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This article was originally published in The Gray Sheet

Executive Summary

PURITAN-BENNETT/FDA DISCUSSIONS MAY LEAD TO CONSENT DECREE under which the respiration products manufacturer "would agree to maintain systems and procedures complying with FDA regulations," the company says in an April 19 press release. The discussions follow up on an FDA inspection of "a number" of P-B facilities in October and November 1992; the inspections raised "issues relating primarily to systems, procedures and documentation used in the manufacturing process and to medical device reporting," P-B says. The Overland Park, Kansas-based firm says that in conjunction with the discussions, it has "agreed to adopt a number of changes in systems and procedures," the majority of which have been already implemented. In addition, due to the matters raised by FDA as a result of the inspections, P-B has been unable to ship 7200 series ventilators to the Veterans Administration or other U.S. government hospitals for several months. P-B has had several problems with the 7200 series ventilators over the last few years. In the first quarter of 1991, the firm had to temporarily halt shipments of its 7200 AE ventilator to resolve a software problem ("The Gray Sheet" April 22, 1991, p. 15); shipments resumed in the second quarter of 1991. P-B also has conducted five Class II recalls related to the 7200 series ventilators since February 1991. The reasons for the recalls included labeling inconsistency, a defective circuit board in a display monitor, a design problem potentially causing operational problems in conditions of unusually high barometric pressure, inappropriate fuse installation, and a software revision problem. P-B is estimating that earnings for its first quarter (ending April 30) will be "below most current estimates" due, in large measure, to the "considerable expense" associated with addressing FDA's concerns, as well as the cessation of revenues from VA and other government hospitals. According to P-B Chairman and President Burton Dole, profit in the "15 cents to 20 cents per share range appears to be more likely than the 30 cents to 35 cents per share range currently prevalent." The earnings outlook does not take into account the cumulative effect of an accounting change that will result in a one-time charge of approximately $2.8 mil. in the first quarter. P-B notes that the revenues "postponed" due to the inability to ship the 7200 to government hospitals "account for approximately half of the reduction in first quarter earnings expectations." The firm also "is seeing some signs of weakening hospital equipment orders" in the U.S. as customers uncertain about the outcome of health care reform postpone capital equipment purchases. P-B plans to monitor its "overall situation closely during the next several months to ascertain whether the adverse impact" of its problems with FDA and the slower orders "is likely to be temporary or more enduring," Dole said. He added that "in the meantime," the firm has "adopted a cautious posture with respect to spending levels and additional commitments." The day after P-B announced its diminished expectations, its stock dropped four points to 15-1/4. The issue bounced back a point April 21 with the announcement of a common stock repurchase program of up to 1 mil. shares out of approximately 12 mil. outstanding. The repurchases will be made from "time to time" with no termination date specified.

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