St. Jude Medical has agreed to settle a lawsuit that accused the company of misleading investors about problems with the company’s cardiac devices.
The settlement, reportedly $39.25 million, ends a lawsuit that has dogged St. Jude since 2012. Executives hope that terminating the case will also allow the company to turn the page on the scandal about the wire leads used with its cardiac rhythm management devices.
St. Jude, based in Little Canada, Minn. and listed on the New York Stock Exchange, is one of the largest producers of medical devices in the United States. Cardiac rhythm management (CRM) products, a category that includes defibrillators and pacemakers, were long one of the company’s most lucrative products.
However, beginning in 2010, the company was forced to stop selling some of its products because of concerns over their safety. The Riata line of wire leads for CRM products had an abnormally high rate of “insulation abrasion.” In practice, that meant that some patients did not receive the shock therapy they needed for their hearts, while others received unneeded shocks.
St. Jude initially downplayed the problems and the Food and Drug Administration (FDA) declined to order a recall. A year later, however, the FDA issued a so-called Class 1 recall, indicating the agency’s medical staff believed that the wire leads could cause serious injury or death. The recall decision came after at least five patients with the faulty wire leads died, although St. Jude argued that the leads were not responsible for all the deaths.
The successor to the Riata line of wire leads, the Durata line, was also plagued with problems, although these were somewhat less severe than the ones that led to the Riata recall. For the Durata leads, the FDA tightened supervision of the product and required St. Jude to conduct a costly investigation into problems with the insulation. The FDA also chided the company for problems at a factory that made the product.
The investor lawsuit that St. Jude settled last month related to allegations by investors that St. Jude and several executives – CEO Daniel Starks, executive vice president John Heinmiller and CFO Donald Zurbay – deceived investors by suggesting that Durata leads did not have the same problems that had plagued the Riata line.
Instead, according to the investors who brought the suit, the Durata line of wire leads had the same faulty design that had caused the Riata line to be recalled. While securities laws required St. Jude and its executives to admit this problem, the investor lawsuit alleged that the company instead painted an excessively optimistic picture about the company’s products.
After failing to get the case thrown out, St. Jude and the class action plaintiffs negotiated with retired judge Layn Phillips mediating. Although the negotiations broke down in September 2015, the two sides were able to agree on the $39 million settlement at Phillips’ recommendation. As part of the agreement, St. Jude and its executives did not admit wrongdoing.
Individuals and organizations who owned shares in St. Jude between Feb. 5, 2010 through Nov. 20, 2012 will be eligible for compensation from the settlement.
This isn’t the first time the company has had to settle an investor lawsuit with an eight-figure settlement. In February 2015, St. Jude agreed to a $50 million settlement with investors who said the company had deceived them about earnings in the third quarter of 2009.
St. Jude also settled a suit from individuals who had been treated with the faulty Riata wire leads for $14.3 million. Despite the civil settlements, the U.S. Department of Justice declined to bring criminal charges.
Learn more about Medical Device Lawsuits.