OtisMed Pays $80M for Distributing FDA-rejected Cutting Guides

Dec 10, 2014

FDA

OtisMed Corporation (OtisMed) and its former CEO, Charlie Chi, admitted to intentionally distributing knee replacement surgery cutting guides after their application for marketing clearance had been rejected by the U.S. FDA. OtisMed also agreed to pay more than $80 million to resolve related criminal and civil liability, according to an FDA press release.

Chi, 45, of San Francisco, and OtisMed entered guilty pleas in Newark federal court. OtisMed pleaded guilty before U.S. District Judge Claire C. Cecchi to distributing, with the intent to defraud and mislead, adulterated medical devices into interstate commerce in violation of the Federal Food, Drug, and Cosmetic Act (FD&C Act). Chi pleaded guilty before U.S. Magistrate Judge Mark Falk to three counts of introducing adulterated medical devices into interstate commerce. Judge Cecchi also sentenced the company, fining OtisMed $34.4 million and ordering $5.16 million in criminal forfeiture. In a separate civil settlement, OtisMed agreed to pay $40 million plus interest to resolve its civil liability.

“Companies and individuals put the public health at risk by not complying with FDA regulatory requirements for the pre-market review of medical devices,” said Philip J. Walsky, acting director of the FDA’s Office of Criminal Investigations. “We will continue to investigate and bring to justice those who potentially endanger patient safety by distributing unapproved medical devices.”

The OtisKnee was used by surgeons during total knee arthroplasty (TKA), commonly known as knee replacement surgery. OtisMed marketed the OtisKnee cutting guide as a tool to assist surgeons in making accurate bone cuts specific to individual patients’ anatomy based on magnetic resonance imaging (MRI) performed prior to surgery. None of OtisMed’s claims regarding the OtisKnee device were evaluated by the FDA before the company made them in advertisements and promotional material.

Between May 2006 and September 2009, OtisMed sold more than 18,000 OtisKnee devices, generating revenue of approximately $27.1 million.

On Oct. 2, 2008, OtisMed submitted a pre-market notification to the FDA seeking clearance to market the OtisKnee. The company had not previously sought the FDA’s clearance or approval, and had been falsely representing to physicians and other potential purchasers that the product was exempt from such pre-market requirements.

On Sept. 2, 2009, the FDA sent OtisMed a notice that its submission had been denied, noting that the company had failed to demonstrate the OtisKnee was as safe and effective as other legally marketed devices. One week after the FDA denied OtisMed’s request for clearance, the company shipped approximately 218 OtisKnee guides from California to surgeons throughout the U.S.

On each of the three counts, Chi faces a maximum potential penalty of one year in prison and a $100,000 fine, or twice the gain or loss from the offense. Read the full release

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