Stryker unit indicted in marketing scheme: DOJ

By Ros Krasny

BOSTON (Reuters) - Medical device maker Stryker Biotech LLC and top management were indicted on federal charges they conducted a fraudulent marketing scheme for bone-growth products, the U.S. Justice Department said on Wednesday.

Stryker Biotech, based in Hopkinton, Massachusetts, is a division of Stryker Corp (SYK.N) of Kalamazoo, Michigan, a maker of orthopedic devices and other hospital products.

Fallout from a conviction -- including significant fines and a possible exclusion from participating in federal and state healthcare programs -- "could have a material affect on Stryker Biotech's business," the company said.

"The company is disappointed with this action and still hopes to be able to reach a fair and just resolution," Stryker's statement said.

The indictment charged Stryker Biotech, its former president, Mark Philip, and three current sales managers with a scheme that involved devices used during invasive spinal and long bone surgeries.

Philip and the company also were charged with making false statements to the U.S. Food and Drug Administration.

Stryker had said in March it was the target of a federal grand jury probe related to its bone growth products. The inquiry began in 2008, the company said at the time.

Analysts said the latest developments might have a limited impact on the company.

"The commercial and profitability implications of DoJ charges filed against Stryker Biotech are likely to be less significant than the negative perception," analyst David Lewis at Morgan Stanley said in a research note.

Stryker is likely to aggressively pursue a settlement given the potential negative ramifications of a conviction, Lewis said.

Stryker and its executives promoted devices known as OP-1 Implant and OP-1 Putty for use in a manner that was different from the use approved by the FDA, the Justice Department said.

The company had a federal exemption that authorized it to sell only limited quantities of the bone-growth products for "humanitarian" reasons to treat a rare condition.

Instead, they promoted a combination of the devices with a bone void filler, called Calstrux, and provided "recipes" of how to mix the OP-1 products with Calstrux in ways never presented to or approved by the FDA, authorities said.

"It is alleged that some of these untested 'recipes' called for medical personnel to mold the combined products into 'cigars,' 'tootsie rolls' or 'vienna sausages,'" the Justice Department said.

If convicted on all charges, Stryker Biotech faces fines of $500,000 or twice the gross gain or loss from the offense, on each count.