Minnesota medical device maker Vascular Solutions (NSDQ:VASC) wasn’t able to dodge a federal off-label marketing lawsuit over its Vari-Lase varicose vein treatment devices, the company revealed in its latest financial report.
A Texas court ruled last month against Vascular Solutions’ motion to dismiss a U.S. Attorney’s Office complaint, which late last year was tacked on to a larger whistleblower lawsuit over the company’s marketing activities.
"The Company believes the allegations are factually inaccurate and without merit, and therefore the Company intends to both fully comply with the U.S. Attorney’s civil and criminal investigations and defend the litigation," according to Vascular Solutions.
The whistleblower complaint, filed by former sales employee Desalle Bui in November 2010 and unsealed in August 2012, claims the company marketed the Vari-Lase device for use on perforator veins and that it further promoted re-use of its single-use products. All in all, the complaint says Vascular Solutions cost the government about $20 million in damages.
After 3 extensions of time, the federal government opted to intervene and join the investigation. In Dec. 2012 the U.S. Attorney’s office filed an amended complaint accusing Vascular Solutions of off-label promotion of the Vari-Lase Short Kit, claiming an unspecified amount of damages and penalties. The device maker in January 2013 filed for dismissal of the amended complaint, a request that was rejected in March by the U.S. District Court for the Western District of Texas.
The legal volleying was revealed by the company in its 1st quarter earnings report, in which Vascular Solutions posted a 9.5% increase in sales and an 11.3% increase in profits compared to the same quarter of 2012.
Vascular Solutions reported $26.1 million in sales during the 3 months ended March 31, 2013, compared with $23.8 million in sales reported for the same period last year. Profits jumped to $2.1 million, or 13¢ per diluted share, compared with last year’s profit of $1.9 million, or 12¢ per share.
Adjusted for 1-time expenses, including costs incurred during the recall of its Guardian hemostasis vales, earnings of 16¢ per share beat analysts’ consensus estimates by a penny. The Guardian recall cut an estimated $350,000 from revenues and cost an additional $550,000 in recall expenses, CEO Howard Root said in prepared remarks.
"We expect to correct this situation in the second quarter and resume shipments of Guardian products in June without additional expense," Root said.
The device maker paid $317,000 in compliance with the medical device excise tax. Vascular Solutions reaffirmed its 2013 guidance for net revenue between $106-$110 million, the midpoint of which would represent a 10% increase in sales over 2012, and there are new products on the way.
"We are very excited about the second quarter’s global re-launch of the Venture catheter that we acquired last year from St. Jude Medical (NYSE:STJ)," Root said. "With approximately 10 additional new products in the pipeline scheduled for U.S. launch yet this year and 40 total new products in our development pipeline, we remain optimistic about our revenue and earnings growth for 2013 and beyond."
The report won Vascular Solutions a modest boost on Wall Street today, where VASC shares were up 0.9% to $16.72 as of about 1:50 p.m.
