UPDATE 3-Boston Sci confirms problems in 3 ICD models

Thu Jul 22, 2010 12:32pm EDT

* Says models are no longer sold or available for implant

* No injury or death reported due to ICD issues

* Says possibility of patient harm is 1 in one million

* Shares up 2 pct tracking broad market rally (Adds physician comment, updates stock prices)

By Debra Sherman

CHICAGO, July 22 (Reuters) - Boston Scientific Corp (BSX.N) said on Thursday it found problems with three older models of its implantable heart defibrillators that can prevent the devices from performing life-saving functions.

The world's second largest maker of heart devices, which has been struggling with regulatory and product issues for the last several years, confirmed a Reuters report on Wednesday that the company would issue an advisory to doctors on three models of its implantable heart defibrillators, known as ICDs.

In a telephone interview, Boston Scientific Chief Executive Ray Elliott said this action is likely the end of the problems associated with the Contak Renewal 3 & 4 and Vitality HE ICDs manufactured between January 2006 and November 2007.

They are not sold anymore and are not in hospital inventories.

He did not expect the advisory, as such notices to doctors are called, would have a material financial impact on the company.

There are 38,000 of the devices implanted worldwide, but the company did not recommend physicians replace them, saying they should continue routine follow up.

The company found that a magnetic switch on the ICD -- which monitors and corrects dangerously rapid heart beats -- can get stuck, preventing it from delivering potentially life-saving therapy.

NO TICKING TIME BOMB

Dr. Laurence Epstein, chief of the Cardiac Arrhythmia Service at Brigham and Women's Hospital in Boston, said the risk of having a problem related to this issue is smaller than the risk of doing surgery to replace the device.

"This is one of those cases where (the company is) reporting it because of the need to be transparent, but the chances of anything happening is so small that as a physician, I'm not going to do anything about it," he said. "I don't want people to panic. There's no ticking time bomb."

Goldman Sachs analyst David Roman estimated that 15 percent to 20 percent of the devices would end up being removed at a cost to Boston Scientific.

"This would clip expected replacement revenue in 2011-2013, which we estimate would reduce projected revenue in each of these years by $40 million to $50 million, or 1 to 2 cents (per share) annually," he wrote in a research note.

The advisory is unlikely to have a direct impact on future sales of initial ICD implants given the continued conversion to newer models, he said.

"The bigger issue, in our view, will be to what extent this recall has a negative reputational impact on Boston Scientific and slows the company's efforts to recoup market share," Roman said in the note. "Both St. Jude Medical (STJ.N) and Medtronic (MDT.N) would be beneficiaries of any incremental share loss."

Boston Scientific shares rose 1.8 percent in early afternoon trade, amid a broad rally for stocks. Medtronic gained 2.5 percent and St. Jude, whose sales got a boost during a Boston Scientific suspension of ICD sales in March, gained 3.1 percent. [ID:nN21169950]

NO INJURIES OR DEATHS TIED TO ADVISORY

The defibrillators covered by the Boston Scientific advisory contain a switch designed to respond to a magnet.

In emergency situations or during a medical procedure, physicians may apply a magnet to the skin surface just above the implanted device, which will temporarily prevent delivery of undesired defibrillator therapy. When the magnet is removed, defibrillator therapy will once again be available if needed, the company said in a statement.

In rare instances, application of a magnet may cause this switch to become stuck in a closed position and prevent delivery of programmed defibrillator therapy.

The company noted the possibility of patient harm is less than one in 1 million devices and that no deaths or injuries have been reported due to the issues.

It said the device will emit an audible beeping tone if a problem occurs and in that case, the patient should go to a hospital emergency room.

The advisory comes just two days after the company posted better-than-expected second-quarter results that reflected a rebound in its ICD market share after a one-month halt on shipments of the devices. [ID:nN19119376] (Reporting by Debra Sherman; Editing by Michele Gershberg, Derek Caney and Tim Dobbyn)

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