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Guidant Shares Fall After Guilty Plea Over Device

The 1.5% drop follows 6% fall Thursday. But in long run, some think the firm will be healthy.

June 14, 2003|Karen Robinson-Jacobs | Times Staff Writer

Shares of Guidant Corp., one of the nation's leading makers of cardiovascular devices, fell 61 cents to $39.95 on Friday, one day after it pleaded guilty to felony charges stemming from malfunctions blamed in 12 fatalities.

The 1.5% decline followed a 6% drop Thursday, when the company agreed to pay $92.4 million in fines. But shares were still up 29.5% since the first of the year, and some analysts predicted that the slump would be short-lived.

"I don't think it's going to be a free fall," said Ryan A. Rauch, senior medical device analyst with Adams, Harkness & Hill. He noted that investors were impressed with the company's strength in another product category, implanted defibrillation devices.

Guidant's Menlo Park, Calif.-based subsidiary, EndoVascular Technologies Inc., marketed a device to treat aneurysms, or bulges in the main artery leading to the heart. The device included a catheter that frequently became stuck in the patient's body, said federal prosecutors in San Francisco.

For The Record
Los Angeles Times Tuesday June 17, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 59 words Type of Material: Correction
Heart device -- An article in Saturday's Business section on a device marketed by Guidant Corp. incorrectly defined an aneurysm as a bulge in the main artery leading to the heart. An aneurysm is a bulge in an artery, a vein or the heart. Furthermore, arteries carry blood from the heart, not to it. Guidant's device treats aortic aneurysms.
For The Record
Los Angeles Times Wednesday June 18, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 59 words Type of Material: Correction
Heart device -- An article in Saturday's Business section on a device marketed by Guidant Corp. incorrectly defined an aneurysm as a bulge in the main artery leading to the heart. An aneurysm is a bulge in an artery, a vein or the heart. Furthermore, arteries carry blood from the heart, not to it. Guidant's device treats aortic aneurysms.

Instead of correcting the problem, prosecutors said, the company's sales force trained doctors in an unapproved technique to free the catheter that involved breaking its handles -- which led to 57 emergency procedures and 12 deaths. The product was recalled in 2001.

As part of a settlement agreement with the Justice Department, Indianapolis-based Guidant admitted that a former employee made false statements to the Food and Drug Administration and acknowledged covering up malfunctions of the device.

Rauch said the stock's slide probably was being driven in part by the threat of civil lawsuits. At least one law firm, Chicago-based Kenneth Moll & Associates, has announced plans to file a class-action suit.

"When you're dealing with a heart device with this type of defect, that could cause death or emergency procedures, and [the company] hid this from the FDA ... and did not give warnings to patients that surgery might be necessary, that is punitive conduct in my opinion," attorney Kenneth Moll said. He said his firm had been contacted by hundreds of patients or their families.

Despite potential lawsuits, Alexander Arrow, a medical technology analyst with New York-based Lazard Freres & Co., sees the stock hitting $47 in the next year.

"Yesterday's guilty pleas do increase the possibility of product liability suits," said Arrow, whose firm offers investment banking advice to Guidant. "But it's not as scary as it sounds. They are very well insured."

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