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Product recall hammers Sulzer Medica figures

Sulzer's production of hip shells and knee plates is done by robots

(Keystone)

The Swiss medical device company, Sulzer Medica, reported on Thursday that it made a loss of SFr1.19 billion ($0.71 billion) in 2001, mainly because of litigation in the United States.

The legal problems were prompted by a recall of hip shells and knee plates, which required thousands of mainly elderly patients to undergo revision surgery.

At a news conference in Zurich, the company's management said it was confident that a settlement totalling almost $1 billion would be accepted at a final fairness hearing next month in Cleveland, Ohio.

"You can never be overly confident but I'm pretty confident that we'll reach a settlement," Sulzer Medica CEO Stephan Rietiker told swissinfo.

The deal

Under the terms of the proposed deal, signed by all parties in the dispute, the total payment for Sulzer Medica would be $725 million, in the form of $425 million in cash and $300 million in financial instruments (Callable Convertible Instruments).

The former parent company of Sulzer Medica, Sulzer, has agreed to pay $50 million in cash, plus 480,000 Sulzer Medica shares, while the Winterthur Insurance Company is set to pay a figure of $230 million.

However, Sulzer Medica is not yet out of the woods. The settlement will depend on how many claimants opt out of the proposed deal.

"If the opt-out rate (of claimants) is reasonable and we can afford the settlement, then we'll definitely enter into it," Rietiker told swissinfo.

Unpleasant alternatives

"If the opt-out rate is too high, we will have to file for Chapter 11 (protection from creditors) and actually put the settlement as a pre-package deal into the Chapter 11 process in front of the bankruptcy judge," he added.

Asked whether the company's survival was now secured after last year's "extremely difficult year", Rietiker said that the situation was "as much under control " as it could be.

"I think survival is not the question. It's the question at what price and how we're going to survive," he commented.

Assessing risks

One of the main lessons learned by the company from the litigation is the importance of assessing risks.

"I think one thing is that the US legal system has some peculiarities that we have to deal with," he said.

"First and foremost, I think that a global risk management structure is absolutely mandatory. That's why we're putting so much emphasis on having and implementing a group risk management system operational by the end of the year," he added.

Confidence in the company clearly waned because of the product recall but Rietiker now thinks there has been a turning point.

"People were really questioning whether the company could survive but I can see a positive trend as we have improved internal and external communication and I think that people expect a very positive outcome," he said.

The company said that the first quarter figures were "substantially above" those for the first quarter of 2001.

"The first three months show a positive trend, both in terms of top line and bottom line growth, and we're very happy to see the move in the right direction," Rietiker told swissinfo.

by Robert Brookes


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