Bill Facteau made millions of dollars by selling a company that sold devices to treat sinus infections. But after the government accused him of questionable marketing practices surrounding one device, the Atherton biotech executive landed in federal court.
Now his cautionary story has turned into a closely watched legal appeal that has consumer advocates, industry leaders and legal analysts debating a question that could have major consequences for Silicon Valley’s biotech and pharmaceutical companies: Should the First Amendment protect a firm’s right to market and sell its products for uses that federal regulators have not approved?
The debate is at the heart of Facteau’s request to throw out 10 misdemeanor convictions handed down this summer by a federal jury in Boston that also acquitted him and a colleague of 14 felony counts of fraud for selling a medical device “off-label” — or for uses not approved by the Food & Drug Administration.
Doctors can legally — and routinely do — prescribe drugs and use devices “off-label,” but drug and device makers are prohibited from promoting their products for such uses.
Facteau and his top sales executive Patrick Fabian are appealing their misdemeanor convictions for “introducing adulterated and misbranded medical devices into interstate commerce.”
In the criminal trial, the jury found the men had no intent to defraud. Jurors also determined the product’s labeling was not false or misleading and that no injuries were associated with use of the device.
Now, the two men are counting on the First Amendment strategy by their attorneys to erase the misdemeanor convictions.
Judges and juries have increasingly found that off-label promotion of FDA approved drugs and devices constitutes protected First Amendment speech, as long as the promotion is truthful and not misleading.
“Freedom to disseminate truthful information is one of those things we learn about in civics class,’’ said Peter Goss, a Minneapolis-based defense attorney who represents pharmaceutical companies and their executives.
“It’s one of the fundamental rights of American citizens.’’
Both Goss and Facteau’s attorney, Palo Alto-based Leo Cunningham, say there is strong precedent that works in Facteau’s favor.
Neither Facteau nor Cunningham would comment about the pending case.
But consumer advocates and plaintiffs’ attorneys call the maneuver a constitutional end-run around consumers, who may end up harmed when drugs and devices are promoted off-label.
“The FDA rules and regulations for marketing a prescription drug or device are there for a very good reason: to protect the public,’’ said Erika Kelton, a veteran plaintiffs’ attorney with Phillips & Cohen in Washington, D.C. “Without them, any manufacturer can start selling snake oil as a miracle cure for any number of things.’’
Kelton, who helped win a record $3 billion whistleblower fraud case in 2012 against GlaxoSmithKline for pushing some of its medications for “off-label” uses, said these First Amendment defenses have become more prevalent over the years.
In order to use it to successfully to defend a company or individual marketing an off-label product, she said, it must be backed up by an analysis of the drug or product that is based on truly objective scientific clinical support.
Prosecutors say Menlo Park-based Acclarent, where Facteau served as CEO, did not have the FDA’s permission to support its claims.
According to the Department of Justice, from 2008 to 2011, Facteau and Fabian, his vice president of sales, engaged in a scheme to fraudulently drive up Acclarent revenues and stock price by illegally marketing the tiny medical device for patients suffering from sinusitis.
The so-called “Stratus’’ device, with its access system, was a medical device for implanting a small balloon with tiny holes in a person’s nasal sinuses for at least 14 days. But it was only cleared by the FDA to be used with a saline solution.
However, the government said, the two men launched the product for use with a steroid.
The pair claim that ear, nose and throat doctors were the ones who pushed to use the device with a steroid, saying it was a more successful way to treat patients.
The government contends that Facteau and Fabian sought to quickly develop and market the device to create a projected revenue stream that would make Acclarent an attractive target for either an initial public offering or acquisition.
In early 2010, the Johnson & Johnson subsidiary purchased Acclarent for $785 million. Facteau and Fabian received $30 million and $4 million, respectively.
But a whistleblower lawsuit brought to light the allegations, leading to the criminal case against the two executives.
The two face as much as one year in prison on each count (though observers consider that unlikely); one year of supervised release, and a fine of $100,000 or twice the gross gain or loss.
The outcome of the case also could have a chilling effect on Silicon Valley biotech and pharmaceutical companies, some say.
Greg Barrett, a longtime medical device executive, said the FDA should be helping companies “enable these technologies for new clinical applications” to assist patients instead of penalizing the firms or their leaders.
Next week, the FDA will hold a two-day public hearing about how it restricts companies from promoting drugs and devices for “off-label” uses.
“It’s fair to say that Acclarent’s approach to regulatory approval in this case was probably more aggressive than most companies would take,” said Goss. “But again, it was a start-up with a promising new technology. And when you are a startup, you take more risks.”