A Medical Device Daily

Despite the purported benefits of Boston Scientific’s (Natick, Massachusetts) $27.2 billion acquisition of Guidant (Indianapolis) last year, the company continues to see lawsuits piling up over problems with Guidant’s heart rhythm devices.

According to a recent regulatory filing with the Securities and Exchange Commission, the company acknowledged that lawsuits have recently grown at a rate of nearly three new cases per day.

Boston Scientific currently faces more than 1,100 individual and 75 class-action lawsuits over recalls and safety warnings issued in 2005 and 2006 involving Guidant’s implantable defibrillators and pacemakers, the company said in its 2006 annual report, released late last week.

The total is up from 842 cases when Boston Scientific filed a quarterly update with the SEC on Nov. 9. The increase amounts to 333 cases over 112 days.

Although the lawsuits are still pending in various courts, Boston Scientific said it had set aside $485 million “for legal matters that are probable and estimable” as of Dec. 31, primarily related to products made by Guidant. That’s up from $35 million at the end of 2005, and $384 million at the end of last September.

Additionally, Boston Scientific said that Guidant has been informed of more than 4,500 claims of individuals that “may or may not mature into filed suits.”

Jan Wald, an industry analyst with A.G. Edwards & Sons (New York), wrote in a research report that it was “awfully hard to know” how the recent flurry of litigation will affect how much Boston Scientific may ultimately have to pay in damages.

But Wald said he found the recent rate of new lawsuits surprising, since most of the problems involving Guidant’s heart devices became public in 2005.

“It seems to me it might have been trickling down to less than three a day by now,” Wald said.

Boston Scientific spokesman Paul Donovan declined to comment to the Associated press concerning the legal update the company provided in its annual filing concerning the company’s operations.

The filing by Boston Scientific says the company is “substantially self-insured with respect to general, product liability and securities claims.”

Since June 2005, Guidant has issued safety warnings or recalled more than 88,000 defibrillators and has recalled or issued warnings on about 200,000 pacemakers. Electrical problems with the products have been linked to at least seven deaths.

Guidant has been criticized for failing to notify doctors, patients and regulators of the extent of its product problems, and Boston Scientific has vowed to do a better job.

Industry analysts have estimated the Guidant-related legal liabilities inherited when Boston Scientific closed the acquisition last April could reach as high as $2 billion.

Since then, Boston Scientific’s stock has lost about 29% of its value.

The company said it remains focused on accelerating the recovery of the Cardiac Rhythm Management (CRM) business it acquired from Guidant, including the market share that was damaged by the recalls. However, it noted that if the CRM market does not recover according to the company’s expectations, or is unable to regain market share and net sale in a timely on a timely basis “our business, financial condition and results of operations could me materially adversely affected.”

The company did note a 10% sequential increase in net sales from its CRM business in 4Q06, including a 13% increase for U.S. ICD sales, which the company said it believes is a sign that the company’s market share has increased and that the CRM market is stabilizing and will return to growth.

Boston Scientific has said the legal and other risks are offset by the increased sales it expects from acquiring Guidant’s defibrillators and other medical devices. Boston Scientific also sought to diversify its product portfolio amid new competitive challenges for its top-selling product, the Taxus drug-eluting stent.

Boston Scientific said that most of the cases against Guidant are pending in federal court, with 83 in state courts.

Federal cases have been consolidated in U.S. District Court in Minnesota, where a trial is set to begin July 16. Most plaintiffs in that case allege no physical injury, but are suing for anxiety and to reclaim the costs of medical monitoring.