Healthy Skepticism Library item: 18829

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Publication type: Electronic Source

Edwards J
Jail Time for CEOs: Stryker’s 'Silly Putty' Scandal Might Put Execs in the Slammer
BNet 2010 Oct 20
http://www.bnet.com/blog/drug-business/jail-time-for-ceos-stryker-8217s-8220silly-putty-8221-scandal-might-put-execs-in-the-slammer/6145

Full text:

An odd exchange of letters between medical device maker Stryker (SYK) and federal prosecutors (here and here) has drawn attention to a rare example of the feds criminally prosecuting top brass executives at a healthcare company – and not just seeking a corporate civil settlement – for their alleged wrongdoing. Stryker’s president faces jail time if this goes badly for him.

The indictment is a quirky one. It involves such an obscure, rarely used product – a type of “silly putty” that promotes bone growth in spinal surgeries – that one wonders why the feds are bothering. Stryker president Mark Philip was arrested last October and is currently out on bail while he defends himself against individual criminal charges of fraud and promoting misbranded “off-label” products.

That’s a stark contrast to the feds’ approach in their recent case against the CEO of GeneScience, who was caught red-handed pushing black-market human growth hormone but was let off with a slap on the wrist even though the case was much more serious and easier to prove.

The Stryker case is also worth watching if you’re a chief executive at a pharmaceutical or device company that’s currently promoting off-label product uses. Philip and his co-defendants, national sales director William Heppner and regional managers David Ard and Jeff Whitaker, are arguing they had a First Amendment free speech right to talk to doctors about alternative uses of their product.

Stryker sells two product lines, OP-1 and Calstrux, for reconstructing bones damaged by surgery or injury. The products actively recruit new blood supply, promote bone growth, and fill voids in bones. Calstrux is a bit like “silly putty” for bones, the indictment says. Stryker got FDA approval to sell these products for separate uses in a type of spinal injury that affects only 4,000 or so patients a year, the feds allege.

Yet the company encouraged surgeons to mix the products together, because OP-1 on its own handles “like wet sand,” the feds claim, unless it is mixed with Calstrux. Mixing them is an unapproved use for which Stryker had done no clinical trials, the indictment alleges. The company seemed to believe that the mixture could do anything, including make “tootsie rolls” and “sausages”:

The mixture allowed Stryker to promote the products for a wider range of patients, the feds claim, and Stryker president Philip went so far as to procure “a bogus legal opinion from a law firm that purported to authorize the sale of 8,000 units per year of OP-1 Putty.” That was bad news for patients, however. The mixture caused a higher rate of adverse events as it migrated from the site of their surgeries like “oatmeal,” “grits” or “white sesame seeds,” the indictment says.

The feedback did not go unnoticed at Stryker. One exec recommended the company send out a letter to doctors alerting them to the mixture’s problems, but management allegedly nixed that idea:

Instead, sales force management gave a training meeting to its reps warning them of the legal liabilities of promoting the mixture:

Philip and his colleagues deny the charges and have developed a high-risk legal strategy: Companies have a First Amendment free speech right to talk to doctors about unofficial uses of their products, they argue.

Although the FDA did relax its rules on off-label promotion in 2009, it did so long after Stryker is alleged to have gone on its silly putty bender. Moreover, companies that have tried the First Amendment defense have not been successful. Allergan (AGN) recently settled a case for $600 million in which it initially argued it had free speech rights. And the CEO of Abtox, a hospital sterilization company, was convicted of off-label promotion despite using the defense. Several patients were blinded by Abtox’s product before the FDA managed to force it off the market.

Drug and device company CEOs ought to study the Abtox case. So should Stryker’s Philip and his team. It presents the worst-case scenario in prosecutors’ much talked about, little enacted crackdown on errant execs: Abtox CEO Ross Caputo was sentenced to 10 years in federal prison. Philips et al. could face more than twice that.