At the time it was announced, it seemed the perfect example of picayune government rules stifling entrepreneurship. A year and a half ago, the federal Food and Drug Administration fined Boulder's Lexicor Medical Technology Inc. for violating agency rules. The amount of the FDA's proposed fine, $1.6 million, was approximately twice the company's annual revenue.
Lexicor's founder and president, Michael Hickey, argued that the FDA was simply making much ado over a semantic mixup and that the fine would put the company out of business. But FDA officials defended the sanction. Lexicor, they said, ignored repeated warnings not to sell its biofeedback-like machines until it had the proper permits.
Now it looks as though Hickey and Lexicor may have been right.
Hickey says the FDA is dropping the fine--although the agency says it hasn't taken any action yet. "Did the government do something wrong?" he says. "I don't know, and I don't give a shit. But this put us through a lot of hard times." He says that fully one half of his fourteen employees spent their time satisfying the FDA's paperwork requirements to fight the fine. The eighteen months it took for him to wend his way through the bureaucratic maze cost him "in the hundreds of thousands of dollars."
Despite the considerable cost of complying, Hickey's regulatory headaches were not as devastating as they might have been. He had already made a fortune before Lexicor.
In 1979, after several years as a school psychologist in Illinois and Colorado, he co-founded Biox Technology. The Boulder company was formed to market the invention of a friend, a local computer scientist named David Joffee. His machine, the pulse oximeter, detects oxygen levels in a patient's blood. The invention quickly caught on, and today it is a standard tool in hospitals. In 1984, just five years after they founded the company, Hickey and Joffee sold Biox for $27 million.
Five years later, after an unsatisfying run at retirement, Hickey (who is now 46 years old) founded Lexicor, again to market a David Joffee creation. The company began shipping its machines two years later, in 1991.
Hickey and Joffee's product, Biolex, is a kind of advanced biofeedback machine that merges electroencephalographs, which measure brain activity, with computer science. Instead of a patient's monitoring and attempting to alter his heartbeat, he tries to control his brain waves.
"It's kind of like playing Nintendo with your brain," says Steven Stockholm, a Colorado Springs psychologist who was an early investor in Lexicor. Although he no longer has any financial ties to the company, Stockholm's Neuro-Health Center still uses two Biolex machines to treat patients, mostly children with attention deficit disorder and people who have suffered mild head injuries.
Biolex, Stockholm says, allows patients to monitor their own brain waves on a computer screen and then try to alter them to healthy patterns. Treatments generally take place twice a week for about six months and run $3,000. (The machines themselves cost about $14,000.)
Hickey says he applied to the FDA for a permit in the spring of 1991. Called a 510(k), the federal permit gives a manufacturer permission to sell a medical device. Unfortunately for Lexicor, he received his permit just as the FDA changed its procedures. The new rules placed greater burden on a company to prove its case for a machine or device and gave the agency more authority to regulate the products.
Hickey says he received his first visit from FDA investigators in November 1991. In response to a minor question about the purpose of the Biolex, Hickey backed down. "I made a decision not to argue about it," he recalls. "That was a big mistake. I should've sat down and clearly explained what we were doing."
The point of contention, he says, boiled down to semantics. Was the Biolex machine a passive tool for the professional to monitor a patient's brain waves? Or was it to be used by patients looking to actively change their own brain waves? "When you get into things like, `Is this a monitoring or feedback service?' you lose the ability to distinguish what words mean," he says.
To Hickey, the word "monitoring" covered both a psychologist watching the Biolex screen for diagnostic purposes and the patient monitoring his own brain waves as preparation to change them. So, convinced that his 1991 FDA permit for a machine to monitor EEGs was sufficient, Hickey continued shipping Biolexes. To the FDA, however, the difference was significant, and it ordered him to stop selling Biolex. He refused, pointing out that he already had his permit.
Hickey also calculated the economics of complying with the agency's orders. "Do you continue shipping and potentially offend a very powerful force?" he asks. "Or do you stop and deal with a very powerful force that's also moving very slowly? I mean, this is our only product. What would our employees do for six months to a year while this was being resolved?"
In late 1993 the FDA made its decision to sock both Lexicor and Hickey with hefty fines. "FDA's Center for Devices and Radiological Health alleges that, despite written warnings not to do so, you have shipped at least 52 medical devices" without the proper permit, a September 10, 1993, letter stated. "Because of the deliberate and continuing nature of your violations, CDRH is seeking the maximum civil money penalties against both you as an individual ($780,000) and against the corporation, Lexicor Medical Technology Inc. (also $780,000)."
Adding fuel to the dispute, the agency released the information to the media before it got to Hickey. "I started getting phone calls from trade publications asking about the fine," he recalls. "I said, `I don't know anything about what you're talking about.'" (An FDA spokesman told a Wall Street Journal reporter that it was "unfortunate" the press heard about the agency's action before Hickey did.)
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Since then, much legal wrangling has occurred. Earlier this year Hickey agreed to fill out the paperwork for two new permits for the Biolex device. This time, he says, he was considerably more careful: Whereas his original FDA permit application was less than 100 pages, the amount of information he submitted to the agency this time ate up more than 1,000 pages.
Recently, at least according to Hickey, the FDA agreed to drop the fine. "It's being dismissed," he says. "We're just finishing up the paperwork." Hickey's lawyer, Dennis Blewitt, is more cautious, saying only that the agency appears less interested in pursuing the fine as time goes on. (Gary Dean, who heads the compliance section of the local FDA office, says he is not aware that the agency is abandoning the sanction. "We haven't heard anything about that," he says. He adds that any settlement deal would be handled by the agency's lawyers in Washington.)
Despite the apparent victory, Hickey concedes that, in retrospect, part of the blame for the fracas falls on him. "I didn't treat the issue with the same degree of horror that they did," he says. "I didn't understand the bureaucracy. I didn't understand how it thinks."
But, he adds, "I'm not going to make that mistake again.