How Guided Vascular Solutions to a $1 Billion Buyout Deal

This article was originally published here

Fink Densford/Associate Editor

Fresh from a huge legal win over the U.S. Justice Dept., Howard Root guided Vascular Solutions to a $1 billion buyout. Here’s what he learned about leadership along the way.

It’s been a banner year in many ways for Vascular Solutions. Apart from top-line growth of some 17%, the company was named to the Forbes 100 Most Trustworthy Companies list and agreed to a $1 billion acquisition by Teleflex.

But the biggest win was over its most daunting challenge: Vascular Solutions went toe-to-toe with the U.S. Justice Dept. for five years and walked away with a win.

Co-founder and CEO Howard Root has been at Vascular Solutions’s helm for the entirety of its 20-year history. Not only did he guide the company through a gritty, $25 million defense against extended Justice Dept. litigation and criminal prosecution, he also helped grow Vascular Solutions from a single device and a small investment to a thriving business. The company has more than 550 employees and nearly $150 million in annual sales.

Root told Medical Design & Outsourcing that although his previous life as a lawyer helped prepare him for the storm of a DoJ investigation, it was the strength of his company and its leaders that kept the business on track.

“That’s a testament to getting your work done ahead of time, so if something like this hits you from out of the blue, you can manage that while still having a business that not only sustains but grows,” Root told us. “The benefit that we had was that our business was rock-solid. We had a repeatable, sustainable business that I could unplug from for a matter of months while I was in trial, and when I came back the business was still operating. That was not only a good thing, that was a necessary thing.”

Vascular Solutions faced federal charges in an alleged off-label promotion scheme for its now-discontinued Vari-Lase varicose vein treatment, specifically a “Short Kit” version designed for treating perforator veins. Root said the charges stemmed from a disgruntled ex-sales rep who filed a whistleblower case that was picked up by federal prosecutors.

Even though the device only made up approximately 0.1% of sales, bringing in $500,000 for the company between 2007 and 2011, the ex-sales rep claimed the company was intentionally promoting the device off-label to bring in more money.

The company and its employees faced intense questioning during the extended probe; Root himself faced a felony conspiracy charge. And even though the company cooperated with the government, his employees were over-scrutinized by investigators and strong-armed in a way that made him question prosecutors’ motivations.

“The worst thing, said to my female employee, was, ‘If you do not deliver us with the answers we want to hear today, it should be made known that we have power to withhold rights and privileges provided to your natural-born son,’” Root explained at an AdvaMed panel late last year. “These are federal prosecutors. Federal agents on a charge of off-label promotion of a product that made up 0.1% of our sales and never harmed a single patient.”

Even with a strong business and stalwart employees, Root said his experience as a lawyer and long history with the company were essential to managing the situation. A federal jury in San Antonio acquitted Root in February 2016.

“I don’t think I could have managed it if I wasn’t a lawyer by training. I was [also] extremely fortunate that I had started the company, so I knew everything about the company – that we had a solid business and that I was a lawyer,” Root said.

Though he had never been on the criminal side of the legal field, Root said his knowledge of the system and how to handle the case was vital to the successful defense effort.

“I’ve said many times that I’ve seen more companies that are destroyed by their own lawyer than by the other side’s lawyer. That wasn’t going to happen in our case,” he explained. “You can either do too much or too little. The lawyers can get off track or on track. Someone has to be there with the legal knowledge and the details to figure out what to do next step and to make sure the lawyers don’t run the process. You have to make sure the business runs the lawyers who run the process.”

Root credits his intricate management style, which he says shifted from “micro-management” to “nano-management,” and the company’s comprehensive record-keeping, for enabling the federal court win. Root’s defense lawyers did not have to call a single witness, he added.

Making the right hires is key

Root also credits the strengths of the team he and his co-founder assembled for the win. He founded the company in 1996 with Dr. Gary Gershony, inventor of the company’s first product, the Duett arterial puncture sealing device. Since then Root has focused on creating a vertically integrated, individual empowerment organization – which takes a special focus on selecting the right personnel.

“To me, leadership starts with picking the right people to work for you, with the right approach to the work and the right ability, and then getting them in the right position. Then continue to grow them so they can do more, in order to grow the company,” he explained. “You can’t just go out and buy people and put them into roles. You have to partner with people in roles that they can grow into, because as the company grows from a single-product company to a 100-product company, your employees have to grow right along with the business.”

That’s even more essential in medtech, Root said. Not only can mistakes bring on intense federal government scrutiny, but they’re also a matter of life or death for the patients you’re trying to help.

“I love the medical device business because the products that we manufacture can save someone’s life – and they have. But at the same time, if the products aren’t made the right way or aren’t designed the right way or aren’t trained the right way, they can harm patients. We have to take that responsibility,” Root said. “While I’d love to give people free rein to make mistakes, when that mistake could translate into a [bad] clinical outcome for a patient, we just can’t let that happen.”

The employees you select have to reflect that same focus on clinically correct decisions, he added, which means delivering products that not only work, but exceed current technologies on the market.

“If we do that, the financial part of the business is easy. If you don’t have that clinical focus, the financial part is impossible,” Root said. “If you make a mistake, not only could you hurt someone with your product, but if they make a mistake with just one of these government rules, the corporation could get charged with a crime and someone could go to prison.”

Pondering the future

With the case behind him and the Teleflex acquisition ahead, Root said his future as a leader in medtech is uncertain. The strain of seeing his employees scrutinized and threatened and the anxiety and stress associated with being investigated were a heavy load to bear, he said. Still, he doesn’t want to leave his experiences behind; the investigation changed his life and will be a central part of his future.

“I don’t know if I’m going to stay in medical devices. If I do, I don’t want and don’t think I’ll be a CEO of a public company, with the responsibility that that entails,” Root said. “One thing that I know is that I’m still going to be talking about this criminalization of American business and the gross misconduct that seems to be prevalent in the Dept. of Justice and prosecutorial departments across America. A lot of people who are less fortunate than me couldn’t fight what I fought and won. That’s going to be a passion of mine for the rest of my life.”

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