A federal grand jury yesterday indicted Vascular Solutions (NSDQ:VASC) and CEO Howard Root, accusing them of running an off-label promotion scheme for its now-discontinued Vari-Lase varicose vein treatment.
Minneapolis-based Vascular Solutions said yesterday that it "vehemently" disagrees with the allegations and "will contest them vigorously," noting that the Vari-Lase Short Kit brought in only $534,000 from 2007 to July 2014, when the company pulled it from the market.
The indictment alleges that Vascular Solutions and Root created a "Short Kit" version of the Vari-Lase device after an unidentified competitor won FDA clearance for a radiofrequency ablation device to treat perforator veins, because Vari-Lase was only cleared for treating superficial veins.
"This development posed a competitive threat to [Vascular Solutions’] Vari-Lase business. Doctors who wanted to perform perforator procedures would have to chose the radiofrequency system over the Vari-Lase in order to get reimbursement for those procedures from Medicare (and many private insurers)," according to the indictment. "VSI responded to the competitive threat in January 2007 by instructing the sales force, in a national sales meeting presentation approved by Howard C. Root, to criticize the [competitor’s device] as bulky, difficult to use, and inferior to laser technology. In the same year, VSI sales representatives began promoting the Vari-Lase system for perforator use.”
Root "encouraged these efforts," the indictment alleges, despite results from a clinical trial showing that Vari-Lase failed to seal perforator veins only 69.7% of the time, far short of the competing RF device’s mark and of the trial’s own 98% goal.
Vascular Solutions, which in July agreed to a $520,000 settlement of a related civil suit, called the allegations "false" and pledged a vigorous defense.
"The indictment is the profoundly flawed product of government attorneys who have conducted a misguided and abusive investigation. Without the company being able to present any information to the grand jury, today’s action is not surprising. It is, however, fundamentally wrong and profoundly unjust," the company said in a statement. "We vehemently disagree with both allegations: We did not engage in any illegal off-label promotion of the Short Kit, nor did we engage in any false or misleading conduct."
Short Kit sales accounted for only 0.1% of total revenues for the 7 years it was on the market, the company said, noting that "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," according to the statement. "We cooperated fully during the government’s investigation and pointed out the flaws in the government’s theories and evidentiary assumptions. While confident in our innocence, in order to avoid the costs and distractions of this matter we tried repeatedly to find a reasonable resolution, just as we achieved with the related civil lawsuit that settled earlier this year, but to no avail."