Guidant Settles Three Lawsuits – 549 To Go

Evelyn Pringle October 2, 2006

Attorneys for the plaintiffs in lawsuits against Guidant and its new owner, Boston Scientific, view the settlement of a Texas case days before a jury trial as a sign that the company is dodging the courtroom.

Guidant settled the case for an undisclosed amount with two plaintiffs avoiding a public trial set to begin on September 18, 2006.

Boston Scientific acquired Guidant’s heart device business in April 2006, following a year of major recalls of products that have resulted in hundreds of lawsuits against Guidant.

The settled case was to be the first state court jury trial and was scheduled to be heard in Neuces County District Court in Corpus Christi, Texas before Judge Jack Hunter.

Guidant Defibrillator lawsuitThe two plaintiffs, Bernice Hinojosa and Louis Motal, were implanted with Guidant’s Ventak Prizm 2 defibrillators in 2001, and alleged that Guidant continued to sell the defective devices for 3 years and “actively concealed the … defect, suppressed reports, failed to follow through on FDA notification requirements, and failed to disclose a known defect to patients.”

There was one earlier settlement of a case in November 2005, with the family of Joshua Oukrop, a college student who died while using a defective defibrillator, and who’s death helped force Guidant to acknowledge and recall the defects products.

When the student died suddenly, his doctors tried to get Guidant to warn doctors about the defective devices and when it refused, they went to the New York Times which in turn conducted its own an investigation. The first Guidant recall, was issued only days before the results of the Time’s investigation were set to become public.

With the settlements of these cases, it means the company has 3 down and roughly 549 lawsuits to go. According to Boston’s second quarter SEC filing, there are about 72 pending class-action lawsuits and about 477 individual lawsuits filed against Guidant in state and federal courts. The company’s first quarter filing three months earlier listed 300 individual cases.

As of June 30, Boston said in the filing, it has accrued $381 million “for legal matters that are probable and estimable.” At the end of 2005, Boston listed $35 million as set aside.

Overall, Boston’s stock has sunk to a 4-year low due to the downturn in its heart device markets, “as the firm confronts $9 billion in debt and legal liability from Guidant product recalls,” according to the September 27, 2006, Boston Globe.

Legal analysts say the Texas case was likely settled because the state trial would have publicized damaging information months before the other trials are scheduled to begin in March 2007.

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

However, its unlikely that settling the case will stop the public disclosure of those documents because on January 28, 2006, the New York Times reported that Federal prosecutors had “opened a new front in their investigation into the Guidant Corporation by issuing a subpoena seeking records disclosed in a Texas lawsuit that indicate the company knew that some heart devices could catastrophically fail.”

The subpoena served on the plaintiff’s attorney, specifically sought internal company documents disclosed in the Texas case. “Among other things,” the Times wrote, “the records indicate that company executives debated whether to warn doctors that some heart defibrillators could short-circuit.”

“The records suggest,” it said, “that Guidant might have sold potentially flawed devices.”

The document request also indicates that federal prosecutors have merged their inquiry with an earlier investigation by the FDA’s Office of Criminal Investigations, the Times reported.

According to the Associated Press on January 28, 2006, the 10 pages of documents include notes from then Guidant president of the cardiac rhythm management division, Fred McCoy, that show that a decision was made to go ahead and sell the inventory that Mr McCoy described as having sporadic ”life-threatening” defects.

Legal experts consulted by the Times, said the broad range of the statutes cited indicate a serious investigation and could mean Guidant may face civil or criminal charges. “They are investigating in the broadest possible way,” said Joan Krause, a director of the Health Law and Policy Institute at the University of Houston.

“They are looking at potential fraud involving government plans,” she noted, “like Medicare, private health plans and employee benefit plans.”

In addition to all its troubles with the FDA and Federal prosecutors, Guidant is also being investigated by attorneys general on behalf of 34 states, according to the January 30, 2006 issue of Lawyers Weekly USA.

Most of the Federal civil lawsuits have been transferred under multi-district litigation rules 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.

Ted Meadows, a plaintiffs’ attorney with Beasley Allen law firm in Montgomery, Alabama, who specializes in medical device litigation, says a key to the plaintiffs’ claims will be to show that Guidant “knew or should have known there was a potential for this problem.”

Any evidence that suggests the company knew about the problem and responded improperly, he says, would entitle plaintiffs to seek punitive damages.

In 2003, a former Guidant subsidiary was fined $92 million by the Department of Justice for not disclosing serious health problems, including 12 deaths, related to its abdominal aortic grafts. According to Mr Meadows, as part of its agreement, Guidant pledged to “verify and make sure their reporting procedures were in order, and that they were reporting adverse events for their devices.”

If it can be shown that the company failed to promptly disclose problems with its heart devices, he said, “This could become an important part of evidence in this case.”

“Part of the allegation we’re making is that they did not tell the healthcare community in a timely manner,” he said.

The stakes got higher for Boston last month when according to Bloomberg News the plaintiffs in the MSL in Minnesota, filed a motion with the court to officially add Boston as a defendant in all the individual lawsuits in light of its purchase of Guidant. The motion also mentions the more recent problems with defective products since Boston took control of the company, including a June 2006 recall of thousands of devices because of a capacitor problem.

Its unlikely that Boston ever imagined the nightmare ahead when it set out to purchase Guidant. By all accounts when the bidding began, Guidant’s heart device division seemed like a gold mine.

According to the February 28, 2006 New York Times, it accounted for about half of the company’s $3.8 billion in sales in 2004. Defibrillators, which cost up to $35,000 each, the Times said, have a profit margin of about 75 percent.

However, that was then and this is now because the number of defibrillators implanted in the US in the last 12 months dropped 8%, according to the Prudential Equity Group, after a decade when implants rose from 21,000 in 1995 to 250,000 in 2005. Analysts blame the downfall on the highly publicized recalls over the past year.

The market for pacemakers seemed equally lucrative until last year. According to the American Heart Association, pacemaker procedures went from under 50,000 in 1979 to more than 200,000 in 2003. In 2004 alone there were about 150,000 devices implanted worldwide, and the market had continued to grow at a steady pace.

However, according to the Associated Press on September 29, 2006, after all the bad publicity about recalls, consumer confidence has now gotten so bad that the FDA “is considering not using the word “recall” to warn patients and doctors about defective pacemakers and defibrillators at the request of a physicians’ group struggling to deal with a loss of public confidence in the safety of implantable heart devices.”

“It’s a terrible term,” Dwight Reynolds, president of the Heart Rhythm Society, an association of doctors who implant the devices told the AP. “The anxiety created among patients and physicians by this term is the No. 1 cause for replacement of devices.”

According to Mr Reynolds, patients who learn they have a faulty device assume they need to have it removed immediately, even though the surgery to replace the device often involves more risk than leaving it in.

The Heart Rhythm Society is asking the FDA to use “safety advisory” or “safety alert” when referring to device problems.

Boston sparked a bidding war in December 2005 that derailed a deal for J&J to purchase Guidant for a little over $24 billion. In January 2006, Boston offered a $27.2 billion bid and won the prize.

However, according to Dow Jones newswire on September 27, 2006, J&J has now filed a multi-billion dollar lawsuit against Boston and Abbott Laboratories, claiming the companies induced Guidant to breach its merger agreement with J&J.

In a complaint filed in a New York US district court, J&J accuses Boston of leaking “confidential” information to Abbott “for the purpose of arranging a prepackaged divestiture of significant Guidant business to Abbott.”

The lawsuit also alleges that that as a result of the disclosure, Abbott agreed to acquire Guidant’s coronary stent business and provide financing for the deal.

J&J is seeking $5.5 billion in general and special damages for the alleged breach of contract. J&J has already received a $705 million termination fee stipulated under its failed agreement with Guidant, but the company maintains it is still entitled to damages due to the breach. The lawsuit also asks for reimbursement of court costs, attorney fees and interest.

Under the merger deal, according to Dow Jones, Abbott agreed to buy Guidant’s stent and vascular business for $4.1 billion, in order to make the deal more acceptable to anti-trust regulators, and agreed to loan Boston $900 million and buy $1.4 billion in company stock.

In the meantime, both J&J and Boston’s drug-coated stent sales are suffering due to recent research that showed the devices increase the risk of blood clots, when compared to the older bare metal stents that are not drug-coated.

And Boston had better set aside a few hundred million more for its legal defense fund because more heart device lawsuits are filed every month. For instance, in mid-September, an Illinois woman filed a 40-count personal injury lawsuit against both Guidant and Boston with claims that a defective pacemaker required her to be hospitalized, according to the September 19, 2006 Madison St Clair Record.

According to the lawsuit, because Boston acquired Guidant and its subsidiaries in January 2006, it assumed Guidant’s liabilities in this litigation.

The plaintiff claims the pacemaker was not of “merchantable” quality and not safe or fit for its intended use because it was unreasonably dangerous.

She also alleges that, “Defendants actively concealed the defect and its wrongful conduct in order to prevent, and succeeded in preventing, adverse publicity and Plaintiff from discovering the defect.”

In the lawsuit, the plaintiff is seeking damages for pain, suffering, mental anguish, emotional distress, loss of capacity to enjoy life, lost past and future income and incurred expenses.

According to the May-June 2006, Medical Device Link, in addition to the legal and regulatory weight of the lawsuits against Guidant, the cases also involve ethical considerations related to patient and physician notification. And when presented before juries of laypersons, MX says, such considerations could have genuine sway over the people determining Guidant’s fate.

“Once in a courtroom, in the context of a plaintiff who has been injured by the drug or device in question, the jury examines the manufacturer’s actions with hindsight,” experts at Vetter & White told MX. “It is then often more difficult to argue that additional steps should not have been taken.”

The evidence on this point does not look good for Guidant. On June 22, 2006, the Indy Star reported that a Guidant defibrillator failed 10 times more often than the company projected at the time of the recall, citing a FDA document.

The document, unsealed in the Texas lawsuit, was written by FDA staffers one day before Guidant began recalling the devices.

At the time, Guidant said no more than 292 of the Contak Renewal units were likely to break down, but the FDA document shows the agency projected thousands of malfunctions within five years.

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