The U.S. Department of Justice filed two misdemeanor criminal charges Thursday against Guidant, the Arden-Hills based subsidiary of Boston Scientific.
The charges concern Guidant's failure to report problems with some of its implantable defibrillators to federal regulators.
The DOJ filed the charges after a four-year investigation into Guidant's handling of short-circuiting of three models of defibrillators. The implantable devices deliver lifesaving shocks to irregularly beating hearts.
The DOJ says Guidant became aware in 2002 that one of its products was failing to deliver the crucial shock. Though the medical device maker then altered the device's design to address the issue, it did not inform the FDA that the changes had to do with safety or effectiveness.
In 2004, Guidant also failed to report short-circuiting problems with other defibrillators in a proper fashion. The problems were associated with multiple deaths.
The safety issues led to device recalls in 2005. The troubles marked the first chapter in a long-running sequence of high-profile problems that have battered the medical device industry.
Medical technology analyst Tim Nelson follows Boston Scientific for FAF Advisors. Nelson says while the charges are not surprising, they are significant.
"It is a warning ... to the entire industry that compliance with FDA reporting requirements is pretty important."
"There haven't been very many government charges against corporations on FDA violations that result in criminal violations," said Nelson. "So it is a warning signal and flag to the entire industry that compliance with FDA reporting requirements is pretty important."
The DOJ has been negotiating with Guidant for months. Last November, Boston Scientific announced it would pay $296 million on behalf of Guidant, and that Guidant would plead guilty to two misdemeanors. That set the table for the formal charges filed Thursday.
"It's kind of like the final chapter in a long-running issue on the Guidant recall in 2005," said Nelson. "This is sort of formalization of an agreement reached last November."
But whether these are formalities depends on whom you ask.
"In this case, there will be hearings that follow, a plea hearing, and then a sentencing hearing," said Robert Lewis, assistant U.S. attorney and one of the prosecutors in the case against Guidant. "Those are formal significant steps, and those are the actual involvement of the court. So we would not characterize those as formalities at all."
Lewis declined to comment on why the case merited criminal charges. He says in cases like this, no jail time is at stake.
"In a corporate case of this type, when it is a corporation that is being convicted of a crime, there are no other penalties, there's no jail time," said Lewis. "In this case, there will be a penalty that's partly a criminal fine and partly a criminal forfeiture."
Lewis says those penalties are monetary in this case.
He says typically, a plea is entered within a few weeks of the charges. He expects sentencing by sometime this summer.
A Boston Scientific spokesman could not be reached for comment. But the DOW Jones news wires quotes a company statement that said, "We continue to believe that Guidant and its employees acted in good faith and with the intention of complying with applicable laws and regulations."