Desktop Metal dismisses stock fraud lawsuit echoing the EnvisionTEC medical resins scandal

The failed merger with Stratasys was certainly a big disappointment for Desktop Metal, but the company managed to achieve some success in another field… As reported by the 3D Printing Industry portal, an American court dismissed the lawsuit of two shareholders of Desktop Metal, which alleged that the company lied about about the certification of Flexcera dental resin by the US Food and Drug Administration (FDA) in order to inflate the share price on the stock exchange. The defendants in the case were Desktop Metal CEO Ric Fulop, former Desktop Health CEO and president Michael Jafer, and former EnvisionTEC CEO Ali El-Siblani. As it turns out, this case – although won by Desktop Metal in the context of fraud related to stock exchanges – has a second, less glorious meaning…

It all started in February 2021, when Desktop Metal acquired the leading manufacturer of photopolymer 3D printers and the inventor of the DLP method – EnvisionTEC. As part of the signed agreement worth $300 million, EnvisionTEC, Desktop Metal acquired the full portfolio of 3D printers, 3D printing materials, intellectual properties (including over 140 patents or patent applications) and a base of over 5,000 customers from 68 countries around the world. A year later, EnvisionTEC changed its name to ETEC, and Desktop Metal launched a new company – Desktop Health, specializing in healthcare solutions created on photopolymer 3D printers. The company’s key product was Flexcera resin. And it was about her that the whole scandal broke out…

Flexcera – a certified medical-grade resin that turned out to be… not so certified

Flexcera resin is dedicated to the additive manufacturing of prosthetic applications and exclusively on EnvisionTEC 3D printers. In May 2021, the material received FDA certification, however, regulatory requirements specified that Flexcera must be manufactured only in plants authorized by the institution. Additionally, the product had to include a label indicating where it was manufactured. EnvisionTEC had manufacturing facilities in Michigan, USA, Montreal, Canada, and Gladbeck, Germany, with only the Gladbeck facility registered with the FDA for resin production.

According to published court documents, between March and April 2021, EnvisionTEC manufactured Flexcera in Montreal. The company’s then-managing director, Ali El-Siblani, tasked the director of the Montreal plant with increasing the production of resins, which were sent to Michigan for bottling and labeling. The labels falsely indicated that Flexcera was manufactured at a plant in Dearborn that was supposed to be – but was not – FDA certified.

Uncertified resins were sold to customers between April and October 2021, representing approximately 10% of total sales of this material during this period. El-Siblani also pressured EnvisionTEC’s sales team to sell a resin 3D print post-processing station, the PCA 4000, for use with Flexcera, even though it was not dedicated to that in its FDA filing. The material was to be hardened on an alternative and competitive device – Otoflash G171 by NK-Optik. In response to customer complaints that Flexcera cured in PCA 4000 was “rubbery,” EnvisionTEC has more than doubled the recommended cure time of 15 minutes.

The case comes to light…

In 2021, an anonymous materials testing expert and then EnvisionTEC employee sent Flexcera resin to an independent laboratory for validation testing. The lab was instructed to follow EnvisionTEC’s Instructions for Use (IFU) for making dentures, which included curing with PCA 4000. In response, the lab reported that the printed dentures were much weaker than advertised – they did not have the claimed flexural strength of 90MPa , and only 72 MPa.

Following this information, an EnvisionTEC employee sent an email to “several high-level individuals from various Desktop Metal departments, including Human Resources,” raising serious concerns about the improper production of Flexcera resin in non-FDA-certified facilities. Desktop Metal hired an independent expert to conduct an internal investigation, resulting in El-Siblani’s immediate resignation as CEO of EnvisionTEC and director of Desktop Metal. Desktop Metal subsequently initiated two voluntary recalls of the non-compliant Flexcera resin and PCA 4000 post-processing station.

Lawsuit against Desktop Metal

Desktop Metal shareholders sued the company for misleading them and using information about the FDA-certified resin as one of twenty-five statements intended to boost the company’s stock price on the stock exchange. Ultimately, U.S. District Judge Indira Talwani dismissed the motion, stating that none of the allegations were sufficient to support the securities fraud claim.

The judge found that a key factor in Desktop Metal’s favor was that the company dealt with the FDA violations quickly and professionally. Desktop Metal clearly and repeatedly warned shareholders about the problem and about the initiation of an investigation into the violations. The company’s prompt and professional handling of the manufacturing violations, without the need for FDA intervention, was also considered significant.

Ultimately, Desktop Metal emerged unscathed from the entire case. At the same time, it casts a great shadow over the person of Ali El-Siblani – one of the most important people in the history of the 3D printing industry, who was the first to break the monopoly of 3D Systems on additive technology based on light-cured resins.

Source: www.3dprintingindustry.com
Photo: www.pixabay.com