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Federal Charges Hit Guidant

One of the company's units pleads guilty to 10 felony counts related to the Ancure device.

Updated from 3:30 p.m. EDT



said one of the company's divisions reached an agreement with the Justice Department to plead guilty to 10 felony counts. The news, which broke shortly before a trading halt could be imposed, sent the company's shares reeling.

Among the counts are nine for shipping misbranded products. The other count centers on a former employee who made false statements to the government. The felony counts were connected with a device Guidant's EndoVascular Technologies unit makes for aortic aneurysms called the Ancure.

Under the terms of the agreement, EndoVascular agreed to pay $43.4 million and an additional $49 million civil settlement to the government. The expenses associated with the settlement were recorded in prior periods, Guidant said.

Shares of Guidant plummeted in trading both on and off the

New York Stock Exchange

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before a news halt was imposed after midday. The stock reopened lower and ended the session at $40.56, down $2.67, or 6.2%. While halted, the stock had been indicated as low as $37.

Recalled and Reintroduced

EndoVascular voluntarily recalled the Ancure in March 2001, and Guidant said it implemented "thorough corrective actions to address certain regulatory compliance deficiencies." The product was reintroduced following Food and Drug Administration approval in August 2001.

Guidant said the issues outlined in the plea agreement pertain only to the delivery system of the Ancure device prior to the recall, and don't relate to the Ancure graft once it has been implanted. The company said that no patients with the Ancure implant are at risk. More than 18,000 people worldwide have received the Ancure system.

Aortic aneurysms are potentially life-threatening conditions commonly associated with people with heart disease. The Ancure is inserted into the patient's body during a surgical procedure.

'Thousands' of Cases

A statement from the Justice Department said that Guidant covered up thousands of incidents in which the Ancure malfunctioned. Among those cases were 12 deaths, the statement said. The guilty plea represents the largest amount ever paid by a defendant for failing to report malfunctions of a medical device to the FDA, the Justice Department said.

Under federal law, a company is required to report to the FDA any incident in which its medical device may have caused or contributed to a death or serious injury. Companies also have to inform the agency if a device malfunctions in a way that would lead to severe injury or death if the problem recurred.

In the case of Guidant, the company was aware of every malfunction because, as a condition of FDA approval, it had a sales representative present in the operating room during each surgery, according to the Justice Department. The reports of those failures were then distributed to company officials, the government said.

The Ancure was approved for commercial distribution in the U.S. in September 1999 before being recalled 19 months later. During that time, EndoVascular filed a total of 172 medical device reports with the FDA concerning problems with the Ancure.

In pleading guilty, the company admitted that there were an additional 2,628 reports that it had failed to file, out of a total of 7,632 devices that were sold, the Justice Department said. Among the unreported incidents were 12 deaths and 57 emergency cases in which a physician had to perform a more invasive procedure.