Guidant Adds $45 Million to Defibrillator Settlement

-Bloomberg

10/31/2007 - Boston Scientific Corp.'s Guidant unit agreed to pay at least $240 million to settle claims it hid defects in its heart defibrillators, $45 million more than a settlement proposed in July, people with direct knowledge of the accord said.

The increase from $195 million would let the company dispose of 8,000 claims, double the number in the initial settlement, the people said. Guidant lawyers and defibrillator patients agreed to the higher amount after more claims were filed than expected, they said.

Plaintiffs contend the device short-circuited because of faulty insulation. The settlement, which has to be approved by a judge, wouldn't resolve some state court cases in Minnesota.

``It still doesn't seem like it's a lot of money for Boston Scientific,'' said Daniel Owczarski, an analyst with Soleil-Belmont Harbor Research in Chicago. ``It's still positive that they're settling and they're not dragging this on.'' He has a ``buy'' rating on Natick, Massachusetts-based Boston Scientific's shares and doesn't own any.

After defects prompted recalls by Guidant and its biggest rivals, Medtronic Inc. and St. Jude Medical Inc., starting in 2005, global annual sales of the devices shrank to $5.6 billion last year from $6 billion.

Paul Donovan, a Boston Scientific spokesman, declined to comment on the addition to the settlement fund. The company, acquired Guidant last year for $27.5 billion. It announced the original $195 million defibrillator settlement in July.

Product Liability

Charles ``Bucky'' Zimmerman, a lawyer representing the claimants whose cases have been consolidated in federal court in Minneapolis, didn't return calls seeking comment.

In a May 9 filing with the U.S. Securities and Exchange Commission, Boston Scientific officials said they'd reserved $732 million for legal claims spawned by the Guidant purchase. Product-liability claims, such as those filed by defibrillator patients, were included in the reserve, they said.

Indianapolis-based Guidant issued a recall in June 2005 that was eventually expanded to 109,000 defibrillators. Lawyers for patients contend the company knew as early as June 2002 that the devices were flawed and hid the defects to protect sales. The devices have been linked to seven deaths.

Minneapolis-based Medtronic, which faced more than 900 lawsuits over its defibrillators, agreed to pay $75 million to resolve those claims, people with direct knowledge of the accord said in July.

State Claims

Boston Scientific agreed in August to pay $17 million to settle investigations by 35 states and the District of Columbia into the marketing of defective Prism defibrillators by its Guidant unit. The accord resolved probes into whether Guidant officials hid defects in the devices.

Sources familiar with the addition to the settlement say Boston Scientific still faces about 1,000 state-court claims over the defibrillators. Those claimants can now opt to join the settlement because of the $45 million addition.

The average defibrillator patient is likely to receive about $30,000 for their damages in having the defibrillators removed, the sources said. Still, some consumers aren't happy with the settlement. Bill Keene's wife had to have her defibrillator replaced three times.

The settlement ``isn't much for putting my wife and thousands of other patients' lives in direct danger,'' Keene, of Bolingbrook, Illinois, said in an e-mail. ``I say split the whole $732 million set aside for this and then just maybe my wife will settle.''

The case is In Re: Guidant Corp. Implantable Defibrillators Products Liability Litigation, MDL No. 05-1708, U.S. District Court, District of Minnesota

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