Medical Device Company: Fraudulent Sales

DEVELOPING A CONTAINMENT POLICY TO PROTECT THE REPUTATION OF A BRAND NAME MEDICAL DEVICE

Dealing with the Criminal Justice System and Foreign Intrigue


Our client, a leading producer of proprietary medical diagnostics devices, was victimized by the fraudulent sale of some of its products. Products manufactured for export were diverted to U.S. customers. Because the products did not comply fully with U.S. Food and Drug Administration (FDA) regulations, the company ended up being the subject of a federal grand jury investigation. As a publicly traded company, our client appropriately disclosed the reportable event. However, in the event that knowledge of certain details of the investigation became widespread, our client needed to:

  • Defend the reputation of the company and its products
  • Reassure the public, the medical community, and, most important, the company's millions of customers that its blood diagnostic products were safe
  • Prevent or minimize public relations damage to the company resulting directly or indirectly from the federal grand jury investigation

Background and Situation Analysis

A Swiss firm had contracted for the purchase of our client's blood diagnosis product to sell in the Soviet Union, a virgin market. The product was manufactured specifically for export-and was therefore not subject to regulation by the FDA-and was delivered in accordance with contract specifications. Shortly thereafter, our client learned that some of these goods had ended up in health care facilities in the U.S. The company suspected it had been victimized by a diversion scam involving mail and wire fraud. Management reported the incident to both the FDA and the FBI; it then undertook a program to retrieve and replace all of the mis-shipped merchandise.

A federal grand jury was convened to investigate the matter. As the investigation unfolded, apparent incidences of sabotage, fraud and foreign espionage began to surface. It became difficult to conclude that there wasn't some level of deception by someone inside the company who helped facilitate the fraud. A public airing of this macabre tale of intrigue would undermine the integrity of the product and jeopardize its acceptance as a life-sustaining diagnostic device. Such an airing would also irreparably damage our client's longer-term prospects. Although an industry leader in a niche market, our client was still a relative newcomer, an R&D-driven, early-stage enterprise that only recently had become profitable. With approximately 1,000 employees, worldwide operations, and its first reported profit in years, the company's stock was trading at record high levels and was poised for a possible takeover by a major pharmaceutical company. Suddenly, everything was at stake.

The Plan

N&A assisted the client with a multi-faceted strategy:

  • Developed a crisis contingency plan centered around a critical communications protocol that accommodated full disclosure but protected against damaging leaks.
  • Prepared a set of consistent, credible messages to refute any suggestions of impropriety or misconduct by management or compromises in the manufacturing processes or integrity in any of the company's products.
  • Provided media training for senior management.
  • Developed holding statements and Q&As for the media.
  • Identified and coached a designated spokesperson.
  • Orchestrated the plan on an "as needed" basis.

Results

  • Our client was successful in imparting the message: "While they manufactured products for export according to different standards, the company had in no way compromised their guidelines-particularly as they related to being in absolute compliance with FDA standards for their domestic production."
  • The findings of the grand jury investigation were inconclusive and the justice department's case was closed.
  • The reputation of the product and the company remained intact.

Because the company had engaged in full and responsible disclosure, not only was management successful in selling the company to a strategic buyer, they were able to do so before the case was fully resolved.