In an aggressive counter-attack, Boston Scientific (BSX; Natick, Massachusetts) filed suit last month in Jerusalem District Court in Israel against the owners of Medinol (Tel Aviv, Israel), that suit offering a plan that would force a resolution of the current dispute between the companies.
The Boston Scientific lawsuit asks the court to order Medinol owners Kobi and Judith Richter to enter into a bidding procedure, with each side submitting an offer to purchase the shares of the other party, and the party offering the higher company value would buy the other's shares in Medinol. The procedure, known as "buy me-buy you," is a remedy available under Israeli law when shareholders cannot resolve differences due to a loss of trust. According to the claims made in the suit, the court's intervention is required because, according to a Boston Scientific statement announcing the proposal, "the Richters' abuse of their controlling position in Medinol has led to a breakdown in relations between the shareholders."
The companies are embroiled in a bitter dispute as the result of Boston Scientific's attempt to purchase Medinol, the OEM supplier of BSX's NIR stent product line. Boston Scientific has failed to offer sufficient value for the acquisition, according to Medinol, which has filed suit against the U.S. firm, accusing it of various contract breeches. Besides buying stent products from Medinol, Boston Scientific owns a significant number of Medinol shares.
The counter-suit by Boston Scientific also seeks the appointment of a new chief executive officer for Medinol, the return of misappropriated intellectual property and other assets, and the cancellation of all employee stock options that the Richters granted to themselves.
Boston Scientific spokesman Paul Donovan expressed disappointment that the company had to file suit against Medinol, saying that the Richters' actions "have made this lawsuit necessary." They have, he said "caused a loss of trust and a breakdown in relations, leaving us no alternative but to take legal action to protect our investment and to bring responsible management to Medinol."
In the suit, Boston Scientific asserts that the poor shareholder relationship created by the Richters prevents the two parties from being able to cooperate as shareholders in Medinol and that there is no alternative other than for the court to install new management of Medinol and to force a change in ownership. As evidence of the poor relationship created by the Richters, Boston Scientific cites the lawsuit filed by Medinol against Boston Scientific after the latter firm refused to raise its offer to purchase Medinol.
That suit was marked, Boston Scientific said in its release, "by a host of false accusations and baseless claims ... intended to pressure Boston Scientific into paying an inflated price for Medinol."
The suit alleges that the Richters have failed to consider Medinol's other shareholders or employees and that they "depleted the company's assets for personal gain. The result of this alleged behavior is that the Richters unjustly received more assets of – and benefits in – Medinol than they were entitled to receive," Boston Scientific said.
It alleges that Kobi Richter, while an officer and director of Medinol, developed an invention belonging to Medinol, but registered the patent rights to that invention with another company. Other inventions by Medinol employees have been similarly misappropriated, the suit states.
Additionally, the suit alleges that the Richters granted themselves approximately 70% of all of Medinol's employee stock options and that the Richters have taken leaves of absence as Medinol's senior officers, thus leaving the company without executive leadership.
Boston Scientific is asking the court to order that Medinol be managed by a new CEO appointed by the court; that the Richters return to Medinol all intellectual property and other assets that they misappropriated; and that Medinol cancel all the employee stock options that the Richters granted to themselves.
Boston Scientific said that the suit does not impact the stent supply agreement and that the supply of Nitinol stents and materials will continue.
... and is sued itself
A rising tide of liability suits will grow even larger, a Tennessee product liability attorney charged last month, as more women become aware that they may have been harmed by implantation of a urethral sling product made by Boston Scientific.
Lee Coleman, of the firm Hughes and Coleman (Nashville, Tennessee), said that he is handling up to 45 cases of women implanted with the ProteGen Urethral Sling made by Boston Scientific and used as an implanted therapy for urinary incontinence. And he told The BBI Newsletter's sister publication, Medical Device Daily, that he is working closely with another attorney handling several hundred similar cases.
"There are other lawsuits filed earlier that have progressed further," Coleman said. "All of these lawsuits will be under the guise of a multidistrict litigation order that consolidates all of the discovery against the company, since they are all dealing with the same factual issues." According to charges in the lawsuits filed by Coleman, the alleged facts will demonstrate that women implanted with the devices have suffered major problems with infection forcing removal of the PorteGen sling and that these women are at risk for additional complications in the future.
Coleman said that Boston Scientific failed to test or demonstrate safety for the urological procedure and told doctors that it was safe for that indication.
The worst effect – characterized by Coleman as "most dramatic" – has been "erosion, loss of internal tissue, infection eating away at these tissues." The sling product, he said "acts as a sponge for infection," an infection that "doesn't respond to oral or injected antibiotics." In many cases, the women implanted and injured have returned to their doctors thinking they were having a continuation of "female problems," Coleman said, and only became aware that the sling procedure was at fault when a revision was done. Even then they may not have told the true cause of their difficulties since the physicians feared they might implicate themselves.
Coleman said he is filing no suits against the women's physicians. "In our view, it's the company's fault. [Boston Scientific] informed the physicians that the material had been tested." He claimed that Boston Scientific's own internal documentation indicates that it had intended to test the product material for the incontinence procedure but "may have then rushed to be first to market."
Physicians began implanting the sling in March of 1997 and the company then issued a voluntary recall early in 1999. But Coleman charged that the recall was for unused products but did not include a warning to those women already implanted. "A comedy of errors is not the way to describe this," he said. Rather, he said these were "poor business decisions that a reasonable person would just have never made."
Sulzer woes expanded to knees
Problems related to faulty hip implants made by Sulzer Orthopedics (Austin, Texas), a subsidiary of Sulzer Medica (Winterthur, Switzerland), show signs of spreading to the company's knee implant products, producing additional litigation and additional damaging costs.
That, at least, appears to be the hope of liability attorneys who are currently attempting to identify potential clients allegedly injured by the company's knee implant devices. Thus far, there has been one confirmed suit filed charging that the knee implant device has the same defect as the company's hip implant. That defect consists of an oil leak in the shell of the implant which results in improper bonding and forces a subsequent revision procedure.
That suit was filed this past March by an Oklahoma man, according to a report in the Austin American Statesman, which said that attorneys in other states are being contacted by those implanted with the knee implant products.
In its most recent filing with the Securities and Exchange Commission, the company said that it could face "significant" additional costs related to both the hip and knee implants and that these costs are likely to exceed the limits of its current insurance coverage. Those statements serve to verify the company's earlier announcement of insufficient coverage and the revelation that the company's knee implant devices may share the same problems as the hip implant devices.
Acknowledgement of the knee implant problems, however, undercut the company's earliest statements that the oil leak problems were confined only to the hip implant products.
The costs not covered by insurance could have "material adverse effect" on the company's financial position, the company said in an addendum to its 2001 outlook. The announcement came as the July 10 deadline neared for breakup of the parent company and it served to erode the company's stock price further on the Swiss market in early trading for the week.
Some analysts have estimated that the cost for each hip implant case could amount to around $100,000, including such things as lost wages and suffering, but thus far not counting potential punitive damages yet to be determined. And costs for knee implants could be just as large, according to a Sulzer Medica spokesman.
To date, the number of hip revisions totals more than 1,900 cases, according to recent company estimates, and Sulzer has reported about 65 knee implant revisions, cases that may or may not translate to lawsuits. The total number of hip implant cases also is expected to increase, according to the company.
A Sulzer Medica spokesman told Reuters news service in mid-June that there have been about 800 hip implant lawsuits filed against the company, 51 of them class-action suits. The large majority have been filed in the U.S.
The company said it is not recalling the knee implant devices, since they are no longer sold. Produced between July 2000 and December 2000, about 1,350 of the devices were implanted in the U.S., about 200 in Europe and about 50 in Australia.
Sharon Snider, spokeswoman for the FDA, said that the agency has taken no action on the issue but is aware of the knee implant problem. "When we inspected [Sulzer Orthopedics'] plant in March, we learned that they had found some oil on their knee implants," she said, adding that the notification at that time amounted to a statement that the company would do further investigation.