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Medtronic Defibrillator Lawsuit Settlements Take a Toll on Profits

Feb 22, 2008 | Parker Waichman Alonso LLP

Medtronic Inc.'s profits are off sharply, in part because of problems the company has had with its defective implantable defibrillators. Medtronic's  third-quarter earnings plunged 89.0% from the prior year on charges from lawsuit settlements stemming from defective defibrillators and acquisition costs.

According to Forbes.com, overall sales at Medtronic  jumped 12.0% to $3.4 billion, up from $3.1 billion in the third quarter of 2006, due to strong international sales. But because of lawsuit settlements and other charges, Medtronic's net income for the third quarter fell to of $77.0 million, or 7 cents per share, down from $710 million, or 61 cents per share, in the prior year.

The charges that hit Medtronic's bottom line included $275 million for the settlement of lawsuits stemming from its recalled Marquis line of implantable defibrillators, which treat rapid heart rhythms, and a stent patent infringement case by Cordis, a subsidiary of Johnson & Johnson.  The Marquis settlement dates back to  February 2005, when Medtronic warned of a potential battery shorting problem in various Marquis-brand defibrillators.   According to the Wall Street Journal, 11,000 of the machines were surgically removed and replaced with a different device in the U.S.  and 2,000 more such removals took place overseas.  The Food & Drug Administration (FDA) classified Medtronic’s action as a Class II recall. In a Class II recall, there is either a possibility that the device will cause temporary or reversible health problems, or there is a remote chance that the device will cause serious health problems.

Plaintiffs in the suits against Medtronic argued that the company knew for years that there was a potential for product defects but sold its stock of potentially defective devices and didn’t advise patients that safer devices were available. The company had argued that it fulfilled every obligation in terms of reporting the problem, including seeking and receiving FDA approval in 2003 to implement battery design changes.  But despite its claims that it acted properly, Medtronic settled thousands of defective Marquis Defibrillator lawsuits in December.

Medtronic has long been plagued by safety  problems surrounding its ICDs and other devices.  In April 2004 Medtronic announced that it was recalling its Micro Jewel II Model 7223Cx and the Medtronic GEM DR Model 7271 ICDs after they had been linked to at least four deaths and one injury. Medtronic said at the time that some of the recalled defibrillators failed to charge properly, resulting in the late delivery or no delivery of cardiac shock therapy. In January 2007 the FDA announced that the agency started an investigation looking into accusations by a former Medtronic engineer that the medical-device company didn’t sufficiently test its new Concerto cardiac device for patients with congestive heart failure.  The Concerto device is one that can resynchronize the heartbeat of a patient and also provide backup defibrillator capability to save the patient’s life if the heart goes into cardiac arrest.

In October 2007, Medtronic announced that it was suspending sales of the Sprint Fidelis lead, a vital component in its implantable defibrillators.   According to Medtronic, the Sprint Fidelis lead, a wire that connects the Medtronic defibrillator to the heart, could fracture inside a patient’s blood vessel, delivering a massive electrical jolt.   This malfunction can cause extreme pain, or in the worse case scenario, it can be fatal.   At least 5 deaths have already been linked to a malfunctioning Sprint Fidelis lead used with an implantable Medtronic defibrillator.