Medtronic settlement: 'The price of doing business'

Medtronic has agreed to pay nearly $270 million to settle thousands of lawsuits stemming from a defect in wires that connect some of the company's implantable devices to patients' hearts.

The wires are now in about 170,000 patients worldwide. They are supposed to send an electric shock from an implantable defibrillator to the heart when it is not beating properly.

But Medtronic took the wires off the market in October 2007 because of a problem that made some wires break, and those defective wires may have played a role in the deaths of at least 13 people.

"Medtronic is pleased that we are able to negotiate terms that were mutually agreeable to all of the parties," said company spokesman Chris Garland.

Medtronic did not admit any liability with the settlement.

The wires were on Medtronic's Sprint Fidelis defibrillators. Some patients required surgery to remove the wires. But Medtronic and heart experts have said most patients should not have them removed, as the risks from the surgery are greater than the risks of leaving the wires in place.

"We're very happy that we were able to reach a resolution, and that we're able to offer relief to people who have been injured," said attorney Charles Zimmerman, who represents the plaintiffs.

"Both sides had some risk, and that's often the best time to resolve litigation that's contested."

Zimmerman expects thousands of people will get payments out of the settlement. He wouldn't be any more specific, but he said settlements won't go to everyone who has -- or had -- the wires inside them.

"You have to have suffered an injury to be able to receive compensation, and you have to have either registered for the settlement or have filed a lawsuit," he said.

Zimmerman says a committee and ultimately a judge will determine how much compensation each person gets.

"There will be appropriate compensation for those injuries," said Zimmerman. "We are comfortable that the fund will be sufficient to pay the appropriate compensation."

Attorneys' fees, which will come out of the settlement money, also have not yet been determined.

Federal and state judges had dismissed these lawsuits, saying Medtronic was shielded from the suits because the Food and Drug Administration had approved the wires before they went to market.

Those dismissals, however, were being appealed. Zimmerman says uncertainty about how the appeals could go probably helped produce a settlement.

"From the plaintiffs' side, we were hopeful that the court would reverse the dismissals. Medtronic was hopeful that the court would affirm the dismissal," he said. "But both sides had some risk, and that's often the best time to resolve litigation that's contested."

Even though the settlement is more than $250 million, industry analysts say the settlement won't have much a financial impact on Medtronic.

"The settlement ... I don't think is a surprise to Wall Street," said Aaron Vaughn, an analyst with Edward Jones. "I think the amount is something certainly that the company can afford to pay, given the strength of their balance sheet and the cash that they have on hand."

In its most recent fiscal year, Medtronic earned $3 billion.

Debbie Wang, a medical device industry analyst at Morningstar, says the Medtronic settlement followed a typical industry pattern -- pull a problem device off the market, replace it, and settle related lawsuits a few years later -- all without greatly affecting the company's profits or value.

"I almost think of it, quite honestly, as a price of doing business in the medical device industry. And it's a way of sort of paying for your mistake," said Wang.

Medtronic shares closed Thursday at $33.27, down about 1 percent.

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