Life Science Compliance Update

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July 27, 2016

Acclarent Executive Convicted of Misdemeanors and Acquitted of Felonies

The former Chief Executive Officer and Vice President of Sales of Acclarent, Inc., a medical device company and division of Johnson & Johnson, were recently convicted of ten misdemeanor counts of fraud. However, the two execs each were acquitted on fourteen felony counts of fraud. The indictments can be found here, and they outline the charges against the executives,

William Facteau and Patrick Fabian were convicted of ten counts of introducing adulterated and misbranded medical devices into interstate commerce following a six-week jury trial. The jury concluded that the executives caused the unlawful distribution of a medical device (Relieva Stratus Microflow Spacer ("Stratus")) for uses that were not clearly approved by the United States Food and Drug Administration ("FDA"). Acclarent had sought approval from the FDA for the product to be used to deliver steroids, but the FDA denied the request. In spite of the fact that both Facteau and Fabian told the FDA that the Stratus was a medical device intended to maintain an opening in a patient's sinus, the company launched the product with the intent of it being used as a steroid delivery device.

The evidence presented at trial demonstrated that the executives sought to quickly develop and market products to create a revenue stream that would make Acclarent an attractive business for an initial public offering ("IPO") or acquisition, according to the United States Attorney's Office.

The charge of violating the Food, Drug and Cosmetics Act allows for a sentence of no greater than one year in prison for each count, one year of supervised release and fine of $100,000 or twice the gross gain or loss. Actual sentences for federal crimes tend to be less than the maximum penalties.

Facteau and Fabian plan to ask the court to set aside the convictions on the misdemeanor counts. Frank Libby, principal with LibbyHoopes PC and representative of Patrick Fabian, noted that, "The government was casting it as a felony, with fraud, lying and cheating and deceiving the FDA and others and the jury simply wasn't busing it and rejected it across the board." Libby believes that the misdemeanor counts are a "common concern of everyone in the medical device industry," because they do not require a showing of criminal intent for conviction.

Reid Weingarten, another attorney, made a similar statement, discussing his gratefulness that the jury exonerated Mr. Facteau of all charges that require criminal intent and concluded that the case did not involve false or misleading statements, noting that "It is difficult to understand how someone in America could be convicted of even misdemeanor crimes without a finding of intentional wrongdoing."

Similar to Reichel…

This is the second recent case in which healthcare executives escaped potentially serious consequences for alleged corporate misconduct. Earlier this year, a federal jury in Boston found W. Carl Reichel of Warner Chilcott not guilty of conspiring with members of Warner Chilcott's sales force to pay kickbacks to physicians in exchange for writing prescriptions. It is likely that an important argument advanced by attorneys for Facteau and Fabian revolved around the jury instructions given in the Reichel case: "A defendant cannot be convicted of the Anti-Kickback statute merely because he sought to cultivate a business relationship or create a reservoir of goodwill that might ultimately affect 1 or more unspecified purchase or order decisions. If the remuneration is only for a purpose other than seeking to effect a quid pro quo transaction of payments of remuneration for order or purchase of drugs, it is not within the scope of the Anti-Kickback Statute."

Settlement Allegations

Acclarent has agreed to pay $18 million to resolve allegations over false claims submitted to Medicare and other federal health care programs, connected to Stratus.

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