Class-action lawsuit over Infuse could put Medtronic-Covidien deal at risk

A federal judge in Minneapolis has pushed forward a lawsuit involving Medtronic Inc.'s problematic Infuse bone growth product that could complicate the company's controversial $43 billion acquisition of Covidien.

U.S. District Judge John Tunheim will let lawyers for Medtronic investors explore an alleged coverup of Infuse's bad side effects by Medtronic officials and doctors the company paid to do research. Off-label use of Infuse has allegedly injured thousands of patients.

Tunheim also said the plaintiffs in the investors' class action lawsuit could pursue a claim that former Medtronic CEO William Hawkins purposely made misstatements to stock analysts to hide the fact that the Food and Drug Administration had refused to approve the next iteration of Infuse, a product called Amplify.

Experts say the ability to examine Hawkins' alleged misstatements, along with alleged manipulation of scientific research to cover up Infuse problems, could produce damaging publicity as Medtronic tries to consummate an already contentious attempt to buy the Irish devicemaker Covidien. If the investors' case gets to a jury that believes company officials knew of Infuse's problem but tried to hide them, a legal shield Medtronic has used to avoid thousands of personal injury claims might also be pierced.

"A deep-down examination of their behavior as a company puts some real pressure on them to settle [the suit]," said David Prince, a product liability specialist at William Mitchell College of Law in St. Paul.

Medtronic, which had sought to have the charges dismissed, said it is innocent.

"It is important to note this was an early procedural decision and does not determine the merits of the remaining claims," the company said in an e-mail statement to the Star Trib­une. "We strongly deny there was any violation of the securities laws and look forward to addressing these claims on the merits."

The class-action suit claims that Medtronic's meddling in the research artificially propped up Medtronic share prices, while revelations of that same meddling eventually drove share prices down, costing investors tens of millions of dollars.

Tunheim turned down a Medtronic motion to dismiss claims that a company "scheme to downplay risks in the clinical studies led to increased usage of Infuse and 'explosive' sales and revenue growth." At its height, Infuse generated almost a $1 billion a year in sales.

The judge also referenced claims that Medtronic produced "multiple … investor-aimed publications" that relied on "reports on the efficacy and safety of Infuse," when it allegedly knew that the product was neither safe nor effective.

"Taken together," Tunheim ruled, "these pleadings adequately allege that investors would have relied on the strength of the early Infuse studies in choosing to invest in Medtronic."

If a jury decides that Medtronic officials conspired to mislead investors about Infuse's problems, the fraud could allow more people injured by Infuse to sue the company, Prince believes. In May, a month before it announced plans to acquire Covidien, Medtronic settled 950 Infuse suits for $22 million and announced plans to hold $120 million to $140 million to settle 3,800 outstanding suits.

If Medtronic settles the current shareholders' suit without admitting wrongdoing, experts say, chances of injured Infuse patients proving fraud diminish.

Pre-emption remains a source of bitter frustration to patients who are not allowed to question Medtronic about its role in their injuries, said Minneapolis lawyer Stuart Goldenberg, who represents hundreds of people allegedly hurt by Infuse.

"Ironically, while the injured victims fight to even have the right to bring a lawsuit," Goldenberg said, "Medtronic has paid prior settlements regarding the Infuse product to other shareholders, whistleblowers, the federal government. And now, even Humana [health insurance company] has filed a lawsuit to get back its medical costs."

Shareholders who sued Medtronic over Infuse in 2008 received an $85 million settlement in 2012. Medtronic admitted no wrongdoing.

With the current shareholder suit moving forward "in the shadow of the Covidien deal, Medtronic is ripe for a generous settlement amount," said Jeffrey Mann, a mergers and acquisitions expert at George Washington University law school. "There is a tremendous incentive to reach a settlement without discovery."

All of these reviews showed that Infuse was no more reliable than other forms of treatment, despite research that claimed otherwise by doctors who had been paid millions by Medtronic. In addition, the Senate found that some studies had been selectively edited — at times by Medtronic's marketing department — to downplay problems.

"You're really building your case on the literature," said Fordham law professor George Conk, who wrote legal briefs in a high-profile product liability case involving the drug Vioxx.

Conk said the discovery of facts that Tunheim has allowed in the new shareholders' suit could put Medtronic "at very substantial risk."

What, if any, impact the case has on Medtronic's planned acquisition of Covidien is unclear. The cost of current litigation might already be factored into the cost of the deal, experts said.

But fresh, widespread publicity about a coverup involving Infuse could affect share value. So could new revelations of questionable behavior.

"Discovery is a wide-ranging process," he said. "It could lead to Medtronic's behavior with other products that could lead to a pattern of behavior.

"Discovery could reveal more bad news. That could further depress Medtronic share prices, which could make the deal less valuable for Covidien and Medtronic shareholders."