Boston Scientific and Guidant Off to Texas Slaughterhouse

Evelyn Pringle September 6, 2006

The first, but by no means the last, Guidant trial is scheduled to begin on September 18, 2006, in Neuces County District Court in Corpus Christi, Texas before Judge Jack Hunter.

The two plaintiffs, Louis Motal, 63, and Bernice Hinojosa, 65, are surviving patients implanted with Guidant’s Ventak Prizm 2 defibrillators in 2001. The lawsuit claims that Guidant “actively concealed the … defect, suppressed reports, failed to follow through on FDA notification requirements, and failed to disclose a known defect to patients.”

“Instead of revealing the defect,” the plaintiffs allege, “defendants continued to represent their product as safe for intended use, and continued to sell the flawed [devices] despite knowing of the dangers.”

Both plaintiffs claim they suffered extreme mental anguish from knowing that the defective devices could malfunction at any time.

According to the company’s latest tally, there are about 72 class-action lawsuits and about 477 individual lawsuits filed against Guidant in various state and federal courts, Boston Scientific reported in its second quarterly report filed with the SEC. The latter number is up from about 300 cases noted in the firm’s first quarterly report filed three months earlier.

As of April 2006, Boston became the proud owner of Guidant after winning a bidding battle with Johnson and Johnson, in what will certainly not go down in history as the deal of the century.

In addition to all the lawsuit already filed, according to Boston latest SEC filing, there are more than 3,300 claims of individuals that may or may not be filed, up from 3,000 claims in the earlier report.

The lawsuits all relate to defective defibrillators and pacemakers. Defibrillators are $30,000 devices that are wired directly to the heart and send electric shocks when abnormal heart rhythms are detected and pacemakers speed up hearts that beat too slowly, and cost between $4,000 and $20,000 for each unit, according to Bloomberg News on June 26, 2006.

According to Boston report, “the majority of claimants allege no physical injury, but are suing for medical monitoring and anxiety.”

The numbers have really grown compared to Guidant’s regulatory filing with the SEC on February 22, 2006, that predicted as many as 2,500 patients may seek damages. Those claims are distinct, Guidant noted in the filing, from the claims already filed by patients in 211 individual and class action lawsuits in the US and Canada.

And the potentially bleak future of Boston does not hinge entirely on what happens in civil lawsuits. Back on February 23, 2006, the Associated Press reported that the FDA, US Department of Justice, the Securities and Exchange Commission and several state agencies are investigating Guidant over its recalls.

The company is in fact being investigated by three attorneys general on behalf of 34 states, according to the article, Litigation Mounts Over Guidant Heart Devices, in Lawyers Weekly USA, on January 30, 2006.

“In addition,” the article states, “New York State and the city of Bethlehem, Pa. are suing Guidant for reimbursement of medical costs involved in replacing the devices.”

All lawsuits pending in federal courts have been consolidated under multi-district litigation rules and moved to a US District Court in Minnesota, where Guidant has several manufacturing facilities, with the first federal trial scheduled to begin on March 15, 2007.

On June 13, 2006, the Minnesota Supreme court appointed one judge to preside over all state court cases involving lawsuits linked to last year’s Guidant product communications, Boston Scientific notes in its report.

According to Lawyers Weekly USA, the lead counsel for the Texas plaintiffs, Robert Hilliard, of Hilliard & Munoz, said documents obtained during discovery show that Guidant knew about problems with its devices as far back as April 2002, but failed to alert doctors and patients for 3 years.

“They knew they were going to kill people based on this defect,” he said.

Ted Meadows, a plaintiffs’ attorney with the Beasley Allen lawfirm in Montgomery, Alabama, who specializes in medical device litigation, told Lawyers Weekly, “There were literally tens of thousands of people who’ve had these devices implanted in them.”

“Now they’re faced with the concern,” he said, “the device might not work properly when they need it most.”

And critics say there is certainly plenty of cause for concern. On June 7, 2006, the New York Times reported that least seven patients are known to have died in episodes in which Guidant defibrillators failed to work because of the electrical defect, five involving Contak Renewals.

“But many experts believe that the number is probably higher,” the Times wrote, “because an implanted heart device is rarely examined after a patient’s death to determine if it was working properly.”

According to Mr Meadows, a key to plaintiffs’ claims will be showing that Guidant “knew or should have known there was a potential for this problem.” In addition, he said, any evidence that indicates Guidant knew about the problem and responded improperly would entitle plaintiffs to seek an award for punitive damages.

Legal experts say this evidence exists and point to a report released in March 2006, by an independent panel appointed to review the recalls that shows Guidant allowed about 4,000 potentially defective defibrillators to be implanted in patients after the company found a flaw in 2002 that caused malfunction.

“The Independent Panel believes,” the report says, “that under no circumstances should a potential or manifest risk of a preventable death be superseded by statistical analyses that indicate that performance remains with general guidelines.”

The panel also said that Guidant and other devices makers need to increase the level of data collected on device failures because studies have shown that only a relatively small number of failures are reported to the manufacturers and the FDA because doctors and hospitals do not always report problems and devices are not ordinarily inspected after a patient die.

According to Boston Scientific, the devices that may be flawed include certain Insignia and Nexus pacemakers, Contak Renewal TR/TR2 cardiac resynchronization pacemakers, and Ventak Prizm 2, Vitality and Vitality 2 implantable cardioverter defibrillators.

These products were manufactured by the company’s Cardiac Rhythm Management Group, formerly Boston Scientific/Guidant’s CRM business, and some were implanted in patients as late as between December 2005 and June 2006.

On June 7, 2006, the New York Times reported that in one analysis, Guidant engineers projected that 1 out of every 100 Contak Renewals could short-circuit, a failure rate considered high by experts.

Guidant also suspected by late 2004 that the Renewal models would become increasingly prone to failure as the devices aged, the Times said documents indicate.

The Contak Renewal combines a pacemaker and a defibrillator, often referred to as a cardiac resynchronization therapy device, or CRT-D and costs about $35,000, the Times notes.

On June 6, 2006, Texas Judge Jack Hunter, unsealed documents containing information about recalled defibrillators, saying he did not trust Guidant’s claims that they contain trade secrets. The files show that Guidant had drafted, but never sent, a “Dear Doctor” letter detailing significant potential problems with the Contak Renewal and Contak Renewal 2 model defibrillators, according to Bloomberg News on June 7, 2006.

Guidant fought hard to keep the documents confidential and for good reason obviously. The never-sent “Dear Doctor” letter disclosed the short-circuiting problem and stated that the company had “removed all non-implanted Renewal and Renewal 2CRT-Ds from hospital shelves and Guidant inventory.”

However, records reveal that by this time Guidant had already sold most of its inventory.

Earlier in 2004, the documents show that company officials drafted a memorandum for their sales representatives explaining why it was asking them to return all the unsold Contak Renewals, but the memorandum was never sent either.

Some documents provide strong evidence that Guidant weighed the risks to patients and the loss of profits and chose to place profits over the lives of patients. For instance, one company document shows that Guidant estimated it would lose about $9 million by purging its inventory of defective Contak Renewal units and parts.

Attorney Hilliard says other documents reveal that Guidant performed a risk analysis that showed there was a possibility the devices could short-circuit, and if they did, “the likelihood of death or serious injury was very likely.”

He also told Lawyers Weekly that Guidant also violated federal regulations by redesigning the devices to eliminate the flaw in 2002, without informing the FDA, and that Guidant continued selling the older devices without notifying patients of the risks.

In what experts are calling the strongest evidence to present to a jury, testimony in a 168-page deposition taken in January 2006 in the Texas case, that was made public in February 2006, has Guidant executive, Fred McCoy, acknowledging that the company made changes to one of its defibrillators in 2002, and incorrectly told the FDA that it had no effect on the product’s performance.

Mr McCoy testified that Guidant made two modifications to the Ventak Prizm 2 in 2002, to keep it from short-circuiting and that neither was approved by the FDA.

And as it turns out, only one of the changes was disclosed in the company’s annual report that year also, and Guidant said that change had no affect on the device’s performance.

In addition, in a report filed two years later, the company said that it had received FDA approval to make the changes when it had not.

Mr Hilliard told the Associated Press on February 22, 2006, that Mr McCoy’s testimony proves that Guidant sold an unapproved defibrillator in violation of federal law.

In the deposition, Mr McCoy claims that he did not learn about problems with the devices until May 2005.

More damning evidence was revealed on June 23, 2006, when the Pioneer Press reported that, “Guidant’s implantable heart devices may fail about 10 times more often than the company had projected last year, according to a U.S. Food and Drug Administration analysis released in a Texas lawsuit.”

“A judge in a product-liability lawsuit involving Guidant’s defibrillators,” the newspaper said, “recently unsealed the FDA document dated June 16, 2005.”

Back when Guidant began its recall in the summer of 2005, the firm said no more than 292 of the units were likely to break down. “But the FDA said “most” of the 16,000 recalled Contak Renewal defibrillators may have damaged insulation within five years of use,” the Press wrote, “and 40 percent of those damaged devices would fail to produce an adequate electrical shock in a medical emergency.”

At that rate, it said, at least 3,200 Renewal units would be likely to fail.

Legal experts predict that the higher projection will hurt Boston Scientific in lawsuits. “This is as damaging a document as we’re going to come across,” said Attorney Hunter Shkolnik, one of many lawyers representing patients suing Guidant, in an interview with Pioneer Press.

“It flies in the face of all the excuses Guidant has been giving for not telling patients to take these devices out immediately,” he added.

It’s difficult to imagine how things can get much worse for shareholders. In the second quarter of 2006, the company lost 27% of its value. On June 29, 2006, the Globe & Mail reported that:

“Boston Scientific, which laid out $27.5-billion in cash and shares for Guidant, has bought itself what, so far, looks like a massive and costly series of headaches, in the form of product recalls and lawsuits. These have helped drive its stock price to a four-year low of less than $17 on the New York Stock Exchange, down more than $9 from early January.”

However, critics say Boston Scientific also has its laundry list of problems. According to the Globe, before it acquired Guidant, both Boston and its target, received corporate warning letters from the FDA saying that, until they have demonstrably improved their quality control, the agency will not approve new products for sale in the US.

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