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Will Trump Donor Use His Ties to Beat the FDA?

Parker Petit says he doesn’t think his ties to the president and Health and Human Services Secretary Tom Price, who oversees the FDA, will benefit his wound care company.

Photo Illustration by The Daily Beast

By Marisa Taylor, Kaiser Health News

Parker Petit, a GOP-friendly biotech executive, has a new nickname since the presidential election. His critics call him “the Trump of Georgia.”

An early supporter of Donald Trump’s, Petit is unfazed by the comparison, which points to his brash and combative qualities. Now that Trump is president, Petit said, he hopes to finally resolve impasses with regulators that have hurt his Marietta, Georgia, company, MiMedx, a maker of wound-healing products sold to Veterans Affairs hospitals or billed to Medicare.

“The one thing I can say about Donald Trump is I expect he’ll hold people and agencies accountable and not waste everybody’s time,” said Petit in an hour-long phone interview. “What the FDA needs, in my opinion, is simply to be held accountable.”

Petit has worked hard to promote his version of accountability as well as his company’s financial interests. Along the way, he has raised tens of thousands of dollars for Republican campaigns and political allies—some of whom now oversee the federal agencies busy scrutinizing his products.

Petit, who goes by “Pete,” was Trump’s 2016 Georgia finance chair and is a longtime political backer and friend of Georgia Republican Sen. Johnny Isakson, a leading voice on the Senate’s health committee. Petit also was a powerful top contributor to former Rep. Tom Price, now the health and human services secretary. Federal campaign finance records show MiMedx, through its PAC, chief executive, and his relatives, has contributed more than $40,000 to Price’s campaign and joint fundraising committees since 2014. As a result, the company was ranked as Price’s top contributor for 2015-16 by the nonpartisan Center for Responsive Politics.

Petit said Price, along with other members of Congress, encouraged Medicare to keep intact its reimbursement of tissue products. A competitor had asserted to Medicare that MiMedx’s products were only “wound care bandages,” which would have called for a lower reimbursement rate, he said.

Despite that help, the company’s high-stakes ambitions still face hurdles that Petit is determined to cross: It needs to resolve a long-running disagreement with the Food and Drug Administration over its manufacturing process and beat back allegations of securities fraud brought by former employees who accuse MiMedx executives of fraudulently boosting sales to the VA, a charge Petit denies. The lawyers for the former employees in that case have filed a complaint against the company with the Securities and Exchange Commission, which declined to comment.

MiMedx also is seeking FDA approval for one of its products, many of which are made from donated placenta and umbilical cords, and fashioned into treatments for large, non-healing wounds.

While the Trump administration is expected to forge a faster, easier regulatory path at the FDA, Petit disputes the notion that his political support of Trump and Price, who oversees the FDA, will benefit MiMedx. Asked about that possibility, he added, in his blunt style: “You’re trying to make something out of nothing.”

Joseph Munda, a financial analyst with First Analysis Securities Corp., said he was concerned about potential fallout from the sales fraud allegations and the FDA matter. MiMedx is a leader in the wound care industry, which Munda said generates about $5 billion a year in sales.

“Pete’s taken this company from no revenue to more than $200 million in revenue,” Munda said. “That’s a testament to Pete and his operator skills. But how has the ride been? It’s been a roller coaster.”

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The Big Business of Treating Wounds

Petit, 77, has made numerous enemies in a fiercely competitive niche market. Yet he’s not shy about seeking political help.

“It isn’t hard to see why Petit was Trump’s finance chair in Georgia,” said Clayton Halunen, a Minnesota lawyer representing the two former employees alleging securities fraud. “Petit appears to maintain a veneer of self-assurance, no matter how disturbing his conduct.”

Petit vehemently denies the security fraud allegations. The company, which added a former SEC commissioner to its board in March, also announced that its auditing committee found no merit to the accusations.

“They’re lying, and that’s an understatement,” Petit said of the two former sales managers, Jess Kruchoski and Luke Tornquist, noting that his company was suing them for violating a contractual agreement not to sell competitors’ products on the side.

Petit has filed four federal lawsuits against competitors over alleged patent violations, made sweeping claims about his products’ superiority to investors, and, in an interview, criticized wound care data challenging the effectiveness of tissue products.

Some observers see his assertions as overstated for an industry that has yet to prove itself effective in treating severe wounds that affect increasing numbers of elderly patients.

Almost 15 percent of Medicare beneficiaries, or 8.2 million people, were diagnosed with at least one type of wound in 2014, according to estimates by the Alliance of Wound Care Stakeholders. These included 12 wound types, such as those from diabetic infections, surgery, and various ulcers, said the alliance, which consists of physician societies and clinical associations whose members treat patients with wounds.

Competition is intense as a growing number of companies jockey for business from hospitals and wound care clinics, including ones run by the VA and the Defense Department. But researchers disagree about the most effective treatment for these wounds—injuries that can lead to amputations and even deaths.

Some companies sell products made from donated cadaver tissue, a traditional form of care. But MiMedx is a leader among companies that use amniotic tissue secured from unpaid female donors in maternity wards.

MiMedx collects the tissue in operating rooms, screens it for infectious diseases and sterilizes it in a patented process at its Georgia manufacturing plant. The tissue is fashioned into sheets and ground into powder that can be directly applied to open wounds.

The company also markets its products for pain management and dental and eye procedures. Its pending FDA application is for treating plantar fasciitis, a common foot ailment.

MiMedx contends that its wound care products can be more than 90 percent effective, citing clinical studies it helps fund. Other estimates show the success rate can be lower when used on the sickest patients with the most severe wounds.

“I’ve been doing this a long time, and this technology is fantastic,” said Petit, before shipping a reporter a binder stuffed with studies he says demonstrate they work.

“Is there something wrong with being profitable?” he asked. “If you don’t make profits, you don’t pay taxes, you don’t send money to Washington. That’s pretty simple.”

Ever the Risk Taker

In his home state, Petit is known as an audacious innovator who donated $5 million to his alma mater, Georgia Tech, to finance a research institute that now bears his name.

At MiMedx, Petit exuded a rock star-like swagger, welcoming new employees with a video showing him piloting his jet as the Top Gun theme song blares.

“Flying is my therapy,” Petit said.

In his first health care foray more than 40 years ago, Petit quit his job as an aerospace engineer after his infant son died in his sleep. He launched a start-up that created the first monitor for sudden infant death syndrome. That venture later became Healthdyne, which grew into three public companies and made him millions.

“He risked everything,” recalled Isakson, the Georgia Republican who met Petit in 1967 when he rented the entrepreneur a small section of a warehouse.

But Petit has confronted obstacles—some say of his own doing.

After he became chairman and CEO of a Healthdyne spinoff, Matria Healthcare, the company paid $9 million to settle a lawsuit that alleged fraudulent billing for mail-order diabetes supplies. Petit said the problems began before he took over.

Soon after he went to MiMedx in 2009, the SEC began investigating Petit and a friend in an alleged insider trading scheme related to his time at Matria.

At that point, MiMedx, which was incorporated in 2008, was a small player in tissue products. But it aggressively snapped up sales staff from a rival, Advanced BioHealing, then an industry leader.

In August 2013, the FDA dealt MiMedx a setback, issuing a letter suggesting that some MiMedx products did not qualify for an exemption from federal regulations and that its product should undergo stringent licensing before hitting the market.

Investors responded with a class-action lawsuit, which was ultimately settled, accusing the company of hiding information about the FDA’s concerns.

MiMedx’s stock price plunged 36 percent after the FDA issued its letter. Petit said he immediately called an FDA official, asking to talk to the scientists who made the determination.

“We had no idea it was coming,” he said, recalling that he phoned the FDA to say, “I want some answers here.”

Tying Up Loose Ends

Waiting—still—for a final FDA determination, Petit has taken his case to members of Congress, arguing that the FDA overreached. He and his competitors flooded the Obama administration’s FDA with objections. The company continues to sell the products that drew FDA scrutiny, and industry rivals sell similar ones.

Petit increased the company’s profile with a political action committee that contributed to influential members like Price and Isakson, and some of Petit’s tactics—including asking employees to contribute to the PAC—brought him under internal criticism. Petit said in an interview that he didn’t think it was a problem because he made the requests of managers.

“We have PAC business to transact, and we need at least 50 donors to do so,” said an email sent under Petit’s name in May 2015.

Petit was pushing back against the SEC insider trading allegations related to his time at Matria. The SEC wanted to strip Petit of his right to lead a publicly traded company. Petit refused to settle, and the SEC dropped the charges in June 2014.

In August of the same year, a federal judge allowed the class-action lawsuit against Petit and other MiMedx executives to proceed after finding evidence that executives may have broken securities laws by issuing information that was “misleading to investors.

MiMedx settled for close to $3 million last April.

Petit now insists the company settled only because of pressure from its insurers. “There was no evidence—none whatsoever,” he said in an interview.

MiMedx is still fighting allegations leveled in court by Kruchoski and Tornquist that it used its inroads with VA hospitals to inflate sales numbers in a fraud scheme. The pair say they were fired when they objected.

The Minnesota lawyer for the former managers, Halunen, said the case points to MiMedx’s “adoption of securities fraud as an integral part of the company’s business model.”

Other companies—including Advanced BioHealing, from which MiMedx recruited at least six sales representatives—have had their business practices questioned. One competitor, Osiris Therapeutics, was delisted earlier this month from the stock exchange after reports of a U.S. attorney and SEC investigation into its accounting practices. Osiris did not respond to requests for comment.

In January, Irish biopharmaceutical company Shire, which bought Advanced BioHealing, settled a federal case for $350 million. The company said in a statement it did not acknowledge the accusations leveled by the Justice Department, which alleged Advanced BioHealing had showered doctors and clinics with speaking fees, “lavish dinners, drinks, entertainment and travel” to win business for its wound care products.

Has the FDA Backed Off?

The question now is whether friends in Washington will smooth over MiMedx’s friction-filled disputes, particularly with the FDA.

Some experts say the FDA’s lack of follow-up with MiMedx to date signals that the agency has backed off its initial concerns. It’s an indication that they’re not moving forward with it,” said Jeffrey Shapiro, a lawyer who advises companies trying to navigate FDA regulations.

For his part, Petit says the product questioned by the FDA represents only 10 percent of his revenue.

While refusing to comment on MiMedx, FDA spokeswoman Andrea Fischer said her agency is finalizing guidance documents to help tissue-product manufacturers comply with its standards.

At any rate, the new administration and its supporters could be more inclined to honor the concerns of a political ally, who socialized with Price and his wife, Betty, at Trump’s inauguration celebration.

Isakson said he doesn’t know details of Petit’s FDA problems but has heard from Petit over the years as a “constituent and a friend” and agrees with Petit that the FDA has left companies hanging in regulatory limbo.

“It thwarts the development and the stability of the marketplace,” Isakson said of the process. “The FDA should make decisions.”

Kaiser Health News, a nonprofit health newsroom whose stories appear in news outlets nationwide, is an editorially independent part of the Kaiser Family Foundation.