Case of the Month: $33.2 Million Alere Settlement Sends Warning Shot Across Bow of LDT & DX Device Makers

One of the reasons Abbott Laboratories got cold feet about consummating the $5.3 billion Alere acquisition was concern over the legal proceedings against the target firm. Now one of those cases involving the Alere Triage point-of-care rapid testing device has settled for a cool $33.2 million. The significance of the case is not simply the price tag but what it may portend for other manufacturers of diagnostic devices and laboratory developed tests.

The Triage Recall. . .
Alere designed the Triage Device to diagnose acute coronary syndromes, heart failure, drug overdose, and other conditions. In 2012, the FDA investigated and reportedly issued three citations related to defects in the device:

• Significantly significant disparities between the actual cardiac Triage Device coefficient of variation (CV) specifications and the CV specifications listed on the product labeling;

• Unacceptably high variability in performing quality control testing of the device; and

• Changes to the manufacturing and release specifications for toxicology Triage Devices resulting in the market release of product lots containing products with potentially significant decreases in precision.

After the inspection the FDA issued a mandatory nationwide recall. Alere then implemented corrective actions.

. . . Spawns a Whistleblower Suit
A typical case involving recall and correction of a faulty product generally ends right there. But the FDA was unhappy with what it perceived to be Alere’s foot dragging during the incident and suspected that Alere knew more about Triage’s problems than it had let on. The FDA apparently questioned not just the pace but adequacy of the corrective actions. And this set the stage for the case to escalate in an unusual and unanticipated direction.

The second stage began when a former senior quality control analyst named Amanda Wu filed a qui tam whistleblower lawsuit accusing Alere and its San Diego subsidiary of “knowingly selling materially unreliable point-of-care diagnostic testing devices” from 2006 to 2012. The suit claimed that Alere knew the device was unreliable because customers complained that Triage was generating erroneous results, including false positives and negatives. The DOJ decided to join the suit.

Faced with the risks of a trial and the compulsion to resolve its legal issues to make way for the October closing of the Abbott deal, Alere agreed to settle the case. The $33.2 million settlement was announced on March 30. As qui tam relator, Ms. Wu will pocket roughly $5.6 million of the settlement.

Takeaway—3 Ways to Protect Yourself
While not unheard of, DOJ False Claims Act cases against diagnostics companies stemming from false test results generated by a recalled product are highly rare. “The DOJ doesn’t typically move against companies that have already recalled the product in question,” according to former assistant US Attorney Jason Mehta (quoted in the Gray Sheet). The three key lessons for device and test makers:

1. Pay attention to and perform root cause analyses of customer complaints, particularly when they form a pattern pointing to a particular problem or product feature—Alere apparently failed to do this;

2. Take immediate action to correct the problems you identify—Alere’s slow response was clearly a factor leading to qui tam litigation and DOJ intervention in this case; and

3. To the extent problems cannot be prevented, self-disclosure may be an advisable strategy for avoiding DOJ prosecution and/or whistleblower lawsuits.