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SEC Probes Orthopedic Device Makers

Orthopedic device makers Zimmer Holdings, Stryker, Medtronic and Biomet have been notified that U.S. securities regulators intend to investigate possible violations of the Foreign Corrupt Practices Act.

Privately held Biomet said late Thursday that it had been notified of the Securities and Exchange Commission probe. Zimmer, Stryker and Medtronic followed suit Friday.

A Medtronic spokeswoman said the company has received a letter from the SEC regarding an inquiry and will comply with the request, but added that "we do not believe we have committed any violations of the (Foreign Corrupt Practices Act)."

Johnson & Johnson's orthopedic business, DePuy, has not received a notice, a company spokeswoman said.

Zimmer shares were down about 2 percent on the New York Stock Exchange, while shares of Stryker were up more than 1 percent. Shares of the other orthopedic device companies were narrowly mixed.

J.P. Morgan analyst Michael Weinstein said he did not view the SEC investigation as a major problem for the companies.

Michael Matson, an analyst at Wachovia, said the SEC probe might be an extension of a government investigation of consulting arrangements between orthopedic device makers and U.S. surgeons. Federal prosecutors alleged that the companies struck consulting deals with surgeons in a bid to sway decisions about which hip and knee implants patients received.

That government probe was settled last month, with Zimmer, Biomet, DePuy and Smith & Nephew paying a total of $311 million. Stryker made no payment but entered a non-prosecution agreement with the government and cooperated with prosecutors.

"We suspect this may be related to surgeon consulting arrangements," Matson wrote in a research note. "We suspect that Zimmer and possibly other orthopedic firms may have abused consulting arrangements internationally just as they did in the U.S."

"We expect this to take time to play out," he added. "The (Department of Justice) investigation took over 2-1/2 years to be resolved, and we expect this to be similar ... We believe this unfortunately represents a new overhang for Zimmer."

Biomet is owned by Blackstone Group, Goldman Sachs Group's private equity arm, Kohlberg Kravis Roberts & Co, and TPG Capital.