Guidant Corporation Case Study

The flaw at issue in yesterday's announcement involves a magnetic switch that becomes stuck in the off position. For patients, the flaw poses less of a risk than some defects affecting other Guidant devices, doctors said. However, they said users would have to see physicians so they could disable the problem component.

As proposed partners, Johnson & Johnson and Guidant have provided very different case studies of corporate responses to product problems.

Johnson & Johnson, based in New Brunswick, N.J., withdrew all bottles of its pain reliever, Tylenol, from store shelves in 1982 after reports of product tampering. The company won praise at the time for its quick response.

Guidant's problems began in late May, when it was disclosed that the company, based in Indianapolis, had not told doctors for three years that one type of its defibrillators had repeatedly failed because of an electrical defect. A defibrillator emits an electrical jolt that shocks a chaotically beating heart back into rhythm.

Since then, the device maker has been buffeted by bad publicity because it has been forced to make repeated announcements about other device-related defects. Late last week, under pressure from the Food and Drug Administration, Guidant recalled 50,000 defibrillators, with thousands of them at risk of potentially short-circuiting just when needed to produce a life-saving shock.

"One thing that distinguishes this recall from others is the time gap from when it was discovered and when it was disclosed," said Alexander Arrow, an industry analyst with Lazard. "It points to a corporate response that looks inappropriate, so that it potentially has more staying power on the reputational level."

Yesterday's announcement by Guidant affects several models: the Contak Renewal 3; Contak Renewal 4; Contak Renewal 3 and 4 AVT; and the Renewal RF. The company said it had received four reports of flawed switches among the 40,000 units implanted.

However, the financial impact on Guidant could be substantial, at least in the short term, because the affected models appear to involve many of the company's advanced defibrillators. The use of such devices, which cost about $25,000 each, is growing rapidly in part because Medicare has greatly increased the number of older patients for whom it will pay for such devices. The units are used in patients who are at risk of cardiac arrest and have other heart problems.

Dr. Eric N. Prystowsky, a heart specialist at St. Vincent Hospital in Indianapolis and a Guidant consultant, said company officials alerted him late Thursday about yesterday's announcement and told him they would pull back all affected units that had not been implanted, a number the company put at 6,000. As a result, he said, he would be using other companies' units for the moment.

The company did not say how it planned to fix the problem, when it expected to do so or how it would fix units already implanted in patients. If a significant change must be made in the way units are made, the change could require F.D.A. approval before Guidant could make new units.

Dr. Prystowsky said that until the problem was fixed, Guidant technicians might have to be on hand when patients were prepared for surgery so the technicians could deal with the affected magnetic switch.

Guidant does not break out its sales by model types, but last year, defibrillator sales accounted for nearly 50 percent of its revenue of $3.8 billion. Analysts said they thought the types of models involved in yesterday's alert, which are known as cardiac resynchronization therapy, or C.R.T., devices, made up 40 percent to 50 percent of its defibrillator sales.

C.R.T. devices are the fastest-growing part of the defibrillator market, which is expanding 20 percent annually. Guidant's heart device division was a major attraction to Johnson & Johnson, which wants to expand its presence in the device business.

Joanne Wuensch, an industry analyst with Harris Nesbitt, said she believed that the financial effect of the latest alert on Guidant would be relatively short-lived. But she said she thought Johnson & Johnson would soon cut the price it was offering for Guidant. As it stands, that deal is valued at $76 a share to Guidant holders.

"We estimate it is going to be about $68 a share, or about 10 percent down," she said. Mr. Arrow, the Lazard analyst, also downgraded Guidant on Monday.

Johnson & Johnson did not respond to a request to interview its chief executive, William C. Weldon. Guidant declined a request to interview its chief executive, Ronald W. Dollens. Guidant also would not say what percentage of its defibrillator sales were affected by the faulty switch.

While Guidant's shares sank yesterday, shares of its two rivals, Medtronic and St. Jude Medical, both rose, apparently in anticipation that their market share would increase, at least in the short term. A Guidant spokeswoman said the company was "ramping up" manufacture of two other C.R.T. models, the Contak Renewal 1 and Contak Renewal 2.

Dr. Prystowsky said he thought the company had moved quickly yesterday to halt implants of any further devices with the flawed switch, given the controversy after it did not alert doctors to an electrical flaw in one model. In that case, a college student who had been implanted with one of the flawed units died in March, three years after Guidant discovered and fixed the problem.

"They said we have heard everyone loud and clear," he said. "We are willing to take the economic hit."

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After heart specialists surgically implant a pacemaker or defibrillator in a patient, they need to monitor and adjust the settings using a medical unit from Guidant Corporation called a Zoom® programmer. Similar in design to a large laptop computer, the programmer features a tilt-up screen that physicians can use to view the results. The angle of the screen is

infinitely adjustable for proper viewing like most laptop computers. However, when Guidant recently incorporated a touch-screen design for more operator convenience, they found that the existing constant-torque hinges used to position the screen failed to keep the screen stable when physicians pressed it during data entry. The screen either bounced too much or was forced down, changing the viewing angle.

To help solve the problem, Guidant turned to Reell Precision Manufacturing in St. Paul, Minnesota, a leading manufacturer of standard and custom constant-torque hinges. Guidant asked Reell to help design a custom constant-torque hinge that would eliminate the backlash and unwanted movement of the Zoom programmer’s touch-screen, yet be infinitely adjustable for proper viewing.

“Previous hinge designs that used spring technology to provide constant torque allowed too much movement in this touch-screen application,” says John Kossett, a Reell design engineer. “Our newer patented friction clip technology eliminated the spring-back problem. In addition, what Guidant needed was a more robust hinge with more torque than was currently available in our standard product line.”

Reell’s patented constant-torque hinge technology features numerous precision C-shaped clips that grip the hinge pin and impart friction as the hinge is opened or closed. The amount of torque or holding force in a given size of a Reell hinge is determined during manufacturing by varying the number of clips that are placed on the shaft. Precise machining of the hinge pin, combined with hardened steel clips produces a constant-torque hinge with exceptionally smooth performance and long life.

To develop the larger hinge for Guidant, Reell engineers started with an existing 7mm diameter laptop hinge that was the right basic design but had inadequate torque for this application. By scaling up the design to 9mm, they created a hinge that had the necessary torque and was structurally stronger. “We also worked together to redesign the sheet metal attachment between the hinge and the screen. By improving the structural integrity of this attachment point, we were able to eliminate virtually all the movement in the screen when it was pressed during data input,” says Kossett.

Making the touch-screen rigid is one thing, but making it also easily adjustable is another. According to Kossett, the ideal constant-torque hinge will have a static torque that is nearly equal to its dynamic torque. This allows the hinge to hold the screen securely in place, yet permits adjustment without having to overcome a large initial resistance. This salient feature of Reell constant-torque hinges is a function of the quality materials, part finish, clip design and the controlled manufacturing techniques employed, says Kossett.

Guidant met face-to-face several times with Reell engineers in developing a final product with more consistent torque and less backlash than hinges tried previously. "This collaborative method of doing business is innovative," says Eric Ware of Guidant Corporation. "To help lower unit costs, one of our objectives was to design a custom hinge that Reell could also market to other companies. So we shared development costs and the 9mm hinge has now become a standard offering for Reell.”

Of the final results, Ware says: “The new constant-torque hinge has enabled the redesign of our existing product with a new touch-screen feature -- which has been a major hit. What I like best is that the product has a simple, elegant design."

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