Last month, the Department of Justice filed an indictment charging Vascular Solutions Inc. and its chief executive officer, Howard Root, with selling medical devices without FDA-approval and “conspiring to defraud the United States by concealing the illegal sales activity.” The devices at issue are from the company’s “Vari-Lase” therapies, which are designed to treat varicose veins.
According to the indictment, the Vari-Lase products were cleared by the FDA only for the treatment of surface, or superficial, leg veins. DOJ alleges that Mr. Root and Vascular Solutions marketed and sold them instead for the “ablation,” or removal, of perforator veins, which connect the superficial vein system to the deep vein system. Because perforator veins come into direct contact with deep veins, treating them with lasers was a more difficult and risky procedure, states DOJ.
Mr. Root is alleged to have led a “Short Kit” campaign designed for perforator vein treatment by claiming that the Vari-Lase system was intended for short vein segments. DOJ further alleges that Mr. Root and Vascular continued this sales campaign despite receiving complaints from a future qui tam relator in 2009 (who filed a qui tam action in November 2010) and after learning from the government in 2011 of its investigation regarding the company's marketing of Vari-Lase devices for the treatment of perforator veins.
The government charged Mr. Root and Vascular Solutions each with one count of conspiracy and eight counts of introducing adulterated and misbranded medical devices into interstate commerce in connection with Vascular’s Vari-Lase sales strategy.
This lawsuit follows a $520,000 False Claims Act settlement between Vascular and the DOJ from earlier this year. There, Vascular resolved the same allegations that they caused false claims to be submitted to federal health programs when it advertised the Vari-Lase devices for the treatment of perforator veins.
In response to the indictment, Vascular maintained that it did not (1) engage in any off-label promotion of the Short Kit, nor (2) engage in any false or misleading conduct related to their product's treatment of perforator veins. "The indictment is the profoundly flawed product of government attorneys who have conducted a misguided and abusive investigation,” the company states, which resulted in a “fundamentally wrong and profoundly unjust” indictment.
Vascular states that despite the company's innocence, they "tried repeatedly to find a resolution" with the government, "but to no avail." Now they plan to contest the allegations "vigorously" at trial.
Vascular was critical of the DOJ’s focus on the “Short Kit”:
“Sales of the Short Kit for all clinical uses during the seven years it was on the U.S. market were $534,000, representing just 0.1% of our total U.S. sales during those years. Over two-thirds of our sales representatives never sold even a single Short Kit, and the Short Kit has never been the subject of any reported serious adverse event in any patient.
“The discrepancy between the insignificance of our Short Kit product and the severity of the government’s actions in this matter is simply astonishing. The reason for that discrepancy will become readily apparent when the government attorneys’ stated motives and abusive conduct in this investigation are disclosed in our upcoming court filings.”
“These charges involve a deceptive sales campaign led by the CEO of a public company,” said Acting Assistant Attorney General Branda. “The indictment charges that the sales campaign persisted in the face of FDA warnings, a whistleblower’s complaint to the CEO and a failed clinical trial showing that the device was less safe and less effective than a product that had already been approved. We will take action to hold corporations and their leaders responsible when they violate laws intended to protect public health.”
The case is being prosecuted by Trial Attorney Timothy Finley of the Civil Division’s Consumer Protection Branch and Assistant U.S. Attorney Bud Paulissen of the Western District of Texas. The case was investigated by the FDA’s Office of Criminal Investigations and the U.S. Department of Health and Human Services’ Office of the Inspector General.
Mere days after the indictment, securities attorneys had already put together a shareholder class action complaint against Vascular. The DOJ “allegations indicated that the off-label use of the Vari-Lase Short Kit accounted for up to 25% of sales of the device,” the complaint states. Notably, this is in direct conflict with Vascular's own assessment of the Short Kit's sales.
The plaintiffs attorneys allege that upon the indictment, “shares of Vascular Solutions declined $6.76 per share, over 22%.” They allege that because Vari-Lase was marketed off-label, “the Company’s statements about its business, operations, and prospects, including statements about the marketing of its [ ] Vari-Lase products, were materially false and misleading and/or lacked a reasonable basis.”