The Other Shoe Drops on ev3

Hard to believe that just two years ago, ev3, Inc. scored a resounding victory after the First Circuit affirmed the dismissal of a qui tam action against it (we reported it here). This week, DOJ announced that the same company has agreed to a criminal plea on what, at first blush, appears to be the same basic set of facts. The plea includes a misdemeanor count for violation of the Federal Food, Drug, and Cosmetic Act (FDC Act), and payment of $11.9 million in criminal penalties along with a $6 million forfeiture.

The original action involved a qui tam whistleblower who alleged the company was liable under the False Claims Act for misrepresentations it made to FDA when seeking approval of the Onyx liquid embolization device. The government declined to intervene in the case, but the relator pressed his arguments through four amendments to his complaint.

According to the relator, during the approval process for Onyx, ev3 agreed to a very narrow indication for Onyx, and also represented that it would provide significant training to physicians on the proper on-label use of Onyx. Indeed, the approved product labeling restricted its use to “physicians with neurointerventional training and a thorough knowledge of the pathology to be treated, angiographic techniques, and super-selective embolization.” ev3 allegedly also concealed safety issues with the Onyx product from FDA. The relator argued that if FDA had known ev3 had no intention to restrict its marketing to the on-label indication, or adequately train physicians, and if FDA had known about safety issues with the Onyx product, it would not have approved the product (i.e., that the company had fraudulently induced FDA to approve the drug).

The First Circuit rejected the relator’s theory using strong language: “The FDA’s failure actually to withdraw its approval of Onyx in the face of D’Agostino’s allegations precludes D’Agostino from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” In the absence of such official agency action by FDA, the court held that it was impossible to determine that FDA would not have approved the Onyx device without the alleged fraudulent representations. The court also concluded that the relator could not demonstrate materiality where CMS had continued to reimburse for Onyx, stating that “[t]he fact that CMS has not denied reimbursement for Onyx in the wake of D’Agostino’s allegations casts serious doubt on the materiality.”

The December 4 criminal plea, however, demonstrates that the government did take serious issue with ev3’s marketing of its Onyx product, although not necessarily because it evinced the alleged fraud posited by the relator in his FCA claim. The criminal information does not explicitly discuss the company’s communications with FDA during the approval process for the device, but does refer to post-marketing statements by FDA that made clear the company needed additional data to support an expanded indication for Onyx – statements that the company apparently disregarded. Thus, the pleading seems to describe a straightforward off-label promotion violation rather than any “fraudulent inducement” of FDA approval in the first instance.

In sum, while the relator may have “lost,” the government still won. This case showcases the power of the government based on the plethora of statutes at its disposal. It is likely the government saw the flaws in the qui tam case early on (thus choosing to decline the matter) but sought to prosecute the company’s activity and chose the more straightforward FDC Act violation as its tool. Defendants can still appreciate the strong language in the First Circuit opinion, but that may be of little solace to ev3 considering the ultimate end of its story.