Boston Scientific to pay $74 million to settle tardy recall case

Firm was investigated over delay in withdrawing faulty heart stent

June 25, 2005|By BLOOMBERG NEWS

BOSTON - Boston Scientific Corp., the world's largest maker of heart stents, agreed yesterday to pay $74 million to settle a Justice Department probe over delays in the handling of a 1998 recall.

"This case represents a failure by Boston Scientific to take the most appropriate steps in a timely manner, to insure that the devices it was distributing to hospitals nationwide performed properly," U.S. Attorney Michael J. Sullivan said at a news conference in Boston yesterday.

1998 recall

The government began the investigation more than six years ago into whether Boston Scientific acted quickly enough to keep patients safe when it recalled its Nir-Sox heart stent in October 1998, shortly after the product's introduction.

The stent, a tiny mesh tube designed to prop open arteries cleared during an angioplasty, was withdrawn from the market because of tiny leaks in the balloon device used to insert it into patients.

The settlement "eliminates one of many litigation overhangs for the company," said Phillip Nalbone, a medical-device analyst with RBC Capital Markets in San Francisco. "They have fully reserved for this."

Boston Scientific, which admitted no wrongdoing, took a $75 million charge in the third quarter of 2004 to cover the settlement and other costs. The amount exceeds the revenue generated by the stents, Sullivan said. Boston Scientific no longer sells the devices involved in yesterday's agreement.

Three days after the recall, the Food and Drug Administration warned doctors not to use the stent and said Boston Scientific reported 26 injuries and one death linked to installation of the device. The FDA also said the company made a manufacturing change without alerting the agency, a violation of regulations.

Shares are down

Boston Scientific's shares fell 30 cents to $27.51. They've tumbled 23 percent this year.

No charges were brought against the company or any employee in relation to the stent investigation, chief executive James R. Tobin said in a statement yesterday.

Sullivan said there was no evidence of criminal wrongdoing.

"As soon as [Boston Scientific officials] realized that they were unable to determine if it was a manufacturing or testing defect, they shut down production," he said.

The investigation dragged on because office resources were needed in other areas, Sullivan said, adding that the paperwork for the settlement negotiations alone took six months to complete.

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