March 30 (Bloomberg) -- Medtronic Inc. said it agreed to pay $85 million to settle claims that executives misled shareholders about the profitability of the company’s Infuse bone-growth device.
Medtronic, the world’s biggest maker of heart-rhythm devices, said today it will resolve securities-fraud lawsuits alleging the company artificially inflated the value of its shares by promoting the Infuse system for unapproved uses and then basing rosy revenue projections on the illegal sales.
“Under the settlement, Medtronic explicitly denies that it made any misrepresentations or omissions or that it otherwise engaged in any wrongdoing,” company officials said in an e-mailed statement.
Officials of Minneapolis-based Medtronic said last month they are planning for a U.S. tax on medical products, enacted as part of a 2010 health-care law, that may cost the company as much as $175 million annually starting next year.
Medtronic also reported Feb. 21 that fiscal third-quarter profit rose 1.2 percent to $935 million, or 88 cents a share, from $924 million, or 86 cents. Profit excluding one-time items was 84 cents a share, matching the average of 26 analyst estimates compiled by Bloomberg.
Company officials said today they expect to record the $85 million settlement of the investors’ suits as a one-time charge in its fiscal fourth quarter, which ends April 27.
Disgruntled Medtronic shareholders, including pension funds such as the Minneapolis Firefighters Relief Association, sued in 2008 alleging that company officials initiated an illegal marketing campaign for Infuse. Doctors most often use Infuse in medical procedures to fuse spinal vertebrae to relieve back pain.
Company officials pushed salespeople to market the product for illnesses the U.S. Food and Drug Administration hadn’t yet approved it for, shareholders said in the suits.
While doctors may prescribe drugs for uses not approved as safe and effective by government regulators, companies are forbidden to market them for so-called off-label uses.
Future growth projections were “driven by misconduct that invited, and ultimately brought about, the scrutiny of federal regulators and an abrupt decline in sales,” investors’ lawyers said in court filings.
Medtronic officials said in November 2008 that U.S. Justice Department officials had started a probe of the Infuse marketing campaign.
“The settlement is a good one because the amount is significant and it was the right way to go in this case,” Karl Cambone, one of the lawyers representing Medtronic investors in the case, said in a telephone interview today.
The case is Minneapolis Firefighters Relief Association v. Medtronic, 08-06324, U.S. District Court, District of Minnesota (Minneapolis).