[November 20, 2008]

Medical device scrutiny goes on

(Commercial Appeal, The (Memphis, TN) Via Acquire Media NewsEdge) Nov. 20--Medtronic's announcement this week of a new inquiry from the Department of Justice shows that government scrutiny of sales practices in the medical device industry is not over.

In recent years, several orthopedic companies reached multimillion-dollar settlements over allegations of improper payments to doctors -- Medtronic paid $40 million in 2006, without admitting wrongdoing. But more recent news suggests Memphis orthopedic companies will be dealing with federal pressure for a long time, and that it will cost them millions.

CEO Bill Hawkins said in a conference call with investors Tuesday that the Department of Justice is seeking information related to off-label use of its hot-selling Infuse bone graft product.

"For years, Medtronic has had strict guidelines in place on appropriate promotion of products according to labeled indications," Hawkins said.

"We are complying appropriately with the DOJ's request."

Revenue at the Minneapolis company's Memphis-based spinal unit was $829 million in the second fiscal quarter, up 26 percent. But excluding the company's recent acquisition of Kyphon, sales grew only 3 percent. Part of the reason was slower sales of Infuse -- overall biologics sales were flat at $198 million, which Hawkins blamed on recent news coverage and related issues.

Infuse is a powder that surgeons mix with water to stimulate the human body to create bone. It's approved for fusion surgeries in the lower back, for some serious leg fractures and for some oral and dental uses.

But some surgeons use it in unapproved ways.

After at least 38 reports of complications in a four-year period, the Food and Drug Administration warned in July that use of Infuse and a competing product in neck fusion surgery could lead to serious problems in swallowing, breathing or speaking.

Former employee Jacqueline Kay Poteet and others have alleged that Medtronic paid doctors and conspired with them to promote off-label use of Infuse through journal articles, seminars in Memphis and other techniques.

Medtronic has said it has strict anti-graft procedures in place.

It wasn't immediately clear how much Medtronic will pay to deal with the subpoena. But companies typically pay large sums to comply with these requests.

Arlington-based Wright Medical Group recently said answering a Department of Justice inquiry into its sales practices has cost $1.5 million so far this year. The company and some competitors also face a Securities and Exchange Commission inquiry related to sales practices in other countries.

This month, British medical device maker Smith & Nephew, which has its orthopedic units in Memphis, said it would spend $30 million to keep in compliance this year. That's on top of an estimated $100 million in lost sales related to cleaning up "unacceptable" sales practices it discovered at the European operations it inherited when it bought Swiss company Plus Orthopedics and the $28.9 million it paid last year to settle federal charges that it used consulting contracts to induce doctors to use its products.

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