Opinion ID: 223134
Heading Depth: 2
Heading Rank: 3

Heading: The Taxus System

Text: During this time period, BSC was also working to have Taxus approved for sale in the United States, after having distributed it outside the United States since February 2003. It established a Taxus PMA Council, which oversaw the filing of five separate modules to the FDA between February and June 2003 and continued to meet throughout the summer to monitor the PMA progress and amendments. On October 7, 2003, the Taxus PMA Council decided that no additional manufacturing changes to the Taxus PMA would be submitted after October 31 unless they were considered critical and approved by the Council, as these changes could jeopardize the FDA's review of the Taxus PMA. The Taxus Council was aware that a separate team of engineers was also working on a laser shift for the Express2 catheter, but did not consider the laser shift to be critical. Paul Weiss testified that the evidence at that time was we had corrected the issue and that the laser shift was merely seen as a preventive action to make the product more robust to focal necking. On November 20, 2003, the first day of the Class Period, a company press release announced that the FDA's circulatory devices panel would recommend that Taxus be approved for sale in the United States. BSC ramped up Taxus production in anticipation for the U.S. launch. It is important to note that the units being manufactured for the U.S. launch incorporated the October 2003 distal outer elongation specification, as well as a new manufacturing process known as cone puffing, which had not been used on the units produced for sale outside the United States. Cone puffing involves inflating one cone of the balloon so that it goes over one end of the stent. This technique was implemented to better secure the stent's placement on the device, preventing the stent from becoming dislodged during implantation. There is no evidence that anyone at this point suspected or had reason to suspect that cone puffing could contribute to focal necking. In the following months, research on validating the laser shift continued. A December 24, 2003 memo from Kevin Griffin reported that although the team had learned a lot about what affects focal necking, there is still uncertainty due to test method repeatability, other known contributors (like heat shrink) that are not well understood yet, and the underlying polymer science is still being investigated. He stated that on an aggressive research time frame, validation could be completed by February 20, 2004. On March 4, 2004, the FDA approved Taxus for sale in the United States, and within the first couple of weeks following the U.S. launch, Boston Scientific received about a dozen no-deflate complaints on Taxus (but not Express2) units manufactured in Galway and in Maple Grove. This included multiple complaints for two Taxus manufacturing lots. BSC initiated a Worldwide Focal Necking Operations Team to investigate the failures and determine whether any lots had a higher propensity to focally neck. While the team was ultimately unable to identify any such lots, the co-chair of this team issued a memo on March 23 suggesting that BSC add a criterion for the minimum outer diameter (minOD) of the distal outer at the location of the laser weld to eliminate the subjective nature of prior visual inspections, and add an in-process inspection to measure the minOD to ensure that it met the criterion. The memo also noted that based on simulations with surgeons, it appeared that surgeons were not exerting the degree of tensile force on the devices that would be necessary to cause the necking. It concluded: We don't know where in our processing the tensile forces are occurring to cause the focal neck.... The loading of the balloon protector after folding and after cone puffing has been highly suspected, but we have not been able to draw [a] direct correlation to focal necking. Two days later, on March 25, BSC received notice that one hospital in which a no-deflate had required surgical removal of the stent decided to cease using Taxus at all of its facilities until it had determined whether this was an isolated incident or a product defect. At the end of March, the design, testing, and validation work on the laser shift for both Express2 and Taxus was completed. On April 2, 2004, BSC submitted a Special PMA Supplement to the FDA for its Taxus and Express2 systems. BSC requested permission to (1) shift the laser so that it was .8 mm, instead of .4 mm, from the edge of the overlap between the balloon and the distal outer; (2) add a criterion for the minOD of the distal outer at the location of the laser weld to eliminate the subjective nature of prior visual inspections; and (3) add an in-process inspection to measure the minOD to ensure that it met the criterion. As the minOD was determined to be important independent of the laser shift, BSC also added a reticle inspection to measure the minOD, which did not require FDA approval and was implemented on April 28-29. The reticle inspection involved a magnification tool with guidelines to assist in measuring the bond width, because bonds of a certain minimum width were found to be robust against focal necking regardless of the location of the laser. On April 16, 2004, the FDA contacted BSC to schedule a teleconference and to express concern regarding a type of complaint regarding Taxus that BSC had not yet addressed to the FDA in any of its PMA filings. The FDA had received a number of reports in which the balloon deflated but was difficult to remove, in some cases because the balloon was stuck to the distal end of the stent. This issue, known as sticky stent, was different from the no-deflate problem and was caused by the fact that the Taxus stent, unlike the Express2 stent, was coated with a polymer containing a drug that could make the balloon feel stuck to the stent. BSC had became aware of this issue in 2003, when it launched Taxus outside of the United States and received many complaints about it. During the months following the launch outside the United States, BSC found that the complaints about this issue subsided as physicians became familiar with the sticky feel of the polymer-coated stent and learned, through BSC training and experience, how to work with it. During BSC's first quarter analyst conference call on April 20, 2004, Paul LaViolette, Senior Vice President at BSC, was asked about the sticky stent issue. An analyst with Bank of America Securities asked if LaViolette had any thoughts on why we are hearing this occur in the U.S., while over the last 12 months we didn't hear much about this occurring in Europe. LaViolette replied that BSC had received similar complaints internationally when Taxus launched in 2003, but that once physicians became accustomed to using Taxus, essentially all complaint activity subsided. He said that if you look at international utilization today, and if you look at complaints for any kind of removal difficulty, there are virtually no ongoing complaints, and that this confirms for us what we understand about this particular issue, which is that there are some things to get used to. He also stated that were no discussions related to any kind of field action. On April 24, the Boston Globe reported that BSC had received 27 reports of difficulty implanting Taxus stents. The article differentiated between the sticky stent and no-deflate problems, reporting: A Boston Scientific spokesman said that in most of the reported cases the balloons ... seemed to stick to the coating of the stent, creating a potential blockage. In about six of the cases the balloon wouldn't deflate, or would only deflate slowly. It also reported: Boston Scientific spokesman Paul Donovan said the number of problem cases was minor relative to the 84,000 Taxus stents implanted in American patients since the FDA approved the device March 4. He said a few doctors in Europe reported similar problems when Taxus was initially approved for use there last year, but the complaints ended as doctors became more comfortable with the stents. On April 26, 2004, The Wall Street Journal also reported on these 27 reports of difficulties with Taxus: Boston Scientific said it has received 27 reports of difficulties removing or deflating the balloon used in the angioplasty. But it knows of no deaths or complications due to the issue. It adds that it believes the problem will disappear once physicians gain experience using the Taxus. This sort of thing does tend to happen as physicians gain experience with the device, said company Senior Vice President Paul LaViolette. The article also reported that [c]opies of 21 of these reports reviewed by The Wall Street Journal showed that most of the complaints appeared to be minor annoyances, requiring the doctor to fiddle a bit to remove or deflate the balloon. On April 27, 2004, Goldman Sachs released a report reiterating its buy rating for BSC, explaining that it had conducted a review of the most recently available adverse event reports (MDR's) for the Taxus stent in the FDA database and conclude[d] that the nature of the adverse events is within the scope of what can be expected in the early stages of a new interventional product launch. It reported that the current rate of adverse events on a worldwide basis is extremely rare at 0.01% or 11.8 per 100,000 cases and explained that although there is a tendency for under-reporting of events ... we believe that the event rate is so low that even with under-reporting there is no significant issue. The report stated that Goldman Sachs had been in extensive conversations with BSC management, and that management was consistent in its stance that the performance reports are far and few between, and not unexpected in the early stages of a broad U.S. launch. In the meantime, progress continued on the laser weld shift, and on May 5, the FDA approved the Special PMA Supplement for Taxus and Express2 with an orderwhich was publicly available on its website-stating that BSC had approval to implement 1) the addition of an additional in-process inspection, 2) modification of a current in-process inspection, and 3) modification of a manufacturing process to address complaints related to failure of the delivery system balloon to properly deflate following stent deployment. BSC began to implement these changes immediately. The day that the FDA approved these changes, they were reported in a Merrill Lynch analyst report stating that BSC had a manufacturing fix to address the issue of `no deflates' submitted to the FDA to further reduce dependence on operator technique. Two days later, the Boston Globe ran a story that covered both this manufacturing solution to the no-deflate problem, as well as the sticky stent issue. As to the no-deflate problem, the article stated: [T]o prevent the problem of balloons failing to deflate, Boston Scientific is making a small change in the laser-bonding process it uses to join the balloon and catheter before the stent is packaged around them, said spokesman Paul Donovan. The change will not affect the company's earnings and won't lead to a recall of any of the thousands of Taxus packages that have been shipped but not implanted, he said. As the article makes clear, Donovan differentiated between the no-deflate and sticky stent issues, explaining that the manufacturing change is meant to address the problem of balloons failing to deflate, while the company has no plans for manufacturing changes to address the other problem. The article reported that the company believes the withdrawal problems are probably because of doctors' unfamiliarity with the new system. On May 25, 2004, BSC learned that a patient had died due to complications from no-deflate. And in early June, BSC received a no-deflate complaint on one Taxus production lot for which there was a report of a previous failure. The remaining inventory for this batch was retrieved from the warehouse and a PIR update was commenced. While the PIR update was ongoing, a June 22 Dow Jones Newswires article about Taxus reported that some doctors had experienced a `stickiness' that makes it somewhat difficult to withdraw auxiliary equipment after the stent is inserted, and that there had been a smattering of reports of patients undergoing emergency surgery to deal with complications that arose during procedures with the stent. The article stated: These issues will work themselves out once physicians get used to the product, the company says, and it recently made a manufacturing change to deal with one problem doctors cited. The article quoted Paul Donovan, spokesman for Boston Scientific, as saying: We had a similar experience in Europe where there was a learning curve early on and some initial problems, and then people got used to the product and the number of complaints subsided and the issue went away. The article then went on to more clearly differentiate between the no-deflate issue and the stickiness issue, stating: Problems doctors have reported with Taxus include trouble getting the balloon to deflate and difficulty withdrawing the balloon catheter. Boston Scientific is making a change in its manufacturing process that will result in the balloons deflating more easily, Donovan said. The article also quoted one doctor as saying that he had not seen any Taxus devices that would not deflate, but that he experienced stickiness 60-70% of the time. It quoted multiple doctors saying that with practice, the stickiness issue was not a problem. The article also reported Donovan as saying that [t]here won't be a recall and describing the number of complaints as tiny. On the evening of June 22, the PIR team investigating the multiple-complaint lot of Taxus issued a PIR reporting three field complaints and four out-of-box failures (where the devices had become focally necked during manufacturing) for this lot. It reported that an examination of all remaining Taxus devices in the warehouse from lots manufactured adjacent to this lot found no problems. The PIR team recommended recalling the one lot. This recommendation was sent to the Field Action Committee, which after conducting its review, decided on June 30 to institute the recall. On June 30, 2004, an email from BSC's Regulatory Affairs Vice President Russell Felkey reported that he had spoken with someone at the FDA who inquired why BSC isn't conducting a field action to remove product remaining in the field that was manufactured prior to our PMA Supplement that included corrective action for no-deflate. Felkey explained that he had told the FDA that the company was prepared to discuss this possibility fully, but that he had not disclose[d] the pending recall since we haven't fully completed the approval process. On July 1, BSC advised the FDA that it would be recalling the Maple Grove lot identified in the June 22 PIR. Later that day, it received a report from Galway that it also had a lot with multiple out-of-box failures. BSC informed the FDA of this, and on July 2, it recalled both lots. During a July 2 conference call with analysts, CEO Jim Tobin explained that the recall affected only two batches out of about 1,200 ... that we've produced so far, emphasizing we've learned a lot from this ... that will help us avoid a repeat as we go forward. When asked if the company was completely positive ... that [the problem was] only in the two lots that were recalledthat there might not be another lot out there that has maybe a couple of stents that had the same problem, he replied: You can't be completely sure until all of the work has been done to investigate every complaint. There will undoubtedly be more complaints that are somewhere in the pipeline, so there are still investigations to go, but those would be single batch, small number kind of situations based on what we think we know today. He explained that the complaints were from lots produced before the introduction of the laser shift and that there had not yet been any complaints from devices manufactured after the manufacturing change, but emphasized that this doesn't mean we won't. Management made clear that there had only been 20,000 of the newer devices shipped, so that if these lots had a problem at the same rate we've been having, you would have expected maybe zero or one, two at the most. We haven't had any. What does that tell you? Nothing, because the sample is too small. When asked how many pre-manufacturing change lots were in circulation, Tobin stated: I don't know the number of lots, but the number of units is probably in the 100,000 rangesomewhere around there. He stated that he did not believe that the limited recall was a tip of the iceberg sort of situation, but it is what it is. Tobin explained: We're looking at those batches for which we have complaints, which is 25 batches, or some number like that, out of 1,223. Of those 25, these two we're not happy with and we're pulling them back. The analysis is not complete, so it is possible that you would find another batch or two, but unlikely, I would say. In discussing the laser shift, Vice President and CFO Larry Best [9] explained that the company had received complaints of no-deflates since it launched Express2, that the company had been working on this for quite a while, and that the manufacturing change was in process before we launched Taxus and would have been submitted whether we got a complaint or not. He later emphasized: This is not a fix that's being made in response to the Taxus launch or the Taxus complaints. [10] Market analysts labeled the July 2 recall a minor event. A July 5 Goldman Sachs report stated: In our opinion, the recall is a minor issue, which should have a negligible impact on the company's market position.... Based on management's comments, we believe that the issue has already been resolved and the recall is a remnant of a prior manufacturing process. It explained: The company indicated that there are only 42 complaints worldwide (out of which 12 could not be replicated) about the balloon deflation issue with Taxus stent system out of the more than 445,000 stents which have been implanted worldwide, which implies an incidence rate of 0.009%. U.S. FDA has received reports of one death and 16 serious injuries associated with balloon deflation and 8 reports of balloon malfunction that were not associated with patient injury, out of more than 220,000 U.S. stents implanted, implying an incidence rate of 0.01%. These extremely low event rates suggest that the incidence of non-deflation is a rare occurrence (even with under-reporting) and not likely to grow to be a larger issue. Similar details and evaluations were reported in a Harris Nesbitt analyst report on July 6. Following the recall, BSC continued its investigation, as Jim Tobin stated it would in the July 2 conference call. Examining all devices remaining in inventory from any batch that had even a single no-deflate complaint, a team at Maple Grove made two discoveries. First, it found that by using laser pixel software that recorded detailed information regarding the precise location of the laser for each batch of catheters, it could identify lots in which a laser event affecting the laser alignment, as measured by pixel shifts, made the laser bonds more susceptible to tensile forces. Second, it found that the cone puffing processin particular, the sliding of a protector over the stent prior to puffingcould create significant tensile forces on the distal outer when the balloon was atypically large, and that cone puffing was a large differentiator between [Taxus] and Express2 with respect to inflate/deflate issues. This was the first time that cone puffing was conclusively identified as a cause of no-deflates. Cone puffing had not been used in the manufacture of Express2, nor in the manufacture of Taxus for sale outside the United States. The director of Process Development in Research & Development at Maple Grove, Phil Ebeling, characterized the two discoveries as epiphanies or aha moments for him and his team. Based on these two discoveries, BSC instituted another recall on July 16. This recall focused on devices that had been produced prior to the implementation of the reticle inspection in April 2004. Using laser pixel and cone puffing data for the pre-reticle inspection lots at Maple Grove, it was able to identify eight lots at risk for focal necking. In Galway, however, BSC did not have the laser software being piloted in Maple Grove, so as a precaution, it decided to recall all Taxus devices that had been manufactured at Galway prior to the introduction of the reticle inspection. The recall covered 85,000 of the more than 500,000 Taxus devices that it had shipped. [11] In a press release announcing this recall, BSC explained that in total, it had received reports of one death and eighteen serious injuries associated with balloon deflation failure with Taxus devices. [12] The press release stated: The Company implemented review of its manufacturing process, additional inspections, and an FDA-approved modification to the manufacturing process for these products. The current and future production are not expected to experience similar balloon deflation problems. The press release also stated that BSC expected the recall to impact its second quarter financial results, including a reversal of $45 million in sales and a write-down of $50 million in inventory. Following the announcement of the expanded recall, BSC's stock price dropped. Plaintiff claims the investing shareholders represented by the class lost over $700 million. [13]