Boston Scientific settles defibrillator claims for $195M

posted on:
July 13, 2007

author:
Stephen Heuser

Boston Scientific Corp. will pay $195 million to settle a class-action suit against its Guidant division, ending a legal battle in which patients claimed Guidant Corp. knowingly hid defects in its implantable heart devices.

After negotiating with a magistrate judge, the two sides reached a settlement in federal court in Minnesota. The cases had been schedule to go to trial on July 30.

The settlement resolves more than 1,500 lawsuits representing approximately 4,000 people who received defective Guidant defibrillators. A number of other suits are pending against Guidant elsewhere in the US and Canada, but the Minnesota case is the largest single piece of litigation.

“We are pleased by this resolution,” Boston Scientific chief executive Jim Tobin said in a statement issued after the close of the stock market.

The defibrillators, about the size of a deck of cards and costing $25,000 or more, are designed to re-start the heart if it spontaneously stops. Because of a defect, some Guidant defibrillators were unable to deliver the lifesaving shock, and the lawsuit claims Guidant executives knew of the defect long before first disclosing it in 2005. The company continued to recall devices after merging with Boston Scientific in 2006.

Only a handful of deaths were caused by the defect, and the defective devices can be replaced in a surgical procedure. The plaintiffs are suing for the cost of medical care, as well as the effects of replacement or the anxiety associated with having a potentially defective device.

Boston Scientific of Natick acquired responsibility for Guidant’s liabilities when it bought the company for $27 billion last year.

Guidant’s defibrillator problems were key to Boston Scientific’s deal to buy the firm in the first place. Guidant, an Indiana manufacturer of heart devices, had already signed a deal to be bought by Johnson & Johnson when word of the quality problems began to emerge. As Guidant’s reputation suffered and doctors began to shy away from its defibrillators, Johsnon & Johnson publicly bargained the price down, and Boston Scientific swooped in with a higher offer. The two companies jousted over Guidant until Boston Scientific won the bidding war in January 2006.

A $195 million settlement would be significantly less money than Boston Scientific has set aside to deal with its Guidant liabilities. According to a May filing with the US Securities and Exchange Commission, the company had accrued $732 million to pay for its legal defense and any potential settlement.

Rival defibrillator makers Medtronic Inc. and St. Jude Medical Inc., both of Minnesota, have also disclosed defects in their defibrillators, and the overall market for the devices has suffered in the past two years.

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