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Judge Weighs Agreement on Medical Device Failures

Posted May 11 2010 12:00am

A federal judge this week reviewed a plea agreement between the U.S government and Guidant LLC over catastrophic failures of implantable defibrillator and other devices, Reuters reports. Among the documents under review was a letter from two cardiologists whose patient died as a result of a malfunctioning Guidant product. In a letter to Judge Donovan Frank of the U.S. District Court of Minnesota, Dr. Robert Hauser and Dr. Barry Maron argued that Guidant’s behavior was “illegal and unethical” and that approval of the plea agreement would undermine patient safety. Read Article: Reuters

Just when you think Wall Street, and Goldman Sachs are the worst of corporate America’s worst, you can dig a little deeper and find an even more egregious offender. Below is a quote posted on the investor’s section of Boston Science’s (parent company now of Guidant). This information comes as part of their update to investors and potential investors in their end of quarter reporting:

“Looking back over the past thirty years, it’s amazing to me how many patients’ lives we have influenced.” Pete Nicholas, Director, Chairman of the Board and Co-Founder.
“To be able to supply healthcare more efficiently and effectively is what we are all about.” John Abele, Director and Co-Founder.

Here is the “back story” on this:

In February 2002, Guidant discovered a design flaw in the Ventak device, after receiving reports of failures. By April 2002, according to court documents, it had fixed the flaws and begun producing a corrected version of the device but didn’t recall the defective products.

“Instead, it continued selling its inventory of defective units without disclosing either to physicians or the public the design flaw or malfunctions that had led to device failures,” wrote Judge Diane Wood of the U.S. Court of Appeals for the Seventh Circuit, adding that Guidant never mentioned the defects in subsequent press releases and filings with the Securities and Exchange Commission.

Then, on March 13, 2005, 21-year-old Joshua Oukrop’s Ventak Prizm 2 DR short-circuited, killing him. Guidant told his doctor of the problems with the device, disclosed that it knew of 25 other such cases and told the physician that about 24,000 ICDs similar to Oukrop’s had been sold. When the doctor asked Guidant whether the other recipients would be told, the company said no, it did not want to “alarm” anyone, according to court documents.

The company kept its word in subsequent SEC filings and press releases, never mentioning the defect or Oukrop’s death. In fact, Guidant’s first public acknowledgment of the problem came in a letter to physicians issued about a month after its shareholders approved the JNJ ( merger with Johnson and Johnson) deal, and then only because of an impending New York Times article that was to reveal the device’s flaws.

This marks the just the latest brush the company has had with DOJ. Last December, the government reached a $22 million civil settlement with Boston Scientific to resolve allegations that its Guidant subsidiary used post-market studies as vehicles to pay kickbacks to induce physicians to implant its pacemakers and defibrillators.

Your might think the executives of this company would hang their heads in shame, or at least own up to their ill-doing. Think again.

Here is their fancy footwork explanation of their first quarter loss:

  • $1.848 billion (on both a pre-tax and after-tax basis) of goodwill impairment charges associated with the Company’s U.S. CRM business unit (CRMs are the Cardiac Rhythm Management devices that they continued to sell after they knew that they were faulty. As mentioned in the article, they knew as early as 2002 that the product was problematical and the subsequently knowingly LIED to the FDA, stating that they had corrected the problem.)
  • $51 million ($60 million pre-tax) of intangible asset impairment charges;
  • Q1 2010 sales of the Company’s implantable cardioverter defibrillator (ICD) systems in the U.S. include the impact of the ship hold and product removal actions associated with these products during the quarter. Ship hold and product removal actions for these systems were implemented on March 15. On April 15 the Company resumed U.S. distribution of its COGNIS(R) CRT-Ds and TELIGEN(R) ICDs. COGNIS AND TELIGEN represent virtually all of the Company’s defibrillator implant volume in the United States.
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