3. Product Liability

Product liability is an issue S&P is monitoring closely for high-tech medical device makers, says David Kaplan, director, healthcare group at Standard & Poor's Ratings Services. "That is a prominent issue for a number of medical device companies right now, with the number of companies defending themselves against billions in claims from pelvic mesh and metal-on-metal hip implant related lawsuits."

While not as common as the aforementioned problems, product liability matters have spurred the biggest defaults in the industry. Product liability spelled the end for A. H. Robins, maker of the Dalkon shield, a controversial intrauterine device. Ultimately, as many as 200,000 women testified that they were injured by the device, which was on the market in the early 1970s. The product was pulled from the market in 1974. FDA recommended in 1983 that all women using the device have it removed, which triggered a wave of lawsuits against the company. A. H. Robins declared bankruptcy two years after that.

Product liability also caused Dow Corning to default in 1995 as it was overwhelmed with personal injury claims from women who used the company's silicone gel breast implants. The women claimed the implants could leak, putting women at risk of breast cancer, autoimmune diseases, rheumatoid arthritis, and various neurological problems.

As recounted by PBS's Frontline,Dow faced 20,000 lawsuits, on top of 410,000 potential claims in a global settlement. The situation was an especially dramatic turn of events for a company that had built a reputation for itself as a highly ethical (as well as profitable) industrial company that prided itself over its Business Conduct Committee.

Dow left the silicone breast implants business in 1992, as did other major manufacturers. A 14-year virtual FDA ban on the implants lasted until 2006. FDA now says that there is no apparent association between silicone gel-filled breast implants and connective tissue disease, breast cancer, or reproductive problems, though the agency acknowledges that longer and larger studies are needed for a definitive answer.

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