Howard Root on the State of Minnesota’s Medical Device Industry
Howard Root says his fight with the Department of Justice is nowhere near over. It began June 23, 2011. His general counsel at Vascular Solutions’ Maple Grove headquarters called to tell him the medical device company he’d founded in 1997 and had taken public in 2000 was being subpoenaed by the Justice Department following a disgruntled ex-employee’s allegations of off-label promotion of its Vari-Lase device. Vascular was accused of marketing Vari-Lase, approved to open blocked veins, for treating “perforator veins,” a purpose not validated by the U.S. Food and Drug Administration.
In the years leading up to the case against Root and the company, the Department of Justice had ramped up its focus on off-label use; lawsuits were generating big settlements. Just two years before Vascular’s case, pharmaceutical giant Pfizer reached a $2.3 billion settlement to resolve civil and criminal charges under the False Claims Act. Root faced a similar dilemma, risking prison time and multimillion-dollar fines.
Five years and $25 million in legal fees later, Vascular Solutions and Root were cleared, although neither escaped unscathed. The experience, Root says, pushed him to leave the company in February, when Vascular was sold to Teleflex Inc. (for $1 billion). In this interview, Root addresses the state of the medical device industry and what he sees as the dangers of innovating in a litigious environment.
Q What path took you from corporate lawyer to chief executive of a medical device company?
I was infatuated with Perry Mason courtroom drama stuff, and my dad was a technician at Honeywell and Control Data, so that was my background, but I rebelled against it. I knew mathematics and a little bit of engineering from high school, but I stayed away from that in college. I didn’t need that in law school, so I took three science classes in college: geology, biology and astronomy—just generals. But if you learn how to learn advanced, complicated subjects and you can communicate that [in writing] and verbally, it’s amazing what you can still do and learn. My career wasn’t a natural progression. I mean, I could live my life 10 times and I’d only do this once, and nine times I’d be doing something completely different.
Q What does it take this day and age to create a successful medical device?
They say it’s 1 percent inspiration, 99 percent perspiration. It depends on the product, but one in 10 tends to be a success. You might have a couple more out of the 10 that are OK and then a couple that are marginal, and five of them you probably wish you hadn’t started. It also depends on the technology involved as to how long it’s going to take. And when your company has 100 products that you continue to manage and you have to incrementally improve each of those, you don’t have as much time to spend on the new breakthrough product. Every company slows down a little bit as it grows, and the FDA has made you slow down, too. It’s not as quick as it was back in ’97 to get a product through the process.
Q Or as cheap.
It’s a lot more expensive. I mean, time is money. If it takes you four years as opposed to two, you can pretty much double the cost. The FDA makes you do animal studies on pretty much everything now. The bench testing that they require you to do is off the charts compared to where it was 15 years ago. As fast as we were growing—13 consecutive years of double-digit growth, $167 million in revenue (2016)—at the end I thought we were too small. And yet we had grown so fast. I didn’t think we were so small in 2000 when we launched, but the need for scale and all this infrastructure—whether it’s compliance, regulatory, finance—continues to grow every year.
Q Are we seeing fewer medical startups than two decades ago?
Way less. We aren’t seeing anywhere near what it was. The bigger side of the industry is getting more and more concentrated. The small is disappearing because the startups just aren’t there. A [medical device] company used to go public in Minnesota once every six months. They aren’t [anymore]. There’s so many regulations that the required organizational scale has gotten so big that you can’t do what we did 20 years ago. This is not a cyclical problem, it’s a structural problem, and it starts with the [number] of regulations and the criminalization of our industry.
Q Do you believe C-suiters in the medical device industry are more regularly being targeted than executives in other industries?
Last year, three health care CEOs went on trial over criminal charges [because] their sales reps [allegedly] said something wrong, and one was convicted. This hits health care hard because nebulous FDA regulations combined with the Park doctrine, [which] creates strict criminal liability for corporate health care officers over the words spoken by a salesperson to a doctor. It’s an unacceptable level of criminal risk that chases entrepreneurs like me out of the industry, and that results in less industry—in this case life-saving medical devices.
Q So you’re saying that as a result, fewer innovative devices are coming to market?
There are ideas, and the University of Minnesota talks about their ideas, but ideas are just a professor writing on a napkin or having a patent. When I say a company, I mean a company actually bringing a product to market, because that’s where all the jobs are. The jobs aren’t in the think tanks. The jobs are in the manufacturing and selling of medical devices, and that’s where I’m seeing absolutely nothing.
When [many] medical device companies are under investigation and these [lawsuits] are costing $5 million, $10 million—and in our case $25 million—it’s a cost on the industry, which results in less investment. The real secret is the new companies that are not getting created because the environment is so hostile. Normally, I’d be starting a new company today. I love medical devices, but I’m not doing it. It sounds very egotistical but I’ll say it anyway: There are very few people who can do what I can do. If you chase those people out of the industry, then you’re not going to have the job creation.
Q Exactly how much oversight should the FDA have over the medical device industry?
Everyone knows that a strong FDA is essential to protecting patients. And to get there, the FDA needs to focus on getting more experience and knowledge. In our case, the FDA reviewer who inappropriately rejected our ninth FDA application had been with the FDA just one month and had no medical device experience whatsoever. His rookie error caused the prosecutors to believe we had engaged in illegal activity, and because of the prosecutors’ arrogance, they couldn’t be corrected until we spent $25 million to win at trial. Ignorance combined with arrogance is a big problem with regulatory agencies.
Q You have concerns about the available talent pool for the medical device industry.
I [wrote an op-ed] in the Star Tribune a couple of years ago, and it got a lot of people riled because I was saying the University of Minnesota is not educating students who can do an entry-level job in medical technology. They can’t learn complicated subjects, and if they can’t do that, I don’t have a job for them. And I figured out what it is: You can get a great education at the University of Minnesota, but the school doesn’t force you to do what should be required to get a degree.
Q Can you elaborate?
If you have a class that’s hard and technical for liberal arts students and you grade them [more strictly] than other classes, you will not get any students to sign up. They have a catalogue of so many different courses that kids can take whatever they want and create their own major, and they’re not forced to learn. Listen, I’m fine with art history. Just learn art history. Don’t do visual rhetoric. I have no idea what that is. Don’t do History of Rock 1 and History of Rock 2. “Beginning Running”? I mean, why is the university spending money to teach someone how to run? I had more than one student tell me when I interviewed them that the hardest substantive class they took was in high school, not in college. That’s a problem.
Q What’s the practical effect for a company like Vascular?
Every year, I’d hire four to six apprentices in medical device sales and marketing. No medical experience was required. It was a two-year program, and while you were doing that we’d give you the background education on medical devices. There were times I couldn’t fill the last slot. There’d be 100 kids that would apply and 95 of them would not be able to do the job, so I’d hire five instead of six. And that’s why I say it’s not a business that I want to continue to run. When you have unlimited potential liability—I could go to prison—with a workforce that can’t do the tasks the government is making you do, and then having these nebulous regulations thrown on top … That’s where you don’t want to be the responsible party. You want to say, “I’m sorry. Enough.”
Q Why did you decide to take the offensive over the case against Vascular Solutions instead of keeping quiet?
It’s just not my personality to start with—we were in the right. When you’re running a public company our size, you have to worry about what the shareholders are going to do. When I give the talks on it now, I say, “You’re the CEO and you’re facing an indictment. You’ve got four constituents: customers, employees, board of directors and shareholders. Now, which one are you going to focus on as the most important?”
They’re all important, but it’s employees, hands down. If you don’t have the employees you can’t make anything work. Shareholders are the one objective measurement on how serious your case is and, if you can keep your stock price up, conversely the employees say, “Wall Street doesn’t think this is a problem, so why should I?” Customers say the same thing, and the board doesn’t have to worry about shareholder lawsuits. We didn’t get sued by any plaintiff’s firm during the indictment and full criminal trial. You can’t [accomplish] that by going into a fetal position on the floor. You can’t do it by saying nothing. I told our lawyers if we won the lawsuit and I come back and there’s an empty building with Vascular Solutions’ name on it, we’ve lost.
Q Do you think you fared better than other med-tech CEOs because of your prior legal experience?
Oh, absolutely. I’m the most fortunate defendant in America. Without the law background, I wouldn’t have been able to fire a lawyer. If you [lack that background] you’ve got a very low chance of winning, even if [the prosecution] doesn’t have a case.
Q As the CEO of a medical device company today, what expertise is most crucial: medical, business or legal?
I still think the most important thing for a CEO to have is expertise in the medical field because you have to know your products. All of the really successful CEOs that I know knew their product; you can hire finance experts and the people to lay on organizational structure. Second would be legal background. You don’t have to be a lawyer but if you can’t read, write, analyze, direct, ask questions and sometimes get upset at people who are supposed to be more knowledgeable than you, you can’t run a company. I’ve seen more companies destroyed by their own lawyers than by the other side’s.
Q At the time of your company’s suit, you were facing three years in prison. Instead you’ve retired. So what’s next?
My deal is to explore everything and commit to nothing. And the other thing is to get out of the house, because my wife Beth married me for life, not lunch. But I don’t know, to be honest with you. I’ve got interest in this cause [to rein in the regulatory environment], number one. I’m thinking about going to D.C. and seeing if I can get some traction. Right now they’re talking about lowering the number of administrative regulations … let’s lower the number of criminal regulations. That would be a good start. tcbmag