SEC Slaps Becton Dickinson with $175 Million Penalty for Misleading Investors About Alaris Infusion Pump

On December 16, the Securities and Exchange Commission (SEC) announced New Jersey-based medical device maker Becton Dickinson agreed to pay $175 million to settle charges of (i) misleading investors regarding its Alaris infusion pump, and (ii) overstating its income by ignoring the costs of fixing multiple software flaws with the pump.  The pump delivers fluids, medications, and blood to hospital patients and represents roughly 10% of the company’s profits.

According to the SEC Order detailing the settlement, the Alaris pump is a Class II medical device that presents moderate to high risk to patients, and thus requires FDA clearance before being marketed and sold in the US.  To secure this clearance, Becton Dickinson needed to demonstrate to the FDA that the device was safe and effective.  The company needs additional FDA approvals following any changes to the pump that could significantly affect its safety or effectiveness.

According to the SEC, Becton Dickinson engaged in a pervasive pattern of concealing from investors software-related issues with its Alaris pump and the associated FDA approvals that were necessary to address these issues.  Here is the SEC’s timeline of events that led the agency to take action against the company for this alleged investor fraud:

• • In 2016, the company determined certain software changes to the pump required FDA clearance, but it did not have the necessary data to secure the clearance and continued selling the pump anyway.

• • By January 2019, the company identified more than 25 software issues that risked significant patient harm but did not disclose them to investors. Nor did it disclose the risk the FDA would limit the company’s continued sales of the pump if it learned of these issues.

• • In October 2019, the company finally apprised the FDA of the software problems and requested permission to continue selling the pump while it worked on a fix. The FDA refused the request and directed the company to halt its sales until it fixed the issues and secured the necessary FDA clearance.

• • In December 2019, the company resumed selling the pump but with a new version of the software that did not include the fixes requiring FDA clearance, meaning the company did not fix the software flaws the FDA was concerned about.

• • In January 2020, the FDA learned of the company’s resumed sales, warning that making these sales was “misaligned with our previous conversations regarding your software issues and our mutual agreement that your firm should not be distributing devices to new customers.” The company halted further sales.

• • In February 2020, the company finally told investors it had stopped selling the pump until it had completed the lengthy FDA clearance process.

Throughout this period, Becton Dickinson shared none of this with investors.  In particular, it concealed from investors the FDA clearance process it was dodging and the impact it would have on future sales.  Once the company came clean, its share price dropped roughly 12%.  As one analyst put it: “I do not understand what happened here.  10 days ago we heard everything in pumps was ok and back on market and better than expected . . . I’m stunned and have a lot of angry people with pitchforks.”

The SEC was equally stark in its assessment of Becton Dickinson’s misconduct:

BD repeatedly painted a misleading picture of its Alaris infusion pump for investors and then doubled down by keeping them in the dark when the device’s issues came to a head with the FDA in late 2019.  Public companies have a fundamental duty to accurately disclose material business risks and should expect to be held accountable when they fall short in that regard.

The SEC found that in addition to the misleading picture it painted for investors, the company also overstated its operating income in 2019 by roughly 80% “by failing to properly account for the costs of remediating Alaris to fix the software flaws.”

The SEC’s settlement with Becton Dickinson follows several other recent government enforcement actions against companies for misleading investors on the state of regulatory play with their products.  Just last week (December 10), for example, two biopharma executives were convicted for lying to investors about the expected FDA approvals of a developmental drug their companies were promoting to treat HIV and COVID-19.

Likewise, two weeks ago (December 3) the SEC settled charges against a biopharma company for failing to disclose to investors the FDA’s clinical hold on the company’s two lead cancer-fighting drug candidates, pretending instead that the FDA approval process was progressing smoothly.  And in September, a biopharma company paid $40 million to settle SEC charges it misrepresented the Phase 2 clinical trial results for what the company was promoting as a promising treatment of Alzheimer’s disease.

With all these recent actions, the government has made it clear it will not tolerate concealing from investors potential problems or risks with their products, especially when FDA or other regulatory approvals are implicated.  The SEC also has made it clear that if you have information on this type of fraud, or concerning any kind of potential securities violations, it wants to hear from you.

Under the SEC Whistleblower Program, individuals who provide information to the SEC that leads to a successful enforcement action are entitled to up to 30% of the government’s recovery.  More than a billion dollars have been doled out to whistleblowers under this program over the last decade.

So if you have information of potential securities violations and would like to learn what it means to be an SEC whistleblower, please do not hesitate to contact us.  We will connect you with an experienced member of the Constantine Cannon whistleblower team

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