Medtronic Hit with Qui Tam Suit


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FEBRUARY 24, 2010

Lawsuit Hits Marketing by Medtronic


A recently unsealed fraud lawsuit accuses medical-device maker Medtronic Inc. of “unlawfully and unabashedly” marketing bile-duct stents used to prop open arteries throughout patients’ bodies.

Separately, Medtronic said its fiscal third-quarter earnings rose 19% amid a 10% revenue increase, led by the company’s cardiovascular business. The company also said it now expects earnings of $3.20 to $3.22 a share for the fiscal year running through late April, which represents a three-cent-a-share boost to the low end of guidance.

Medtronic has experienced recent sales strength, especially from its heart-related business, which makes pacemakers. In January, the company said it would spend as much as $500 million to buy private vascular-device company Invatec and two affiliates to help expand its heart-related lineup. It also said it had received the U.S. Food and Drug Administration’s first approval for a heart valve that can be installed by a catheter rather than major surgery.

The suit, filed in U.S. District Court in Boston and unsealed Friday, is brought by two former Medtronic employees under the federal false-claims act. In such so-called whistleblower cases, plaintiffs seek to recover for the government damages owed to the federal Medicare, Medicaid or other insurance programs. Plaintiffs can receive a percentage of any penalties paid to the government.

Medtronic said it “is aware of the complaint and intends to vigorously dispute its allegations, including filing a motion to dismiss at the outset of the case. We don’t comment on any specific allegations.”

As a result of Medtronic marketing tactics, according to the lawsuit, at least 90% of the use of the “biliary stents” has been “off-label,” for other uses such as in arteries in the neck, legs and elsewhere. Selling stents for these peripheral arteries has become a $900 million annual business, with most companies in the industry now having done or currently doing studies of stents in those arteries.

The lawsuit appears to parallel a federal investigation by the Department of Justice in Boston into marketing of the biliary stents. Various prosecutorial and congressional offices have been investigating the medical-device industry’s marketing practices, and the Justice Department’s biliary-stent investigation appears to be part of that overall inquiry.

The plaintiffs in the lawsuit are Enda Dodd, an engineer formerly in Medtronic’s vascular business in Santa Rosa, Calif., and Tricia Nowak, a former sales representative in the same division. Both say they were unlawfully fired as a result of protesting illegal marketing by Minneapolis-based Medtronic. Mr. Dodd worked for Medtronic beginning in 2003, and Ms. Nowak started in 2005.

Biliary stents are approved by the Food and Drug Administration to keep open bile ducts that have narrowed, such as those in patients with pancreatic cancer. Under federal law, companies aren’t allowed to market devices for any other uses, such as placement in neck and leg arteries. Such uses would be considered “off-label,” or not specifically approved by the FDA.

The lawsuit also contends there have been safety ramifications of using the bile-duct stents in arteries. These allegedly ranged from need for additional surgery, to perforated vessels, stroke, heart attack and death, according to the legal complaint.

For the quarter ended Jan. 29, Medtronic posted a profit of $831 million, or 75 cents a share, up from $698 million, or 62 cents a share, a year earlier. Excluding items related to research and development as well as new accounting guidance, earnings rose to 77 cents a share from 71 cents a share. Revenue totaled $3.85 billion, or 6% adjusted for currency fluctuations.

The company said revenue from its cardiac rhythm disease management segment—its biggest by sales—rose 6% amid a 9% increase for implantable cardioverter defibrillators. At the smaller cardiovascular unit, revenue rose 28%. Spinal-segment sales increased 1%.

SOURCE The Wall Street Journal

Read the full article here.



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