Becton Dickinson to Pay $175 Million for Misleading Investors About Alaris Infusion Pump

The Securities and Exchange Commission today announced settled charges against Becton, Dickinson and Company, a New Jersey-based medical device manufacturer known as BD, for repeatedly misleading investors about risks associated with its continued sales of its Alaris infusion pump and for overstating its income by failing to record the costs of fixing multiple software flaws with the pump. BD agreed to pay a $175 million civil penalty. According to the SEC’s order, BD determined in 2016 that software changes made to the Alaris pump required regulatory clearance from the Food and Drug Administration (FDA). However, BD did not have the data required for clearance, and generating the data would delay the release of new features, so BD continued selling the pump without clearance. By January 2019, BD identified more than 25 flaws in the pump’s software that its experts categorized as presenting risks of the greatest potential harm to patients. Rather than inform investors that these issues heightened the risk that the FDA would limit BD’s ability to continue selling Alaris—a product whose sales contributed about 10 percent of BD’s profits—BD made misleading statements in its periodic reports about its regulatory risks. The order finds that BD revealed Alaris’s software flaws to the FDA in October 2019 and proposed that the agency allow it to continue selling the pump while it worked to fix the flaws and complete the lengthy FDA clearance process. The FDA firmly rejected this proposal so BD immediately stopped shipping Alaris. But several days later, BD decided it would resume shipping the pump after fixing its software flaws – without FDA clearance. During an earnings call in early November 2019, BD misleadingly told investors that it was pausing Alaris sales to make “some improvements” to the pump as part of its strategy to “continually iterate and make enhancements to the platform.” BD also made financial forecasts for fiscal year 2020 without warning investors that those forecasts were based on conjecture that the FDA would allow BD to resume sales of Alaris without clearance. The order finds that, in mid-November, BD changed its plan; it would resume shipping Alaris with a new version of the software that would exclude fixes that required FDA clearance. This meant BD would not fix several flaws the FDA had expressed significant concerns about, making it even less likely that the agency would allow BD to fully resume Alaris sales. Nevertheless, during subsequent investor conferences in November and December 2019, BD echoed its prior misleading statements. The order finds that BD resumed shipping Alaris with the new software in December 2019 without any indication from the FDA that it concurred with this approach. After the FDA learned in January 2020 what BD had done, the agency warned that BD’s decision to resume selling Alaris 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.” BD reinstated the ship hold and understood there would likely be a materially negative impact on the company’s revenue in fiscal year 2020. Nevertheless, during its subsequent annual shareholders meeting in late January 2020, BD again reaffirmed its prior fiscal year 2020 revenue guidance. BD finally told investors in February 2020 that it had ceased shipping Alaris and would not resume normal sales until it had completed the lengthy FDA clearance process. Its share price subsequently declined 12 percent. Following the announcement, one analyst texted a senior member of BD’s investor relations group, “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.” “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,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “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’s order finds that BD materially overstated its operating income in FY2019 by failing to properly account for the costs of remediating Alaris to fix the software flaws, resulting in the company overstating its operating income in the fourth quarter of fiscal year 2019 by 82 percent. The SEC’s order finds that BD violated antifraud, reporting, internal accounting controls, books and records, and disclosure controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, BD agreed to cease and desist from further violations of these provisions, to retain an independent compliance consultant to review and make recommendations concerning its disclosure controls and procedures, and to the civil penalty referenced above. The SEC’s investigation was conducted by Benjamin Perlman, Kia Grant-Smith, Ryan Leonard, and Michael Peterson, and supervised by Rami Sibay.

The Securities and Exchange Commission today announced settled charges against Becton, Dickinson and Company, a New Jersey-based medical device manufacturer known as BD, for repeatedly misleading investors about risks associated with its continued sales of its Alaris infusion pump and for overstating its income by failing to record the costs of fixing multiple software flaws with the pump. BD agreed to pay a $175 million civil penalty. According to the SEC’s order, BD determined in 2016 that software changes made to the Alaris pump required regulatory clearance from the Food and Drug Administration (FDA). However, BD did not have the data required for clearance, and generating the data would delay the release of new features, so BD continued selling the pump without clearance. By January 2019, BD identified more than 25 flaws in the pump’s software that its experts categorized as presenting risks of the greatest potential harm to patients. Rather than inform investors that these issues heightened the risk that the FDA would limit BD’s ability to continue selling Alaris—a product whose sales contributed about 10 percent of BD’s profits—BD made misleading statements in its periodic reports about its regulatory risks. The order finds that BD revealed Alaris’s software flaws to the FDA in October 2019 and proposed that the agency allow it to continue selling the pump while it worked to fix the flaws and complete the lengthy FDA clearance process. The FDA firmly rejected this proposal so BD immediately stopped shipping Alaris. But several days later, BD decided it would resume shipping the pump after fixing its software flaws – without FDA clearance. During an earnings call in early November 2019, BD misleadingly told investors that it was pausing Alaris sales to make “some improvements” to the pump as part of its strategy to “continually iterate and make enhancements to the platform.” BD also made financial forecasts for fiscal year 2020 without warning investors that those forecasts were based on conjecture that the FDA would allow BD to resume sales of Alaris without clearance. The order finds that, in mid-November, BD changed its plan; it would resume shipping Alaris with a new version of the software that would exclude fixes that required FDA clearance. This meant BD would not fix several flaws the FDA had expressed significant concerns about, making it even less likely that the agency would allow BD to fully resume Alaris sales. Nevertheless, during subsequent investor conferences in November and December 2019, BD echoed its prior misleading statements. The order finds that BD resumed shipping Alaris with the new software in December 2019 without any indication from the FDA that it concurred with this approach. After the FDA learned in January 2020 what BD had done, the agency warned that BD’s decision to resume selling Alaris 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.” BD reinstated the ship hold and understood there would likely be a materially negative impact on the company’s revenue in fiscal year 2020. Nevertheless, during its subsequent annual shareholders meeting in late January 2020, BD again reaffirmed its prior fiscal year 2020 revenue guidance. BD finally told investors in February 2020 that it had ceased shipping Alaris and would not resume normal sales until it had completed the lengthy FDA clearance process. Its share price subsequently declined 12 percent. Following the announcement, one analyst texted a senior member of BD’s investor relations group, “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.” “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,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “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’s order finds that BD materially overstated its operating income in FY2019 by failing to properly account for the costs of remediating Alaris to fix the software flaws, resulting in the company overstating its operating income in the fourth quarter of fiscal year 2019 by 82 percent. The SEC’s order finds that BD violated antifraud, reporting, internal accounting controls, books and records, and disclosure controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, BD agreed to cease and desist from further violations of these provisions, to retain an independent compliance consultant to review and make recommendations concerning its disclosure controls and procedures, and to the civil penalty referenced above. The SEC’s investigation was conducted by Benjamin Perlman, Kia Grant-Smith, Ryan Leonard, and Michael Peterson, and supervised by Rami Sibay.