Executives at health care companies are increasingly pushing back against the Food and Drug Administration's ability to regulate them, and two Minnesota men are on the front lines of the high-stakes legal fight.
A pair of unrelated criminal indictments were handed down during a recent five-month span, charging two Minnesota medical-device company executives with conspiring to illegally market their wares despite clear rejections from the FDA. The cases fit with a trend of federal prosecutors targeting executives for charges, rather than just the deep-pocketed companies they run.
But the two executives — former Acclarent sales executive Patrick Fabian and current Vascular Solutions CEO Howard Root — have joined a burgeoning movement challenging what they see as the FDA's unconstitutional restrictions on commercial speech.
Both Minnesota men are trying to expose secret grand jury hearings and undermine the indictments because they believe prosecutors inaccurately portrayed what devicemakers can and cannot tell doctors and hospitals.
A judge heard oral arguments on Fabian's grand jury concerns last week. The judge in Root's case is in the process of deciding whether to dismiss the case based on what has already been revealed.
The FDA says it regulates commercial speech to protect the public. Fabian and Root argue in court filings that they had the First Amendment right to say what their e-mails and company presentations show. Using the free-speech argument, drugmaker Amarin Corp. pre-emptively sued the FDA and won a judge's order in August allowing it to roll out a marketing campaign forbidden by the FDA. At least one other drug company, Pacira Pharmaceuticals, filed a similar suit earlier this month.
Since 2010, the Justice Department has collected at least $8 billion in settlements and plea agreements from health care companies accused of illegal marketing and sales. Yet while its regulatory authority over such marketing statements is being challenged, the Justice Department has publicly announced intentions to target individual executives, cases that are often more difficult to prove.
"The incentives are different. The incentive for the individual is to fight, whereas incentives for companies are often to settle and move on," said Tom Beimers, who helped prosecute health care fraud cases before joining Faegre Baker Daniels in Minneapolis as a defense attorney. "From my perspective, so long as there is strongly defensible clinical and factual support for the off-label promotion, given the way commercial speech doctrine has developed, it is going to be difficult for the government to win these cases."
"Off-label promotion" is when a health care company or its staff tells hospitals and doctors that they can use a device or drug for treatments that haven't been approved by the FDA. The FDA can't control how doctors prescribe approved products, but the agency says it can regulate companies' marketing to fulfill the Food, Drug and Cosmetic Act's ban on misbranded or adulterated medical products.
This power "reflects Congress' and the FDA's reasonable conclusion that selling drugs for uses not validated by science is false or misleading and that, in light of the history of snake-oil salesmen touting products based on fraudulent or unproved claims, a system of objective scientific evaluation is needed to protect consumers," the Washington advocacy group Public Citizen wrote in a friend-of-the-court filing in the Amarin case.
Public Citizen was not on the winning side. In August, a federal judge in New York granted Amarin Corp. permission to use "truthful and non-misleading" speech to market a drug called Vascepa for unapproved uses. The FDA had explicitly warned Amarin that off-label promotion of Vascepa could be illegal misbranding, but the judge agreed that Amarin's truthful off-label marketing was protected by the First Amendment.
The same laws and precedents are at issue in the two cases involving Minnesota-based medical-device executives.
Last April former Acclarent executive Fabian, 48, of Lake Elmo, was indicted by a Boston grand jury on charges of wire fraud, securities fraud and distributing misbranded medical devices. The Acclarent case came five months after grand jurors in San Antonio charged Vascular Solutions CEO Root, 54, of Tonka Bay, with conspiracy and illegal promotion of devices. Both pleaded not guilty.
Both Root and Fabian are accused of trying to market medical devices for uses that the FDA explicitly rejected in 2007.
The charges against Fabian and an alleged co-conspirator, former Acclarent CEO William Facteau, say they illegally marketed a device called the Stratus, which is a small surgical balloon that can be inflated inside the nose to keep the nasal passage open following surgery. The balloon has tiny holes that can release a milky-white liquid drug called Kenalog-40, but it was never approved as a drug-delivery device. The company told the FDA the holes were to allow inert saline to seep out and moisten tissues.
Fabian and company officials "understood that the device would not function as an extended-release delivery system for saline and that most of the saline injected into the device would run right out after injection," the indictment says. "The primary Stratus promotional brochure, which is a piece of labeling under the [Food, Drug and Cosmetic Act], had a picture of the Stratus inflated with a milky white substance that looks like Kenalog-40, not like clear saline."
Fabian was vice president of sales at the California private-equity start-up Acclarent in 2010, when Johnson & Johnson's Ethicon division bought it for roughly $785 million. Fabian denies the government's contention that the $4 million he made from the deal via stock options and compensation was based on inflated revenue projections stemming from off-label sales of the Stratus.
Fabian and Facteau are fighting back, saying that the 6 million pages of documents in evidence don't show prosecutors' true intentions. They're trying to force the government to reveal more about its case and pry loose grand jury materials, which could undermine the indictment if prosecutors misinstructed jurors on the law, court filings say. Fabian is chief commercial officer at Maple Grove-based NxThera today.
The case was filed in federal court in Boston five months after a San Antonio grand jury indicted Root, along with Maple Grove-based Vascular Solutions Inc., in the alleged promotion of off-label uses of a device called the Vari-Lase Short Kit. That device was approved to treat varicose veins near the skin's surface, but Root allegedly encouraged salespeople to sell it for short vein segments deeper in the leg.
In addition to raising a First Amendment defense, Root has accused prosecutors of coaching several witnesses to "fix" their grand jury testimony to conform to prosecutors' theory of the case. He also asked a judge to throw out the case because prosecutors incorrectly told grand jurors that any off-label use of the Short Kit was illegal, which is "simply wrong," according to Root's motion to dismiss.
Root, the co-founder of Vascular Solutions, remains in control of the company. The company's stock was trading around $35 a share last week, above its value of $30.50 before the indictment.
The Root and Fabian cases are unusual in shining a spotlight on individual behavior, in contrast to the long-running pattern of cases in health care, banking and other industries where corporations use the profits from their disputed activities to pay settlements that resolve cases without trials.
But such cases are likely to become more common. Deputy U.S. Attorney General Sally Quillian Yates penned a Sept. 9 memo ordering federal prosecutors to consider charges against individuals from the beginning of any investigation of corporate misconduct because "one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing."
While the lawyers watch to see how the case law develops, companies and their executives are left to figure out how to legally sell their goods to the widest possible audience.
"There's a lot of uncertainty about how to do it in a way that is free from risk," said Gabriel Imperato, a health care defense attorney in Fort Lauderdale, Fla., who formerly worked for the government. "I think what's more certain is that there is risk."
Joe Carlson • 612-673-4779