA regarding ourPMA, and in September 2010, we announced that we completed our 100-day PMA meeting with the FDA. To date, the FDA has raised nounexpected issues that would impact the timing for an upcomingOrthopedic Advisory Panel meeting or potential approval of Augment. Weanticipate that the panel meeting will be held in early 2011, and thatapproval of Augment in the United States will occur within six monthsafter the panel meeting if the panel recommends approval and if the FDAfinds the PMA information satisfactory.

Pre-Marketing Application for Approval of Augment in the United States


In September 2010, we announced that we completed our 100-day PMAmeeting with the FDA regarding the review of Augment for the treatmentof foot and ankle fusions in the United States. The FDA generally meetswith the PMA sponsor approximately 100 days after the filing of the PMAwith the purpose of discussing the status of the application. To date, theFDA has raised no unexpected issues that would impact the timing for anupcoming Orthopedic Advisory Panel meeting or potential approval ofAugment.

41. On March 10, 2011, the Company announced its financial results for the year

ended December 31, 2010. The Company also represented the following:

In 2010, the Company submitted the final data set from its NorthAmerican pivotal study comparing Augment Bone Graft to autograft infoot and ankle fusions to the Food & Drug Administration (FDA) as partof the Company's Pre-Marketing Approval (PMA) application. In additionto meeting the prospectively defined primary endpoint of 50% osseousbridging on CT scans at six months (p=0.038), these data demonstratedthat 15 of 16 secondary endpoints were statistically significant at 12months. Additionally, the Company performed an analysis of the primaryeffectiveness endpoint in the pivotal study to include 17 patients who weretreated but removed from the primary analysis due to pre-specifiedprotocol exclusion criteria. When this population was analyzed for theprimary endpoint of CT fusion at 24 weeks, the results remainedstatistically significant for non-inferiority (p=0.048).

In July 2010, the Company reported results from the European Union(EU) Augment foot and ankle fusion study, which included 108 patients at11 clinical centers in Europe. This study demonstrated only a sevenpercent revision rate, which is consistent with the therapeutic failure rateobserved in the U.S. pivotal trial for Augment and autograft (7.3% - 8.0%)and the Canadian registration trial (10%). This study also demonstrated astrong safety profile that is consistent with all other studies of Augment todate. The Company plans to submit device applications for approval ofboth Augment and GEM 21 S(R) to the European regulatory agency by theend of the first quarter of 2011 and expects decisions on both applicationsby year end.

42. On March 10, 2011, the Company filed an annual report for the year ended

December 31, 2010 on a Form 10-K with the SEC, which was signed by Defendants Lynch and


addition, pursuant to SOX, the Form 10-K contained signed certifications by Defendants Lynch


and Bullock, stating that the financial information contained in the Form 10-K was accurate, and


reporting.

43. The 10-K also represented the following concerning the Augment:

A key priority is the approval of Augment in the United States. Augmentis the subject of our North American pivotal (Phase III) randomizedcontrolled trial which compares Augment to autograft for use in hindfootand ankle fusion surgery. This trial provided the primary data set used tosupport potential regulatory approval in the United States, as well as in theEU and Australia. In 2010, we submitted data from this trial to the U.S.Food and Drug Administration ("FDA") as part of our Pre-MarketingApproval ("PMA") application for Augment, and we completed our 100-day PMA meeting with the FDA. In January 2011, the FDA's MedicalDevices Advisory Committee tentatively scheduled a May 12, 2011meeting of the Orthopedic and Rehabilitation Devices Panel (the "panel")to review our PMA application for Augment for the treatment of foot andankle fusions in the United States. If the panel determines that there is areasonable assurance that Augment is safe and effective andthatAugment's benefits outweigh any potential risks, we anticipate approvalof Augment by the FDA within three to six months after the panelmeeting. We believe that, if approved, Augment will provide U.S.physicians and patients with a safe and important new therapeutic optionfor the treatment of foot and ankle fusions without the pain and morbidityassociated with autograft, the current gold standard for foot and anklefusions. Autograft requires the harvesting of autogenous bone fromelsewhere in the patient's body, often requiring a second surgicalprocedure. If approved, Augment will be the first new recombinant boneand tissue growth factor technology to be introduced for orthopedic usesin the United States in nearly a decade.

44. On May 9, 2011, the Company issued a press release announcing financial results

for the first quarter ended March 30, 2011. The Company also provided an update regarding the

approval process for Augment:

In early 2011, the Company initiated patient enrollment in its NorthAmerican pivotal trial evaluating Augment Injectable in hindfoot fusionindications. The study is expected to enroll approximately 200 patients atapproximately 25 institutions and be fully enrolled around the end of2011. The PMA filing will be submitted with the final 12 month data. Theproduct will follow a medical device approval pathway and has been


assigned to the FDA's Center for Devices and Radiological Health(CDRH).

The Company recently submitted a device application for approval ofAugment Bone Graft to a European regulatory agency and expects aregulatory decision in 2012. BioMimetic will seek a CE Mark in Europe,which is designed to provide a single marketing approval for all countriesthat make up the European Union (EU).

In April 2011, in preparation for U. S. launch, the Company made andreleased an additional Augment Bone Graft product kit size andimmediately made it available in the Canadian market. This new 1.5cc kitwill be complemented with a 6cc size kit, as well as the standard 3cc kit,and all three sizes will be available at launch in the U.S. These kit sizeswill provide surgeons with the flexibility to utilize the amount of materialthey feel is most appropriate for the procedure and as a result will helphospitals eliminate excess waste.

45. The statements referenced in ¶¶ 20-32; 34-44 above were materially false and/or

misleading because they misrepresented and failed to disclose the following adverse facts, which

were known to defendants or recklessly disregarded by them that: (a) the clinical trial for

Augment dramatically deviated from the Company's protocol agreement with the FDA; (b) the

sample size of the trial was too small to glean verifiable results; (c) the results of the clinical trial

were not statistically significant compared to autologous grafts after three years; and (d)

Augment was not as successful as autologous grafts in an important group of patients called the

"intent to treat" group. As a result, the Company's statements were materially false and

misleading at all relevant times.

THE TRUTH IS REVEALED

46. On May 10, 2011, two days before a meeting by the Panel to make

recommendations on the premarket approval application for BMTI's Augment, the FDA

published briefing documents expressing "concerns with the possible toxicity of this product as

well as the ability of the studies to date to demonstrate reasonable safety and effectiveness."


The briefing documents noted that the "FDA has advised the sponsor that it has not provided an

accurate `all evaluated' patient accounting, and that the number of withdrawals, especially those

patients who are one year post-treatment withdrawn for problems that occurred intraoperatively,

significantly impacts the ability to determine true study success, and thereby device safety and

efficacy." Thus, the briefing documents concluded that the "FDA still has clinical concerns with

the safety and overall risk/benefit of the device at this time, primarily due to the unanswered

question of safety in regards to the potential for cancer formation versus an unproven benefit in

the current standard for care."

47. Further, the briefing documents detailed the Company's efforts to shrink the size of

the study:

Sample Size Mis-estimation

To some degree, both the lack of significance in the ITT analysispopulation and the sensitivity to missing data are the result of thesponsor's mis-estimation of the sample size of the trial. Initially, thesample size was estimated assuming that the fusion rate in each treatmentgroup would be approximately 85%; however, the observed rates wereapproximately 62%. As the primary endpoint is the difference in fusionrates (which are binomial proportions), the variance of the test statistic istied to the value of the success rate. As a result, the fact that the observedrates were different from the expected values resulted in the variance ofthe test statistic being increased. Essentially, the trial was under-poweredfor the primary endpoint because the sample size was determinedassuming a much smaller variance than was actually observed.

48. Immediately following the release of the briefing documents, an analyst report by

J.P. Morgan summarized the FDA's concerns as follows:

(1) The trial design and use of CT scan as the primary endpoint as this isnot the standard of care; (2) the heterogeneous nature of patient enrollment(ankle and hindfoot fusions); (3) efficacy, in light of trial design concerns;and (4) long term safety.


49. In addition, a pharmaceutical analyst for gekkowire.com questioned the Company's

"ability to run a thorough and complete clinical trial for their Augment." Specifically, the

analyst concludes the following, in relevant part:

In the end, it is my view that the FDA appears to be highly concerned thatthe trial was not run properly and therefore that the data is notrepresentative as to how the device actually works. Furthermore, it isapparently clear that the company did not seek important input from theFDA when several major changes were made to the trial, a big no no in theeyes of the FDA.

Furthermore, from reading the brief documents it appears to me that thecompany intentionally switched out an option for the DMC to expand thesample size in an attempt to avoid the FDA. From my perspective theentire trial is suspect because the FDA has noted that the company has notprovided accurate patient accounting.

50. On this news, BMTI's stock price fell $4.73 or 35% and closed at $8.66 on heavy

trading volume, as investors began to learn the truth concealed by defendants during the Class

Period. This decline resulted directly from the removal of some of the artificial inflation in the

price of BMTI stock caused by Defendants' misstatements and omissions.

51. On May 13, 2011, the Company issued a press release announcing that the advisory

Panel voted 10-8 in support of the efficacy of Augment and 12-6 in support of its safety. Such a

narrow margin for the efficacy of the product generally signals that the FDA will require further

trials before approving the product, if at all.

52. As a result of this announcement, BMTI shares declined nearly 12% or $1.095 and

closed at $8.105.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

53. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or


otherwise acquired BMTI securities during the Class Period (the "Class"); and were damaged

thereby. Excluded from the Class are defendants herein, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which defendants have or had a

controlling interest.

54. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, BMTI securities were actively traded on the

NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds

or thousands of members in the proposed Class. Record owners and other members of the Class

may be identified from records maintained by BMTI or its transfer agent and may be notified of

the pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

55. Plaintiff's claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by defendants' wrongful conduct in violation of

federal law that is complained of herein.

56. Plaintiff will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class and securities litigation. Plaintiff

has no interests antagonistic to or in conflict with those of the Class.

57. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

• whether the federal securities laws were violated by defendants' acts asalleged herein;


• whether statements made by defendants to the investing public during theClass Period misrepresented material facts about the business, operations andmanagement of BMTI;

• whether the Individual Defendants caused BMTI to issue false and misleadingfinancial statements during the Class Period;

• whether defendants acted knowingly or recklessly in issuing false andmisleading financial statements;

• whether the prices of BMTI securities during the Class Period were artificiallyinflated because of the defendants' conduct complained of herein; and

• whether the members of the Class have sustained damages and, if so, what isthe proper measure of damages.

58. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

59. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• defendants made public misrepresentations or failed to disclose material factsduring the Class Period;

• the omissions and misrepresentations were material;

• BMTI securities are traded in efficient markets;

• the Company's shares were liquid and traded with moderate to heavy volumeduring the Class Period;

• the Company traded on the Nasdaq, and was covered by multiple analysts;

• the misrepresentations and omissions alleged would tend to induce areasonable investor to misjudge the value of the Company's securities; and


• Plaintiff and members of the Class purchased and/or sold BMTI securitiesbetween the time the defendants failed to disclose or misrepresented materialfacts and the time the true facts were disclosed, without knowledge of theomitted or misrepresented facts.

60. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a

presumption of reliance upon the integrity of the market.

COUNT

(Against All Defendants For Violations ofSection 10(b) And Rule 10b-5 Promulizated Thereunder)

61. Plaintiff repeats and realleges each and every allegation contained above as if fully

set forth herein.

62. This Count is asserted against defendants and is based upon Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule lOb-5 promulgated thereunder by the SEC.

63. During the Class Period, defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,

practices and courses of business which operated as a fraud and deceit upon Plaintiff and the

other members of the Class; made various untrue statements of material facts and omitted to state

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading; and employed devices, schemes and artifices to

defraud in connection with the purchase and sale of securities. Such scheme was intended to,

and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

BMTI securities; and (iii) cause Plaintiff and other members of the Class to purchase BMTI

securities at artificially inflated prices. In furtherance of this unlawful scheme, plan and course

of conduct, defendants, and each of them, took the actions set forth herein.


64. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the

defendants participated directly or indirectly in the preparation and/or issuance of the quarterly

and annual reports, SEC filings, press releases and other statements and documents described

above, including statements made to securities analysts and the media that were designed to

influence the market for BMTI securities and options. Such reports, filings, releases and

statements were materially false and misleading in that they failed to disclose material adverse

information and misrepresented the truth about BMTI's finances and business prospects.

65. By virtue of their positions at BMTI, defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants

acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose

such facts as would reveal the materially false and misleading nature of the statements made,

although such facts were readily available to defendants. Said acts and omissions of defendants

were committed willfully or with reckless disregard for the truth. In addition, each defendant

knew or recklessly disregarded that material facts were being misrepresented or omitted as

described above.

66. Defendants were personally motivated to make false statements and omit material

information necessary to make the statements not misleading in order to personally benefit from

the sale of BMTI securities from their personal portfolios.

67. Information showing that defendants acted knowingly or with reckless disregard for

the truth is peculiarly within defendants' knowledge and control. As the senior managers and/or

directors of BMTI, the Individual Defendants had knowledge of the details of BMTI internal

affairs.


68. The Individual Defendants are liable both directly and indirectly for the wrongs

complained of herein. Because of their positions of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of

BMTI. As officers and/or directors of a publicly-held company, the Individual Defendants had a

duty to disseminate timely, accurate, and truthful information with respect to BMTI's businesses,

operations, future financial condition and future prospects. As a result of the dissemination of

the aforementioned false and misleading reports, releases and public statements, the market price

of BMTI securities was artificially inflated throughout the Class Period. In ignorance of the

adverse facts concerning BMTI's business and financial condition which were concealed by

defendants, Plaintiff and the other members of the Class purchased BMTI securities at artificially

inflated prices and relied upon the price of the securities, the integrity of the market for the

securities and/or upon statements disseminated by defendants, and were damaged thereby.

69. During the Class Period, BMTI securities were traded on an active and efficient

market. Plaintiff and the other members of the Class, relying on the materially false and

misleading statements described herein, which the defendants made, issued or caused to be

disseminated, or relying upon the integrity of the market, purchased shares of BMTI securities at

prices artificially inflated by defendants' wrongful conduct. Had Plaintiff and the other members

of the Class known the truth, they would not have purchased said securities or would not have

purchased them at the inflated prices that were paid. At the time of the purchases by Plaintiff

and the Class, the true value of BMTI securities were substantially lower than the prices paid by

Plaintiff and the other members of the Class. The market price of BMTI securities declined

sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class

members.


70. By reason of the conduct alleged herein, defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule lOb-5

promulgated thereunder.

71. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and the

other members of the Class suffered damages in connection with their respective purchases and

sales of the Company's securities during the Class Period, upon the disclosure that the Company

had been disseminating misrepresented financial statements to the investing public related to

implementation revenue.

COUNT II

(Violations of Section 20(a) of theExchange Act Against The Individual Defendants)

72. Plaintiff repeats and realleges each and every allegation contained in the foregoing

paragraphs as if fully set forth herein.

73. During the Class Period, the Individual Defendants participated in the operation and

management of BMTI, and conducted and participated, directly and indirectly, in the conduct of

BMTI's business affairs. Because of their senior positions, they knew the adverse non-public

information about BMTI's misstatement of income and expenses and false financial statements.

74. As officers and/or directors of a publicly owned company, the Individual

Defendants had a duty to disseminate accurate and truthful information with respect to BMTI's

financial condition and results of operations, and to correct promptly any public statements

issued by BMTI which had become materially false or misleading.

75. Because of their positions of control and authority as senior officers, the Individual

Defendants were able to, and did, control the contents of the various reports, press releases and

public filings which BMTI disseminated in the marketplace during the Class Period concerning


BMTI's results of operations. Throughout the Class Period, the Individual Defendants exercised

their power and authority to cause BMTI to engage in the wrongful acts complained of herein.

The Individual Defendants therefore, were "controlling persons" of BMTI within the meaning of

Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct

alleged which artificially inflated the market price of BMTI securities and options.

76. Each of the Individual Defendants, therefore, acted as a controlling person of

BMTI. By reason of their senior management positions and/or being directors of BMTI, each of

the Individual Defendants had the power to direct the actions of, and exercised the same to cause,

BMTI to engage in the unlawful acts and conduct complained of herein. Each of the Individual

Defendants exercised control over the general operations of BMTI and possessed the power to

control the specific activities which comprise the primary violations about which Plaintiff and

the other members of the Class complain.

77. By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by BMTI.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and


PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Plaintiff hereby demands a trial by jury.

Dated: July 6, 2011


Documents

UNITED STATES DISTRICT COURT All Others Similarly …shareholdersfoundation.com/system/files/complaints/...BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) today announced it has ... On