Stryker Biotech, execs blast back at feds

Calling it a threat that "has the potential to swallow completely the attorney-client privilege," lawyers for former Stryker Biotech chief Mark Philip fired back at federal prosecutors in a criminal case alleging the illegal promotion of bone putties.

The defendants — Stryker Corp.’s (NYSE:SYK) Hopkinton, Mass.-based biotech arm, former president Philip, national sales director William Heppner and regional sales managers David Ard and Jeff Whitaker — are accused by the U.S. Justice Dept. of scheming to promote the off-label use of a pair of bone-growth products and lying to the Food & Drug Administration. Prosecutors lambasted Philips and three other executives in legal filings late last year in their opposition to the defendants’ attempts to have 12 of the 16 charges dismissed.

Now Philips and the others are returning fire, accusing the government of over-reaching with its indictment and failing to back up most of its charges. Prosecutors added a charge not included in the indictment accusing Stryker and Philip of "seeding the files of Stryker Biotech with a bogus legal opinion," according to court documents.

Philip argued that the document was privileged communication with outside counsel and thus out of the bounds of the lawsuit.

"The government struggles to explain itself because of its overreach in this case. The potential consequences of this case are enormous," according to the documents. "The government seeks to criminalize communications with counsel without any showing that those communications were to be disclosed to the government. This has the potential to swallow completely the attorney-client privilege."

Moreover, Philip argued, the government fails to prove that Philip and Stryker had any duty to disclose the number of patients treated with OP-1 putty before its 2008 annual report, due in April of that year (after the period covered by the lawsuit, October 2007 through February 2008).

"Even though the indictment charges Philip with concealment of a material fact … the government fails to allege in the indictment, or demonstrate in its opposition, any duty on the part of Philip or Stryker Biotech during the relevant time period," according to the documents.

Under the terms of the humanitarian device exemption the FDA granted for the putty, no more than 4,000 units per year were permitted to hit the market. The FDA never asked for any additional compliance filings, Philip argued, adding that the government’s opposition argument was "confused."

"Irreconcilable statements in the government’s opposition highlight its own confusion over the actual charge," according to the documents, which claimed that the prosecutors’ concealment charge was actually an accusation of false statement.

"The government cannot have it both ways. As the government concedes, Count 16 lodges a concealment charge, not a false statement charge," according to the documents. "The opposition, however, relies not only on the new un-indicted theory the ‘seeding the files of Stryker Biotech with a bogus legal opinion’ was a violation but inexplicably seeks support in case law that supports a false statement charge, not a concealment charge. The government is merely obscuring the issue."

And because prosecutors didn’t charge Philip or Stryker with faking or concealing the records from the FDA, an aiding and abetting charge should also be dismissed, Philip argued.

"Philip does not contend that a false statement was made. There was no false statement made in the first place," according to the documents. "Even more to the point, the government has not properly alleged that any crime was committed."

In a separate joint filing, the defendants argued that another 10 counts in the case be dismissed for lack of venue. The wire fraud charges (over emails allegedly sent as part of the alleged scheme) should be dismissed because the emails "merely bounced off a Massachusetts-based computer server while in transit," according to court documents the defendants filed last year. Their most recent filing argues that the charges are unconstitutional.

"The government asserts that venue in the District of Massachusetts is constitutionally permissible on these criminal counts because in their trip through cyberspace, the e-mails from which the counts arise instantaneously passed through a electronic server located in a storage room in Hopkinton, Mass.," according to the filing. "The government’s remarkable argument finds no support in the case law and runs roughshod over both the Constitution’s text and principles."

That’s because the alleged acts detailed in the charges — the sending and receiving of the emails — were not committed in the Bay State, the defendants argued.

"The Constitution makes clear — not once, but twice — that a criminal prosecution may only be brought in a venue where the alleged offense was ‘committed,’" according to the filing.

The lawsuit began in 2009 with an indictment accusing the defendants of a scheme to promote the combined use of a pair of separate bone-healing products, each granted a narrow, provisional HDE by the FDA. Combining the treatments and devices — the OP-1 Implant, OP-1 Putty and the bone void filler Calstrux — caused adverse effects in patients ranging from minor irritations to infections requiring follow-up surgeries. The indictment also charges that Stryker and Philip lied to the FDA about the number of patients treated each year with OP-1 Putty.

Last year, federal prosecutors declined to produce evidence the defendants claimed could clear them of the charges, later ripping into the defendants’ arguments that 12 of the 16 charges should be dismissed.

In August 2010, Stryker Biotech agreed to pay $1.35 million to settle with Massachusetts attorney general Martha Coakley for alleged false marketing and fraud over the bone growth products. last month the company looked to put such woes in the past, selling the OP-1 line to Olympus Corp. (OTC:OCPNY) for $60 million.