Boston Scientific Corporation (BSX) recently faced legal action when law firm Izard Nobel LLP filed a case against BSX in the United States District Court of Massachusetts on behalf of purchasers of Boston Scientific’s common stock between April 20, 2009 and March 12, 2010, known as the ‘Class Period.’
There were four charges against Boston Scientific. First, BSX had materially inflated the sales and demand for its Cardiac Rhythm Management (CRM) products by paying illegal and improper incentives to health care professionals. Second, Boston Scientific had derived a portion of its CRM revenues from products manufactured without the U.S. Food and Drug Administration (FDA) approval.
Third, BSX failed to disclose reasons for lower demand for its CRM products which might be due to the curtailment of illegal payments. Lastly, Boston Scientific failed to disclose that there were defects in the headers of certain of its implantable cardiac defibrillator (ICD) products. The company issued misleading statements regarding sales of its CRM and particularly ICD products.
On March 15, 2010, Boston Scientific had recalled all of its ICDs and cardiac resynchronization therapy defibrillators (CRT-D) and temporarily suspended sales of these products. The company had admitted that the recall was prompted by a change in the manufacturing process for these devices, which did not have FDA approval.
We think that the lawsuit will impact BSX’s goodwill and could result in higher legal expenses which will hurt its bottom-line. Boston Scientific manufactures medical devices and products used in a broad range of interventional medical specialties.
Boston Scientific faces significant competition across its product portfolio and its primary competitors include Johnson & Johnson (JNJ), Medtronic Inc. (MDT), Abbott Laboratories (ABT) and St. Jude Medical Inc. (STJ).
Presently, we are Neutral on Boston Scientific Corp.
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