ReGen's Menaflex and the FDA

For the first time the Food and Drug Administration on Thursday has publicly admitted a process of approval might have been unduly influenced by politics. The FDA accused four New Jersey congressmen and a former FDA of questionable conduct in the approval of Menaflex, a knee device manufactured by Hackensack, N.J.-based ReGen Biologics (OTC:RGBO).

In the preliminary report, the FDA acknowledges that although it is not unusual for members of Congress to inquire about a constituent's application, it describes the involvement of four New Jersey democrats — Reps. Frank Pallone and Steve Rothman and Sens. Robert Menendez and Frank Lautenberg — in the ReGen matter as "highly unusual" in persistence and interest.

The Director of FDA's Office of Legislation called the pressure as "the most extreme he had seen" and acquiescence to this pressure as "unprecedented in his experience" while the Assistant Commissioner for Accountability and Integrity described daily interactions with the Company's political consultant as "increasingly tense."

Furthermore, the FDA points the finger at the FDA Commissioner, Andrew von Eschenbach, M.D., who was pushed to intervene by the Congressmen and therefore took charge of matters usually under the control of the Review Division or Center Director. Von Eschenbach even agreed to a 90-minute meeting with ReGen executives, who appeared to want von Eschenbach to review Menaflex himself.

Anyway, of course on Friday ReGen gave its own press release making clear that the quality of its device was not the primary topic under question, as opposed to the FDA approval process which was the source of controversy. CEO Gerald E. Bisbee, Jr. calls the scientific evidence for the device "solid" and reminds us that 3,000 in Europe and the U.S. have had successful Menaflex surgery.

What ReGen conveniently does not mention though, is that the FDA reports although ReGen had repeatedly complained of "unfair treatment" when Menaflex did not receive the positive reviews from various groups of scientists reviewing the device, there was absolutely no finding of "unfair treatment" and the proceedings "did not substantially prejudice ReGen in any event."

Then, the report continues, instead of ReGen appealing the unsupportive reviews according to standard appeal procedure, the Office of Legislature simply began receiving phone calls from the Congressmen complaining about the "unfair" reviews.

I guess that might work when according to lobbying watchdog website opensecrets.org three ReGen exectuvies had given $26,000 to the four Congressmen in political contributions (in fact, ReGen became the third largest donor for Rep. Steve Rothman, picture at left, in 2008. ReGen wasn't even the top 100 top donor list for Rothman in 2006).

The FDA is now revisiting the approval of the device. But with efficient market theory beautifully at work here, the company's stock price has responded accordingly, crashing from $2.00 earlier this month to a low of $1.01 on Friday, closing at $1.25. Down because of the news, and still down because of shareholders' realization that the company might use lobbying rather than a device's benefits to speak for approval. ReGen has been posting losses since at least 2005, but a revisition of approval might be good for potential troubles it may save.