OtisMed Corporation, former CEO plead guilty for distributing FDA-rejected cutting guides for knee replacement surgeries

Corporation to pay more than $80 million to resolve criminal and civil investigations

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 today, 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.

The office of U.S. Attorney Paul J. Fishman, District of New Jersey, prosecuted this case.

The guilty pleas and civil settlement are the culmination of a long-term investigation conducted jointly by special agents from the FDA’s Office of Criminal Investigations and from the Department of Health and Human Services’ Office of the Inspector General.

“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.

“Americans must be able to trust that they are treated with medical devices that have been shown to be safe and effective,” said Deputy Assistant Attorney General Jonathan Olin for the Justice Department’s Civil Division. “The Department of Justice will not tolerate companies and individuals that cut corners when it comes to the public’s health.”

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.

The FDA, an agency within the U.S. Department of Health and Human Services, protects the public health by assuring the safety, effectiveness and security of human and veterinary drugs, vaccines and other biological products for human use, and medical devices. The agency also is responsible for the safety and security of our nation’s food supply, cosmetics, dietary supplements, products that give off electronic radiation, and for regulating tobacco products.