CEO Don Earhart updates Wall Street about I-Flow’s On-Q Pain Pump chondrolysis lawsuits
Posted by
Armand RossettiNovember 21, 2008 4:13 PMOn October 12, 2007, Biomedical Innovation headlined, “I-Flow faces lawsuits, defends its pain pump.” In that story, Orlando Rodriguez, vice President of marketing at I-Flow indicated that the company had been warning doctors since 2003 not to use its pain pumps with epinephrine, which constricts blood vessels.
Developments in 2007
In concert with Dr. Charles Beck’s 2007 medical report that appeared in the American Journal of Sports Medicine, Rodriguez pointed out that pain pumps are more appropriate in delivering anesthetic at the incision and near, not inside, the joint.
In or about October 2007, I-Flow released Frequently Asked Questions for On-Q Catheters. That publication contained the following statement:
“Avoid placing the catheter in joint spaces. Although there is no definitive established causal relationship, some literature has shown a possible association between intra-articular infusions and the subsequent development of chondrolysis.”
The American Association for Justice (AAJ) stated the following in its fall 2008 Products Liability Section Newsletter:
“While I-Flow claimed to have added a new warning regarding chondrolysis to its ON-Q® pain pump label in 2006, it remains unclear whether the company sent a "Dear Doctor" letter to surgeons alerting them to this new warning. It also remains unclear whether the company instructed I-Flow sales representatives to make sure that health care providers knew not to insert the pain pump catheters delivering bupivacaine directly into the joint space or whether I-Flow took any steps whatsoever to warn the surgeons and protect the health and safety of the surgeon's patients.
Furthermore, I-Flow's warning did not disclose to doctors the following essential information:
· The FDA never cleared or approved the use of pain pumps to administer medications in a joint space;
· The safety of pain pumps for use in the joint space is unknown and has not been tested or otherwise established through proper studies;
· Medications commonly used in these pumps are reported to be harmful to cartilage; and
· The FDA rejected proposed requests for a new marketing indication for use of pain pumps in the synovial cavity.”
According to the AAJ publication, statements in an I-Flow technical bulletin placed the onus on doctors to decide whether and in which way they would use pain pumps in their patients:
“ON-Q Pain Management Systems are indicated for intra-operative applications, among other applications. The current literature raises concerns regarding intra-articular use. The attached bibliography is for your reference. As always, the decision on how to treat the patient and what medications to administer belongs exclusively to the physician.”
After all, according to an article entitled, For I-Flow, strategic shifts are painless published in ocregister on May 23, 2008, I-Flow’s chief executive, Donald Earhart, learned in 1999 that I-Flow pumps that were usually used to dispense antibiotics also worked for pain relief. An orthopedic surgeon had been filling the pump’s balloon with lidocaine and attaching it to a catheter that dripped the anesthetic into a surgically repaired knee, keeping it numb for two days.
The ocregister story went on to state the following:
“Earhart directed I-Flow's two-person engineering staff to redesign the device. By mid-2000, the new use was approved by the FDA, and the company launched the new ON-Q anti-pain pump with a small three-hole catheter for spreading the anesthetic.
Sales initially were slow. Earhart recalls meeting with representatives of a Johnson & Johnson company that I-Flow had signed up as a partner in selling and distributing ON-Q pumps.
‘They said, 'There are 7 million surgeries a year that we can go after.' I asked, 'Why not 70 million?'" – Roughly the total of all operations in the United States.
The reason was that the catheter was too small for large operations.
‘It was good for a hernia operation, but not for hearts – the big stuff,’ said Earhart.
So he zigzagged slightly again, asking his engineering staff to remedy the problem.
After a year of work, they created a long catheter filled with a hollow mesh that spreads the anesthetic to dozens of tiny outflow holes. The current version of that catheter is the ON-Q SilverSoaker, which is coated with silver as an extra feature. Silver kills microbes on contact.
I-Flow estimates that its current product line could be used in 20 million operations per year in the United States, although its sales have achieved only 4 percent of that goal. The company is one of 13 that make local-anesthesia devices, but it considers its real competitor to be narcotics.”
It seemed that the emphasis was on sales and not R&D as the ocregister continued:
“I-Flow has never been much for research and development. Among its nearly 1,000 employees, it now has three R&D engineers, two of them focusing on catheters, one focusing on pumps. Another six engineers focus on manufacturing at I-Flow's 490-employee factory in Tijuana.”
The following Donald Earhart bio appeared on a BusinessWeek webpage:
“Donald M. Earhart has been a Director of I Flow Corp. since 1990. Mr. Earhart has been the Chairman of the board of Directors since March 1991, the Chief Executive Officer since July 1990 and the President of I Flow Corp. since June 1990. Mr. Earhart, who holds a Bachelor of Engineering degree from Ohio State University and a Masters Degree in Business Administration from Roosevelt University, has over 25 years experience in the medical products industry. ... Prior to joining I Flow Corp., from 1986 to 1990, Mr. Earhart was a corporate officer and the President of the Optical Division of Allergan, Inc. Prior to his employment at Allergan; he was a corporate officer and Division President of Bausch and Lomb and was an operations manager of Abbott Laboratories. He has also served as an engineering consultant at Peat, Marwick, Mitchell & Co. and as an engineer with Eastman Kodak Company.” [Emphasis added].
The update in 2008
On November 5, 2008, I-Flow held a telephone conference call to report the state of the company ending in the third quarter of 2008. Many public corporations hold conference calls to give corporate executives an opportunity to comment on a corporation’s financial condition, to highlight new developments and to discuss challenges that a company may be facing. At the end of the conference call, Donald Earhart fielded questions from investment firm analysts and the media. The transcript appeared in Seeking Alpha on November 20, 2008.
Earhart explained that I-Flow had set aside $35 million for chondrolysis cases for a year and questioned himself whether it was 2007 or 2008. I-Flow's Jim Talevich, a former fitness equipment executive, then stated that it was the policy year ending on June 1, 2008. Then Earhart said that I-Flow had earmarked 50 million for 2008-2009.
Earhart then indicated that he had no idea what the lawsuits were going to cost, if anything, other than the legal expenses, because a case hadn’t gone to trial yet. Earhart explained that insurance would cover the legal expenses. Talevich then added that I-Flow really did not have guidance and asked whether the person asking the question was talking about the $166,000, and he replied, “I guess so.”
During the continuing dialogue, Earhart replied that plaintiffs had filed 37 cases in all, but he would not provide the number cases that named I-Flow as a defendant. Earhart then stated that plaintiffs had tried to institute a class action. However, the court would not agree to permit a class action to go forward. Earhart mentioned that If I-Flow did not prevail, it would appeal, and that would take a long time; the first case would probably go to trial in 2009.
According to Seeking Alpha, when asked the earliest date from which the incidents occurred, Earhart stated the following:
“Yes. It’s treatments that were done many years ago, before chondrolysis was even thought of. Before any of the papers that came out, the animal studies that came out, that talked about chondrolysis and remember now, there is no proof other than animal studies which suggest that pain pumps delivering a local anesthetic can cause chondrolysis.
I’ve said this argument before on the conference calls, is that a pain pump or a delivery device, whether it be a syringe or one of our pumps delivering a drug, how do you blame the device, because there’s no way the device can cause the disappearance of cartilage. It would have to be whatever is delivered into the site or would have to be the technique by the doctor or it would have to be the sutures or it’d have to be the staples or it’d have to be something else he used during the surgery, but it can’t be our pump, because our pump can’t cause cartilage to disappear.”
Then Earhart took a question concerning what extent doctors invent their own method as opposed to relying on guidance from I-Flow as to where to place the catheter; Earhart responded:
“Again, we provide doctors with what others have done. Other than that,we make no recommendation.”
Then Earhart said that he had probably commented more on the litigation than he should have and that everyone needed to move on to another subject.
Given all of the above, plaintiffs continue to file lawsuits, and I-Flow has posted a loss in quarter three of 2008.