Spokeswoman says Sen. Isakson's calls to agencies on behalf of biotech firm's CEO were 'nothing improper'
By ANDERS MELIN | Bloomberg | Published: May 9, 2019
Biotech firm MiMedx of Marietta, Georgia, had a problem with one of its biggest customers, the U.S. Department of Veterans Affairs. For help, it turned to a friendly senator in Washington, Johnny Isakson.
After the VA said it would no longer purchase medical tissue sold by MiMedx Group Inc., Isakson made at least three phone calls to the agency on behalf of his friend and the company's chief executive officer, Parker H. Petit, according to two officials who spoke with the senator.
One of those officials recounted trying to assuage the senator by explaining that it was an across-the-board policy. "My fellow Georgia guy thought that he was being singled out," the official recalled Isakson saying at the time.
It's now clear those 2013 calls were part of a pattern by the Georgia senator. Over a five-year period, according to federal records, internal MiMedx documents and people familiar with the matter, Isakson personally reached out at least eight times to federal agencies on behalf of the company — to the VA, the Food and Drug Administration and the Federal Bureau of Investigation. The extent of those efforts, supplemented by his staff, hasn't been reported previously.
Though the federal agencies provided MiMedx with relief in some cases, there's no evidence that any policy change was influenced by the senator. Still, Isakson's extensive outreach on behalf of a biotech CEO surprises ethics watchdogs, because the line between looking out for a constituent and attempting to obtain favorable treatment for a friendly political donor can be blurry.
In addition to sitting on the Senate Veterans' Affairs Committee, Isakson is chairman of the Ethics Committee, which investigates potential misconduct by senators.
"The Senate ethics rules don't have bright lines on helping constituents — but it's worth asking what constituent of any senator gets this much care and attention from the member's office — let alone the senator personally," said Donald Sherman, deputy director for Citizens for Responsibility and Ethics in Washington.
Isakson's office described his interventions on behalf of Petit as routine and proper.
"Many constituents meet with the senator to express concerns," said Amanda Maddox, Isakson's spokeswoman. "Our office has helped Mr. Petit just as he would any other constituent needing assistance from a federal agency. There is absolutely nothing improper about engaging in constituent services."
Maddox said his office handles hundreds of constituent cases every month, though she didn't address how often the senator involves himself personally.
As to the office's approaches to the VA, FDA and FBI, Maddox said: "In each case, we did not request a specific outcome other than what is deemed appropriate" by the agencies.
MiMedx, the VA and Petit declined to comment.
MiMedx is now being investigated by the Justice Department and the Securities and Exchange Commission over matters related to its financial reporting and accounting. The firm has also received subpoenas from VA officials.
The company's shares closed at $2.90 on Wednesday, down from a high of nearly $18 in 2018. They were delisted from Nasdaq last year. Petit stepped down as CEO in July, and the board later categorized it as a termination for cause after an internal investigation. He has denied wrongdoing, however, and on April 11 nominated himself and two others for election to the board. He owns about 4% of the company.
Isakson has been a steadfast supporter of Petit throughout his career building health-care companies.
"I've known him for going on 45 years and I've never known a finer guy," the senator told the Atlanta Journal-Constitution in 2012 after the SEC sued Petit. In that matter, which ended with no action, Petit was accused of sharing insider information about Matria Healthcare, which he ran for several years, with a friend who later traded the stock. Petit denied the accusations.
An Atlanta native, Isakson worked at a real-estate firm on the way to a political career that took him from the Georgia legislature to the U.S. House of Representatives in 1999 and the U.S. Senate six years later.
Petit, an engineer by training, became acquainted with Isakson over real estate, according to a former business associate. He founded his first company, Healthdyne, around 1970 and spent the next four decades running and selling health-care firms in the Atlanta area. Isakson invested $1,000 in Healthdyne when it was founded and added another $17,000 in the mid-1980s, Maddox said in response to questions from Bloomberg News.
The senator's financial disclosure forms show he purchased between $50,000 and $100,000 of Matria stock in 2006 and sold the stake 10 months later. Maddox said that Isakson's assets were controlled by a money manager at the time and that the senator had not been consulted on those transactions.
Petit has donated regularly to Isakson over the last 20 years. In 2015, he made a $13,800 contribution to the Isakson Victory Committee, which supported the senator and the Republican Party, according to Federal Election Commission records.
MiMedx was once a fast-growing maker of tissue grafts from donated placentas. Doctors apply them to soft-tissue and surgical wounds to speed healing and reduce scarring. Petit came out of retirement in 2009 to run the company, which had less than $1,000 in revenue. By 2013, annual sales had soared to $59 million. Financial filings show that more than half the sales came from U.S. government purchasers, including the VA, which runs the country's largest integrated hospital system.
Then in the summer of 2013, the VA shifted its policy. After a legal review of how donor tissues known as allografts were classified, the agency dropped all such products from its catalog of approved supplies.
Overnight, MiMedx had lost one of its biggest customers. Petit was convinced that Organogenesis Holdings Inc., a maker of products rivaling MiMedx's allografts, had influenced VA officials to make the policy change, according to court filings and internal company documents seen by Bloomberg News.
Within days, Isakson produced a written inquiry to the VA about the matter to accompany his calls, which conveyed Petit's suspicion that MiMedx had been targeted unfairly, according to two VA staff members.
One of them was Jan Frye, then the deputy assistant secretary at the agency's office of acquisition and logistics. He said in an interview that he frequently received calls from lawmakers about VA suppliers run by their constituents — inquiries he strongly condemned.
"They have no damn business telling us what to do with procurement," said Frye, who retired last year. The second official who spoke about the calls and the senator's comments asked not to be identified.
The VA's policy change didn't stick. After about a week, the agency reversed itself and reinstated allografts, concluding that the removal had been based on an incorrect interpretation of whether the tissues should be categorized as medical devices. Inquiries by Isakson and other lawmakers didn't influence the decision, according to the agency official who requested anonymity.
Having regained a key customer, MiMedx was back on a growth trajectory. Soon, though, another problem was brewing at a different federal agency. In August 2013, the FDA sent the company a letter saying it lacked the required license to legally market some of its products. The firm's shares plummeted 36% after the letter became public.
Petit prepared to stop selling the disputed products, according to emails he sent to FDA officials that were reviewed by Bloomberg News. But he strongly objected to the FDA's conclusion and was convinced that his biotech rival, Organogenesis, had once again influenced the decision.
In December 2014, MiMedx sued Organogenesis for allegedly engaging in "a prolonged campaign to improperly and unlawfully" interfere with its business with the VA. (MiMedx withdrew the case a month later and in fact continues to sell the products.)
MiMedx also prepared a brief for members of Congress. A version reviewed by Bloomberg News, dated early 2015, described what it said were efforts by Organogenesis to discredit MiMedx at the FDA. It urged lawmakers to ask Margaret Hamburg, the FDA commissioner at the time, to investigate the matter and to seek agency records of interactions with Organogenesis.
Hamburg, Organogenesis and the FDA declined to comment. Maddox said the senator's staff had worked with the Senate Health Committee on a letter to Hamburg in 2014 expressing concerns about the FDA's use of draft guidance to make substantive policy changes.
There's no evidence that lawmakers contacted Hamburg on MiMedx's behalf before she left the agency in April 2015.
But FDA records show Isakson personally made three inquiries to the agency that year on behalf of Petit. The senator contacted Tom Kraus, the FDA's chief of staff, in February to ask for a status update on Petit's request for documents under the Freedom of Information Act. That month, Isakson also inquired about some FDA draft guidance that was of concern to Petit. In October, the senator again inquired about the status of a Petit FOIA request.
Isakson would have provided the same assistance for any constituent, said Maddox, his spokeswoman.
The VA then made business difficult for MiMedx again. In 2016, the agency tightened its rules governing how and when it purchases and stores medical supplies. MiMedx had products worth millions of dollars on shelves at VA hospitals and had already booked some of that as revenue, according to two former employees. The rule change meant that at least some of those products would be sent back, resulting in a revenue hit for the company, they said.
Petit again turned to Isakson, who has overseen the Veterans' Affairs Committee since 2015. The constituent's concerns were relayed to that committee. In May 2016, a staffer on the committee in turn received a briefing from the agency about its overall acquisition strategy, Maddox said in response to questions from Bloomberg News. Isakson's outreach to the committee was reported earlier by the Wall Street Journal.
That summer, Petit said in an email to MiMedx executives that he was optimistic that the matter would be resolved in the firm's favor. "We have done everything in terms of talking with the individual in the VA office who sent out this directive to having our senator make some phone calls to find out what had gone wrong," he wrote in the email, which was reviewed by Bloomberg News. "After those initiatives, I believe things for MiMedx will stabilize, and we will not be fighting those battles any longer."
VA hospitals ultimately wound up interpreting the new rules differently, in some cases to MiMedx's benefit, the former employees said.
Around the same time, officials at the Atlanta VA were weighing whether the hospital should keep purchasing MiMedx products, the Journal reported in December. In those discussions, some officials referenced Petit's relationship with Isakson.
Yet another adversary was in the wings. In 2017, short sellers accused MiMedx of channel-stuffing, meaning it shipped more products than were ordered, and alleged that it booked sales to distributors controlled by friendly parties such as current and former employees, their relatives or their doctors.
Among those short sellers was Marc Cohodes, who posted hundreds of tweets lambasting the company's business in general and Petit personally. Petit fired back in more than 40 news releases, accusing the shorts of spreading false and defamatory information.
In October 2017, Isakson called the FBI to inquire about a complaint from Petit, who later told Bloomberg News he felt some of Cohodes' tweets were "a threat to my life." Weeks later, two FBI agents showed up at the short-seller's ranch in Sonoma County, California, and told him to "stop sending threatening tweets" about Petit, or else. At the time, the FBI declined to comment.
Asking Isakson to reach out to FBI "was not an unusual request," said Maddox, adding that the senator asked only that the agency respond to Petit.
Still, the incident fueled the conflict between Petit, who said the short sellers were engaging in illegal conduct, and Cohodes, who said the FBI's involvement was a violation of his free-speech rights. The Wall Street Journal previously reported Isakson's inquiry to the FBI.
After short sellers started circling, several of Petit's business associates and friends, including Isakson, privately expressed support for his counter offensive, according to a person with knowledge of the matter. Maddox said by email that the senator didn't recall any such conversation.
Since Petit's termination, Isakson has become more resigned. As he recently told an acquaintance who repeated the comment: "It's really sad what's happened to Pete."
Bloomberg's Anna Edney and Bill Allison contributed.