BD Agrees To Pay $175 Mln To Settle With SEC Over Alaris System Investigation

Becton, Dickinson

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(RTTNews) - Becton, Dickinson and Co. (BDX) or BD, a New Jersey-based medical device manufacturer, has agreed to pay $175 million to the U.S. Securities and Exchange Commission to resolve an investigation concerning past public disclosures and SEC reporting related to the BD Alaris System. The system, acquired from CareFusion in 2015, is part of BD's Medication Management Solutions business.

No financial restatements are required as a result of the settlement. BD is not updating its fiscal 2025 guidance as a result of the settlement, the company said.

The Securities and Exchange Commission announced settled charges against 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.

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 SEC order revealed that in October 2019, BD disclosed Alaris's software flaws to the FDA and proposed to continue selling the pump while working to fix the issues and complete the FDA clearance process. The FDA rejected this proposal, prompting BD to stop shipping Alaris immediately. However, a few days later, BD decided to resume shipping the pump after addressing the software flaws, but without FDA clearance. The SEC alleged that, during an earnings call in early November 2019, BD misleadingly informed investors that Alaris sales were being paused to make "some improvements" as part of a strategy to "continually iterate and enhance the platform." BD also made financial forecasts for fiscal year 2020 without informing investors that these projections were based on the assumption that the FDA would allow BD to resume Alaris sales without clearance.

The SEC's order found that BD materially overstated its operating income in fiscal year2019 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 found that BD violated antifraud, reporting, internal accounting controls, books and records, and disclosure controls provisions of the federal securities laws. 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.

Meanwhile, BD said that the BD Alaris System is safe and effective and is a critical part of health care in the United States. The system has been used for many years to safely deliver IV therapies to patients, including throughout the COVID-19 pandemic. The updated BD Alaris System received 510(k) clearance from the U.S. Food and Drug Administration in July 2023, and the company continues to update its Alaris fleet.