The San Diego Union-Tribune
June 17, 2003
Author: Shannon Dininny

Guidant unit to end its operations

INDIANAPOLIS - A subsidiary of medical device manufacturer Guidant Corp. is ending production of an aortic abdominal graft, only days after the unit pleaded guilty to criminal charges for covering up problems involving the product that may have led to 12 deaths.

Endovascular Technologies Inc., a subsidiary of Indianapolis-based Guidant, pleaded guilt to 10 felonies last week involving its Ancure "stent-graft" device, including shipping misbranded products and making false statements to government regulators.

Endovascular faces $92.4 million in federal penalties for actions surrounding the device.

Guidant officials said yesterday that Menlo Park-based Endovascular would continue to ship the device and provide support to patients until October. The company then will cease ongoing operations other than continuing to provide long-term services for patients who have received the device.

Endovascular has 285 managers, factory workers, salespeople and administrative staff in Menlo Park, and its sales represented less than 2 percent of Guidant's total sales last year of $3.2 billion. The Ancure has been assembled there and in Puerto Rico.

Guidant officials said they expected the total after-tax loss from the discontinued operations, including settlement charges and operating losses to be $100 million to $125 million for this year. The majority of affected employees will be offered other positions within Guidant, the company said.

Ronald Dollens, Guidant's president and chief executive, said the company regrets the reporting errors by Endovascular, which Guidant bought in 1997.

"Guidant has learned a painful lesson about integrating acquired businesses," Dollens said. "People who should have known better acted improperly and displayed poor judgment. Once that improper conduct was recognized, Guidant properly overhauled the business."

In afternoon trading on the New York Stock exchange, Guidant shares were up 33 cents, to $40.28.

"Guidant's financial outlook remains strong," Dollens said. "Potential liability from civil litigation is manageable. Our relationship with the FDA is sound, the corporation is enjoying healthy growth."

The problems with the device, used during operations to treat abdominal aortic aneurysms, were resolved after the device was voluntarily recalled in March 2001 and before it was reintroduced five months later, the company said.

The criminal complaint against Endovascular alleged the company misled federal regulators and reported only 172 malfunctions. Prosecutors said Endovascular had records of 2, 628 malfunctions, including reports that the incidents may have led to 12 deaths and 57 surgeries to remove the device.