In February, Vascular Solutions CEO Howard Root was acquitted of federal charges that he conspired to market medical devices for unapproved uses. Ten months later, Root has decided he would rather step away from the Maple Grove-based business he co-founded and ran for 20 years than face the risks that he says come from running a publicly traded medical device company.
The company announced Friday that it’s being sold to Teleflex Inc., a company specializing in critical care and surgical products, for $1 billion.
“I love the company today; I love working with medical devices,” Root told the Star Tribune Friday after the deal was announced. “But after going through [a] five-year criminal prosecution by the government over nothing, over what words my sales reps said, I just realized that I don’t want to be in a situation where every night when I go to bed I worry about whether a sales rep said the wrong words.”
Root informed the Vascular Solutions board that he no longer wanted to serve as CEO, and the company decided that it would be better off selling than hiring a replacement.
“In the end, the board believed, and I believe, Teleflex is the right company,” Root said. “They’ve got the right interest in the development of medical devices for the benefit of the patients. They’ve got a great track record of growing companies.”
Root’s case, which involved allegations regarding the use of a laser treatment to close varicose veins, attracted lots of attention from the device industry, patient advocates and policymakers. Some experts saw his acquittal as a decision that would chill efforts by prosecutors to hold executives ultimately responsible for the actions of their subordinates, especially sales efforts bent on increasing revenue by creating unapproved uses for products.
Off-label promotion of devices and drugs has become a legal minefield, pitting free speech rights of companies against the government’s responsibility to ensure that products are safe and effective through FDA approval.
Companies often have devices approved for one use, then market them aggressively for unapproved uses, a practice that is supposed to be illegal. Some recent court decisions have paved the way for companies to describe ways to use products off-label so long as those descriptions are true and not misleading.
Root said he weighed his love for creating medical devices against the jury instruction given at his trial. The jury, he said, was told “that I didn’t have to do something. I didn’t have to tell someone to do something. I didn’t have to know that anything actually happened. If I was in a position of responsibility and authority to prevent or correct a violation, I was guilty of the crime. … We’re talking about going to prison for that.”
Teleflex agreed to pay cash for Vascular Solutions’ outstanding shares at a price of $56 per share.
The price represented a 16 percent premium of what Vascular Solutions shares had sold for in the 90 trading days that ended Dec. 1 and a 1.6 percent increase from its Thursday closing price.
Teleflex CEO Benson Smith said the acquisition of Vascular Solutions and its more than 90 proprietary products will give the suburban Philadelphia company new opportunities in the “coronary and peripheral vascular markets.”
Vascular Solutions has “a demonstrated long-standing track record of delivering double-digit annual revenue growth, stemming from organically developed, patented products that address unmet clinical needs in high-value procedure categories,” Smith said in a statement.
The sale is subject to the approval of Vascular Solutions’ shareholders.
Vascular Solutions employs 650 people, 550 of them in Minnesota. The company, which developed freeze-dried plasma for the military, had sales of $160 million in its most recent four quarters. Its biggest seller is GuideLiner, a product used to deliver stents to cardiac arteries.
The deal values Root’s stake in the company at $39.8 million; he’s also due a severance payment of $1.1 million. But the man who has been the subject of two documentaries and soon will publish a book about his experience beating the government charges called the transaction “bittersweet.”
“I’m 55 years old and I always thought I would [work in the medical device business] until I was at least 65,” Root said. “I’m essentially saying I don’t want to do it anymore for the most productive 10 years of my life.”