Medical Device Link.

Originally Published MX July/August 2005

BUSINESS NEWS

In late May, Guidant Corp. (Indianapolis) acknowledged that it had failed to properly inform physicians and patients about a potentially fatal flaw in one of its implantable cardiac defibrillator (ICD) models that resulted in the death of a 21-year-old college student. Since then, new disclosures have continued to worsen Guidant's problems, which now involve a recall of 50,000 ICDs and potentially serious market damage for the company's entire line of cardiac rhythm management products.

In addition to the Ventak Prizm 2 Model 186, which was involved in the widely reported death of the student, the recall has expanded to include the Contak Renewal and Renewal 2, with all three models—approximately 29,000 units—believed to have the potential to malfunction due to short-circuiting. Guidant has offered to replace these devices. The company has also recalled 21,000 Ventak Prizm AVT, Vitality AVT, and Renewal AVT ICDs because of a computer-memory error, which Guidant says can be fixed with noninvasive software reprogramming.

Apart from the damage to Guidant's prestige and reputation as a premier manufacturer of innovative medical devices, industry analysts have begun to speculate about potential effects on the company's pending $25.4 billion acquisition by Johnson & Johnson Inc. (New Brunswick, NJ). When the acquisition was first announced last December, it was generally acknowledged that Guidant's cardiac rhythm management products would fill a void in J&J's cardiac lineup and were a prime incentive in pursuing the deal. Prior to Guidant’s current ICD problems, the companies expected the deal to close in the third quarter of this year.

When Guidant's ICD problems first surfaced, J&J issued a press release stating that it expected the deal to close on schedule. The world's largest medical device maker has reportedly been in close consultation with Guidant regarding the ICD issue, but has had no further public comment.

Meanwhile, industry analysts increasingly appear to believe that J&J may want to revisit the terms of the deal. Some have even suggested that J&J might walk away from the deal altogether—an outcome that would have been unthinkable when Guidant's ICD problems first surfaced.

Guidant's loss of ICD market share and the financial exposure associated with a developing firestorm of litigation—including the potential for a class-action lawsuit—are serious matters. But some medtech analysts think that what could really undo the J&J-Guidant deal would be any further damaging disclosures about Guidant's 'quality culture.'

Prior to the recall, Guidant had a 36% share of the worldwide ICD market, following Medtronic Inc. (Minneapolis) at 49%. St. Jude Medical Inc. (St. Paul, MN) has about a 15% share. The U.S. market for ICDs is estimated to be $4.7 billion. Guidant reported 2004 ICD sales of $1.8 billion, about 47% of the company's total revenues.

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