In Secretary, Department of Health v Medtronic Australasia Pty Ltd [2024] FCA 1096 the Federal Court of Australia has ordered Medtronic Australasia Pty Ltd (Medtronic) to pay $22 million in penalties for unlawfully supplying 16,267 units of the Infuse Bone Graft Kit to 109 hospitals between 1 September 2015 and 31 January 2020.
The Court's judgment comes after the Therapeutic Goods Administration (TGA) commenced proceedings against Medtronic in August 2021. The Court also ordered that Medtronic pay $1 million as a contribution to the TGA’s legal costs.
The penalty is the largest ever imposed for contraventions of the Therapeutic Goods Act 1989 (Cth).
Australian law generally requires that therapeutic goods are entered in the Australian Register of Therapeutic Goods (ARTG) before they can be lawfully supplied in Australia. Although Medtronic's the Infuse Bone Graft Kit was entered in the ARTG for supply with a separately packaged spinal cage - the LT Cage - that entry in the ARTG did allow the Kit to be supplied without the LT Cage. Medtronic unlawfully supplied the Kit without the LT Cage.
The judgment notes
The parties have advanced different views as whether the Kit was or was not a “medical device” within the meaning of the Act. Solely for the purposes of these proceedings in order to enable the Court to resolve the matter on an agreed basis, the parties agree that the Court may proceed on the basis that the Kit was, during the Relevant Period, a “therapeutic good” (medicine). The parties agree that this does not reflect any broader agreed or admitted position as to whether the Kit is, or was during the Relevant Period, a medicine or medical device, nor any broader agreement or admitted position about the characterisation of the Kit that binds either party or otherwise affects the correct approach to any similar issue that might arise outside these proceedings.
Although, during the Relevant Period, there was significant clinical demand for the Kit by itself (including for use together with another cage), there was no real clinical demand for the Kit and Cage together.
As the Kit alone was not entered in the ARTG, its supply without the Cage was a contravention of s 19D of the Act, which prohibits, relevantly, the supply in Australia of therapeutic goods for use in humans, unless the goods are registered goods or listed goods, or are otherwise subject to a relevant exemption, approval or authority.
For the purposes of s 19D, there was no relevant exemption, approval or authority in force in the Relevant Period in respect of the Kit.
Further
While the Act prohibited the supply of the Kit without the Cage by Medtronic , whether or not the Kit was supplied with or without the Cage the Act did not prohibit a health practitioner from using the Kit (without the Cage) in surgical procedures. The Secretary does not allege that health practitioners acted unlawfully by using the Kit in surgical procedures.
In contextualising the scale of the penalty the judgment states
Medtronic continues to supply a substantial number of medical devices in the Australian market and is currently the sponsor of over 1,900 kinds of medical devices included in the ARTG, of which over 500 are Class III medical devices.
Medtronic’s gross revenue each financial year during the period from FY21 to FY23 (noting Medtronic 's financial years run 1 April – 31 May) was as follows: (a) Financial Year 2021: $1,041,563,000 (b) Financial Year 2022: $1,007,178,000 (c) Financial Year 2023: $1,065,471,000
Medtronic incurs substantial costs in deriving its gross revenue. After accounting for expenses, Medtronic ’s profit (after income tax expense attributable to Medtronic ) in the period from FY21 to FY23 was as follows: (a) Financial Year 2021: $55,298,000 (b) Financial Year 2022: $24,685,000 (c) Financial Year 2023: $49,111,000
Profit derived from the contraventions
Medtronic generated a total of $77,187,176 in gross revenue from the 16,267 contravening supplies of the Kit.
The gross revenue generated by the contravening supplies in each financial year during the Relevant Period was as follows: (a) Financial Year 2016: $7,406,000 (b) Financial Year 2017: $16,756,800 (c) Financial Year 2018: $17,090,272 (d) Financial Year 2019: $19,187,884 (e) Financial Year 2020: $16,746,220
After accounting for costs (including the costs of goods sold, operating product costs and intercompany transfer pricing), the net revenue from the contravening supplies of the Kit is estimated to be $8,982,474 (excluding GST).
