UPDATE: Stryker settles with DOJ in the OtisMed knee investigation

  • Former OtisMed Corp. (NYSE:SYK) CEO Charlie Chi admitted to intentionally distributing knee replacement surgery cutting guides after the company’s application for marketing clearance had been rejected by the FDA. Mr. Chi and OtisMed entered their guilty pleas in Newark federal court.
  • To settle the criminal charges, OtisMed was fined $34.4M plus $5.16M in criminal forfeiture. In a separate civil settlement, the company agreed to pay $40M plus interest.
  • The cutting guides were used by surgeons during total knee arthroplasty or knee replacement surgery. OtisMed marketing the guide as a tool to help surgeons in making accurate bone cuts specific to the patient’s anatomy based on magnetic resonance imaging performed prior to surgery. None of the claims regarding the OtisKnee device were evaluated by the FDA before the company included them in advertisements and promotional material.
  • On each of three counts, Mr. Chi faces a maximum penalty of one year in prison and a $100K fine, or twice the gain or loss from the offense.

 

Stryker offers Justice Dept. $33M to end knee devices probe (MassDevice)

Orthopedics giant Stryker offers the U.S. Justice Dept. a $33 million settlement to close the books on a probe of its OtisKnee implants.

The DOJ has yet to evaluate the offer and Stryker noted in regulatory filings that “there can be no assurance that we will reach a consensual resolution, when such a resolution would occur, or what the final terms of any such resolution may be.”

Stryker first revealed the probe in its 3rd quarter 2010 earnings release, saying it received a subpoena on “regulatory matters related to the OtisKnee device.” No other information was given, but the subpoena “pertains to alleged issues prior to OtisMed acquisition,” Piper Jaffray analysts wrote at the time.

Now Stryker says the subpoena ” related to the sales and marketing of the OtisKnee device,” according to regulatory documents filed yesterday.

“The subpoena concerns allegations of violations of federal laws related to sales of a device not cleared by the U.S. FDA,” according to the filing. “We recently entered into discussion with the DOJ regarding the potential settlement of this matter, and on May 31, 2012, we offered $33 million to the DOJ,” according to the filing. “During the second quarter of 2012 we will record a non-tax deductible charge of $33 million representing our best estimate of the minimum of the range of probable loss to resolve this matter.”

Stryker acquired OtisKnee custom-fitting knee implant technology maker OtisMed Corp. in 2009. The company did not respond to requests for comment yesterday.

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