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Guidant Plans to Stop Making Medical Device

The firm will shut a Menlo Park office after pleading guilty last week to concealing failures of a product used to treat aortic aneurysms.

June 17, 2003|Karen Robinson-Jacobs | Times Staff Writer

Guidant Corp. said Monday that it would shut down a Menlo Park office responsible for a medical device to treat aortic aneurysms after it was linked to 12 unreported deaths and 57 emergency procedures.

The announcement by Indianapolis-based Guidant comes after the company agreed Thursday to pay $92.4 million in fines and plead guilty to 10 felonies, including failing to report the device's malfunctions to the Food and Drug Administration.

Analysts said the plan to halt production of the Ancure Endograft product, made by EndoVascular Technologies in Menlo Park, was not surprising given its declining sales and Guidant's settlement last week with the Justice Department.

"It was going to be very difficult for Guidant to grow this business, given this black mark," said Bruce Jacobs, a medical device analyst with Deutsche Bank, which owns at least 1% of Guidant's shares. "In some respect this brings a degree of closure to the whole episode."

Ancure is a device that uses a catheter to insert a woven polyester graft to strengthen 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.

The settlement and attendant media coverage were "clearly a consideration" in the company's decision to stop making Ancure, said Jay Graf, chairman of Guidant's four operating groups.

"I don't know of many products that could stand up to those withering attacks," he said.

The device had 2002 sales of about $63 million, less than 2% of Guidant's companywide sales.

Guidant's stock rose 31 cents to $40.26 Monday on the New York Stock Exchange.

EndoVascular in Menlo Park has about 200 employees who handled mostly product development, marketing and administration. The Ancure device was manufactured in Puerto Rico. Graf said "as many as possible" of the Menlo Park workers would be moved to jobs at company facilities in Santa Clara.

Guidant will take an after-tax loss of $100 million to $125 million for shutting down the operation, including settlement charges, the company said.

Guidant bought EndoVascular Technologies in 1997 for about $170 million, Graf said. Analysts estimated the potential market for Ancure and its competing products at as much as $1 billion a year. Ancure came onto the market in September 1999.

But the $10,000 Ancure device, which competed with a product made by Minneapolis-based Medtronic Inc., was profitable "maybe in one quarter," Graf said.

Analysts said that dropping the device should boost Guidant earnings by about 1 cent a share.

Guidant faces several lawsuits seeking class-action status on behalf of patients who have received the Ancure device. The latest lawsuit was filed Monday in U.S. District Court in San Jose by a 70-year-old widow whose husband died, allegedly as a result of complications from the aneurysm stent device.

Graf said 14 civil suits have been filed against the company over the device.

One analyst said Guidant's legal case is helped because the company will continue to sell the device until the fall.

"If it was dangerous at all, the FDA would not allow them to do that," said Alexander Arrow, a medical technology analyst with New York-based Lazard Freres & Co.

Guidant also is in talks with the Office of the Inspector General of the U.S. Department of Health and Human Services to ensure compliance with rules that govern the reporting of injuries.

Abdominal aortic aneurysms result in 15,000 deaths yearly in the United States.

Reuters was used in compiling this report.

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