US court confirms fairness of Sulzer Medica settlement

Sulzer Medica has said it has been given final approval for a $1 billion (SFr1.61 billion) settlement, involving hip and knee lawsuits in the United States.

The Zurich-based medical devices company said on Thursday that a district court judge in Cleveland, Ohio, had ruled that the deadline for patients to opt out of the settlement would expire next Wednesday.

Judge Kathleen O’Malley plans to issue a ruling in the next few weeks on the settlement with thousands of patients who received faulty hip and knee implants made by the company.

Patients who do not actively opt out of the settlement by May 15 give their approval to the conditions of the proposed settlement and promise to refrain from pursuing individual claims, a Sulzer Medica statement said.

After the end of the opt-out period, Sulzer Medica has a period of five business days to give its final approval to the settlement.

Pleased with the outcome

“We are very pleased with the outcome of the final fairness hearing,” commented Sulzer Medica CEO Stephan Rietiker.

“We are confident that the opt out number will remain at a minimal rate, although we are not in a position to comment on this subject today. The final approval reinforces our promise to quickly and fairly compensate the affected patients,” he added.

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.

Out of the woods?

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 last month.

“If the 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.

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.

Global risk management

“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 was clearly dented by the issue of product recall but Rietiker now thinks that 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.

Sulzer Medica reported a loss of SFr1.19 billion ($0.71 billion) in 2001, mainly because of the litigation in the US.

However, 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 said.

swissinfo with agencies