Medical Device Daily
and Staff Reports

Boston Scientific (Natick, Massachusetts) took on the potential for large legal liability fees when, earlier this year, it acquired Guidant (Indianapolis).

And those costs may have ballooned considerably this week with the forced release of company documents indicating that it had composed a letter warning physicians concerning malfunctions of its implantable defibrillator devices but then didn't put that letter in the mail box.

The unmailed letter was among documents in the case unsealed – over the company's objection – in relation to a product liability lawsuit in Texas. The letter is being interpreted as the company's acknowledgement that the company was aware of the malfunctions but had decided to send only a standard warning to doctors that encouraged only increased monitoring of patients implanted with the devices.

The letter it did send can best be characterized as a routine “product update,” but coming after the company learned of a short-circuiting problem that had occurred in some units of two defibrillator models and is being linked to a variety of malfunctions and, in some cases, deaths.

The unsealed documents indicate that the rationale by Guidant executives not to issue a more pointed and aggressive warning about the malfunctions was that they feared crating “undue alarm” about the problem and that it would lead to a flood of surgeries to remove the devices – surgeries which themselves carry a considerable risk.

But in making that choice, the company is now open to allegations that it continued to sell the devices, found to be susceptible to the malfunctions, that it had in inventory.

The details of what the company knew about the malfunctions, when the problems were known, the timeline and contents of notices issue by Guidant and the timelines employed in the withdrawal of the defective line of products clearly will provide a variety of much hair-splitting debate in upcoming legal actions. These actions include various individual liability lawsuits, dozens of class action suits, as well as ongoing investigations by the Department of Justice and the FDA.

The unsent warning letter was one of 22 documents ordered unsealed by Judge Jack Hunter in Corpus Christi, Texas, overruling the contention by Guidant that the documents contained trade secrets.

An appeals court on Tuesday denied Guidant's challenge to Hunter's ruling. And Hunter told Guidant that it had until the close of business yesterday to decide which of another 600,000 pages of documents may have been improperly designated as confidential.

Paul Donovan, a spokesman for Guidant, according to various news sources, has confirmed that the warning letter drafted was never sent.

Donovan repeatedly offers the company's current position that it is developing new standards for communications to doctors and patients concerning product performance and that the company acknowledges the need “to doing a better job of communicating.”

The documents unsealed and yet to be released related to a liability case set to go to trial Sept. 18 in Neuces County District Court in Corpus Christi.

It is the first such case and was brought by Louis Motal and Beatrice Hinojosa, two patients implanted with Guidant's Ventak Prizm 2 defibrillators. They allege Guidant knew the devices might fail but didn't warn patients.

Various industry observers have put the final cost of Boston Scientific's Guidant-related legal costs at as much as $2 billion. But they also propose such bills are likely to be offset by the company's expanded revenue from the Guidant product line.

In other legalities:

• Avail Medical Products (Fort Worth, Texas) has been ordered to pay $1 million in damages to MaqGuide.com (Santa Barbara, California) for refusing to pay for services performed on their behalf.

A “quick verdict” was reached following a two-week jury trial in San Diego Superior Court, MaqGuide.com said in a statement.

After the verdict, Jeffrey Madison, president of MaqGuide.com said that the services MaqGuide.com performed on behalf of Avail are projected to generate in excess of $40 million of additional future sales for Avail, and the $1 million verdict represents only a fraction of the additional profits Avail is expected to earn as a result of his work.

Avail bills itself as “the world's largest and most trusted outsource developer and manufacturer of finished, disposable medical devices.” It names the top 10 global medical products manufacturers, as well as many smaller companies, as customers.

MaqGuide.com assists companies in setting up offshore manufacturing facilities in Mexico, Asia and elsewhere.

• Palatin Technologies (Cranbury, New Jersey) issued a response to an announcement by Competitive Technologies (CTT; Fairfield, Connecticut). It said that CT is demanding arbitration with Palatin for breach of the terms of its license agreement for certain technology related to the treatment of sexual dysfunction.

Palatin acknowledged it has received a letter demanding arbitration from CTT for damages in excess of $500,000. The license agreement provides for binding arbitration as the remedy for dispute resolution.

Palatin said it disputes CTT's assertions, including that Palatin materially breached the license agreement. Palatin asserts that there is no breach of the license agreement and views CTT's actions as both frivolous and self-serving.

The company said it intends to defend itself vigorously in the arbitration and assert all rights accorded it under the license agreement and at law, including the potential termination of the license agreement.

The company said it does not believe that this matter will not have material impact on its collaboration with King Pharmaceuticals (Bristol, Tennessee) to jointly develop and commercialize bremelanotide, the company's lead product candidate currently in Phase II clinical trials for both male and female sexual dysfunction, or on any of its intellectual property rights regarding bremelanotide. Bremelanotide was developed by Palatin scientists and patents on bremelanotide are owned solely by it, the company said.

CTT and Palatin's dispute about their license agreement stretches back to 2004, when CTT first demanded arbitration (Medical Device Daily, Oct. 29, 2004).

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