Investor confidence in US medical device maker Guidant sank lower this week on news that the firm, and two of its peers, St Jude and Medtronic, have been subpoenaed by federal prosecutors seeking a variety of information about the companies’ practices regarding their pacemakers, implanted cardiac defibrillators and other associated products.
Although the exact nature of the information requested has not been disclosed, industry observers believe the investigation is likely focused on payments made to doctors by the companies, reports suggest.
In addition, the US Attorney in Minneapolis has specifically requested documents relating to Guidant’s Ventak Prizm 2 and Contak Renewal 1 and 2 implantable heart defibrillator models, predecessor’s of which were pulled from the market earlier this year on safety concerns [[21/06/05e]] [[20/07/05j]].
This could signal a gloomy time ahead for Guidant, which is already under a US Food and Drug Administration criminal investigation into how it dealt with the safety issues surrounding its heart devices, given that it is trying to close its $25.4 billion-dollar acquisition by US health care heavyweight Johnson & Johnson.
Recently, Guidant rebuffed claims made by the New York Times that it did not disclose safety information about its heart devices because of concerns over the merger agreement with Johnson & Johnson, calling this "irresponsible and false." [[21/10/05j]]
But the problems it is encountering may threaten the lucrative agreement and, last week, J&J intimated it was getting cold feet, saying it is considering "the alternatives under [the] merger agreement" with Guidant. The latter's share price has dipped significantly below the $76 per share J&J originally proposed in the wake of the device recalls, and investors are now expecting that the US giant will try to renegotiate the deal or that it will unravel altogether [[20/10/05b]].
Investors will certainly be keeping a close eye on the situation, which could spell real trouble for Guidant if J&J pulls out altogether. Shares in the firm dropped just under 3.5% to close at $62.45 on October 26, after a day of heavy trading following news of the subpoenas late the previous afternoon.