Sunday, October 2, 2005

Investigation of Guidant Defibrillator Disclosure May Involve Criminal Issues

A Reuters report (here) discusses the involvement of the Food & Drug Administration's Office of Criminal Investigations in the review of Guidant Corp.'s disclosure of potential problems with its heart defibrillator and pacemaker devices.  According to Guidant's most recent 10-Q:

Additionally, in the second quarter of 2005, the Company voluntarily issued a series of field actions advising physicians of important safety information and corrective actions for certain of its implantable defibrillator and pacemaker systems. The FDA subsequently classified certain of these field actions as recalls. The Company has elected to provide supplemental warranty programs for the devices covered under certain of these field actions. The supplemental programs cover the product and certain costs should a physician determine replacement of a patient’s device is appropriate, as well as the return of any unused inventory. A charge of $94.0 million was recorded in the second quarter of 2005 covering the current and anticipated future costs associated with these supplemental warranty programs.

It is unclear what is the focus of the government's investigation, and once the FDA completes its review, the agency will decide whether to forward the results to the Department of Justice for further action.  A criminal investigation is unlikely to throw a wrench into the pending acquisition of Guidant by Johnson & Johnson, but there will be pressure to resolve any outstanding issues with the heart devices as soon as possible.  No one likes to buy a criminal case. (ph)

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