A Medical Device Daily

Biomet (Warsaw, Indiana) late last week disclosed that it is part of an informal probe by the U.S.Securities and Exchange Commission into companies in the medical device industry, focused on possible violations of the Foreign Corrupt Practices Act.

The disclosure was made with the company’s release of preliminary results for its August quarter.

Biomet said it received notification from the SEC on Sept. 25, the same day that control of the company was taken over in a $11.4 billion deal by Blackstone Group; Goldman Sachs Group’s private equity arm, Kohlberg Kravis Roberts & Co; and TPG Capital (Medical Device Daily, Sept. 26, 2007).

The company said that it intends to cooperate with the SEC investigation.

Company officials told media outlets that the company was surprised by the investigation and wasn’t aware of any connection with the recent large settlements paid out by it and other large orthopedics firms.

Biomet, Zimmer Holdings (Warsaw), DePuy Orthopaedics (Raynham, Massachusetts) and Smith & Nephew (London) paid a total of $311 million to settle with federal prosecutors in New Jersey, who alleged the companies struck consulting deals with surgeons in a bid to sway decisions about which hip and knee implants they used in treating patients (MDD, Sept. 28, 2007).

The fines, along with a variety of business compliance agreements, were the result of government investigations over more than two years examining payments which the government said had influenced the surgeons in their choices of hip and knee implants.

A fifth company, Stryker (Kalamazoo, Michigan) was the first to cooperate with the investigators and was not required to pay a fine. However, it did enter a non-prosecution agreement and agreed to certain practiced reforms.

The Foreign Corrupt Practices Act prohibits U.S.-based companies from making payments to foreign officials as kickbacks for business arrangements. Penalties can include criminal and civil penalties as well as the possibility of losing the right to do business with the federal government.

In a research report, Rick Wise of Bear Stearns said that the exact nature of the investigation isn’t yet known but that “it does introduce another risk into the orthopedic group.

Wise said that a “similar” SEC letter has been sent to Zimmer, but that company has made no comments about it.

Wise also noted “that earlier this year J&J announced that foreign subsidiaries of the company may have violated the Federal Corrupt Practices Act and made improper payments related to the sale of medical devices in two small countries.” The company voluntarily disclosed the events to the U.S. government and is cooperating with the ongoing investigation (MDD, Feb. 14, 2007).

Michael Dormer, the then worldwide chairman of the Medical Devices and Diagnostics division, announced his immediate retirement as part of the disclosure (MDD, Feb. 14, 2007).