DaVita Inc. is no stranger to federal subpoenas, but its latest could end up proving costly to the El Segundo dialysis firm.

The nation's No. 2 dialysis center operator received a demand last week from the U.S. Attorney's Office in the Eastern District of Missouri for information dating back to 1996 related to its use of pharmaceuticals and its physician relationships the third subpoena it's been hit with in four years.

This is the same U.S. Attorney's office that investigated Gambro Healthcare for three years, resulting in a $350 million payment in December to settle criminal fines and civil penalties. The American subsidiary of the Swedish company Gambro AB was accused of paying kickbacks to physicians for patient referrals and billing the government for unnecessary tests and services.

(DaVita is in the middle of a $3 billion acquisition of Gambro Healthcare, now under review by the Federal Trade Commission.)

Chief Executive Kent Thiry told analysts last week that he believed DaVita had perhaps the top compliance program in the industry set up after 1999 when he joined the company. Still, he acknowledged that getting out from under the probe would not be easy. "We are prepared to spend several years and a lot of time and money in the process to achieve a complete and fair resolution," he said.

Thiry said he did not expect the latest investigation would halt DaVita's acquisition of Gambro. But analyst Darren Lehrich of Piper Jaffray Cos. said in a research note that it would likely raise the cost of bonds that the company is issuing to fund the deal. He maintained his "outperform" rating on the stock but added that the subpoena raised the company's "risk profile."

DaVita dropped 4.4 percent to $42.10 on the first day of trading after the subpoena was announced.

Niche Market

Abraxane, the first proprietary drug by American Pharmaceutical Partners Inc., seems likely to capture the market for treating breast cancer patients who have failed prior rounds of chemotherapy.

The Schaumburg, Ill., generic drug manufacturer, controlled by Los Angeles-based Dr. Patrick Soon-Shiong, released clinical trial data recently showing that the drug did not increase the survival rates of women who had never been treated with chemotherapy. However, the same trial showed a 29 percent reduction in deaths for women who failed a prior Taxol regimen.

Abraxane is composed of the same anti-cancer agent as Taxol, but formulated in such a way that more powerful doses can be administered.

News that the drug is likely a niche player sent shares down nearly 4 percent to just above $50 since the Feb. 25 announcement.

Still, that's above the $32.66 close on Jan. 5, when Wall Street bears were betting the Food and Drug Administration wouldn't even approve the drug for sale, which it did two days later.

Staff reporter Laurence Darmiento can be reached at (323) 549-5225, ext. 237, or at ldarmiento@labusinessjournal.com .

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