Guidant Shareholders Sue Over Artery Device Defects
Guidant Corp., the world’s largest maker of heart stents, has been sued by investors over the company’s $94.4-million settlement of federal charges that it covered up defects in a device for treating abdominal aneurysms.
The lawsuit, filed late Monday in federal court in Indiana, claims the Indianapolis-based company misled shareholders about defects with its Ancure Endograft system, which contributed to 12 patient deaths and 57 emergency room visits.
The Justice Department announced Thursday that Guidant unit Endovascular Technologies Inc., based in Menlo Park, Calif., had pleaded guilty to 10 felony counts, including making false statements and mislabeling its Ancure devices.
Guidant on Monday announced that it would shut down Endovascular and said that it already faces 14 lawsuits related to the product -- and expects more.
Investigators said the company failed to disclose 2,628 reports of Ancure malfunctions to the Food and Drug Administration.
Ancure is a device that uses a catheter to insert a woven polyester graft to strengthen the aorta, the main artery carrying blood from the heart. But according to the Justice Department, the catheter had a high failure rate and frequently became stuck in the patient’s body, requiring surgery.
“They have admitted making a false statement. That will help with showing that the defendants knew they were misleading shareholders,” said Marcel Kahan, a securities law professor at New York University. “This case is not going to be dismissed.”
The lawsuit, filed by the New York firm of Milberg Weiss Bershad Hynes & Lerach on behalf of shareholder Giocchino Daquila, seeks to represent investors who purchased Guidant shares between June 23, 1999, and Thursday, the day the settlement was announced. During that period, Guidant shares declined more than 15% to $40.56, including a 6% tumble on Thursday.
The company’s $94.4-million penalty, the largest levied for failing to report a malfunction to the Food and Drug Administration, is about equal to Guidant’s net income of $93.4 million in the quarter ended March 31.
A Guidant spokesman did not return a call seeking comment on the shareholder lawsuit.
The suit also names Guidant Chief Financial Officer Keith E. Brauer and Chief Executive Ronald W. Dollens as defendants.
Guidant shares on Tuesday rose 50 cents to $40.85 on the New York Stock Exchange.
