Individual Liability in the Pharmaceutical Industry Thomas M. Gallagher March 6, 2012 PCF Annual Spring Meeting Government s Crusade Against Individuals DHHS OIG There is definitely a renewed emphasis, maybe a new emphasis, on holding individuals accountable. Robert DeConti, chief of OIG administrative and civil remedies branch, October 2010 A better pressure point is to go after responsible employees. Law enforcement s focus over the next year will be on the individual... Lewis Morris, Chief Counsel to the Inspector General, February 2010 2 We think there needs to be increased accountability for compliance both at the board level and at the level of individual managers within a company. Mary Riordan, OIG Senior Counsel, October 2010 1
Government s Crusade Against Individuals DOJ The department is intent on identifying and, where appropriate, prosecuting the individuals who are responsible for illegal off-label marketing. Our emphasis is going to be much increased in this area. Ann Ravel, Deputy Assistant Attorney General, October 2010 Prosecutors are zealously fighting for jail time the average prison sentence in a health care fraud case is approximately 40 months. Assistant Attorney General Lanny Breuer, January 2011 3 Global Focus DOJ Prosecutors will be intensely focused on rooting out foreign bribery in (the pharmaceutical) industry. That will mean investigation and prosecution of senior executives. Lanny Breuer, Assistant Attorney General, November 12, 2009 4 2
Government s Crusade Against Individuals Congress This prison time is critical as a deterrent. This focus on ensuring real prison sentences must continue. Senator Patrick Leahy, January 2011 If potential fraudsters view the lenient sentences being handed down as merely the cost of doing business, efforts to combat fraud will be undermined. Senator Chuck Grassley, January 2011 5 Demystifying the Process Felony prosecutions Intentional misconduct How might the investigation proceed against individuals? Responsible Corporate Officer prosecutions Strict Liability How is investigation different in RCO case? Recent history of individual prosecutions OIG Exclusion 6 3
Felony vs. Misdemeanor What is the charging decision process? Indictment or Information The negotiated plea Pure RCO prosecution Individual felony charges Stryker Biotech employees InterMune CEO Former GSK attorney Spectranetics executives Individual RCO prosecutions Purdue Pharma executives Synthes executives 7 FDCA Prohibited Acts - 21 U.S.C. 331 misbranding adulterated products cgmp violations many other crimes Misdemeanor or Felony Prior misdemeanor conviction Intent to defraud or mislead Penalties and Exclusion 8 4
The RCO Doctrine The Responsible Corporate Officer or Park Doctrine Employees can be held strictly liable for a corporate violation of a public welfare statute if they had the power, by virtue of their position, to prevent or correct the violation but failed to do so regardless of their awareness of the violation 9 The RCO Doctrine Doctrine developed in two Supreme Court cases: United States v. Dotterweich, 320 U.S. 277 (1943) United States v. Park, 421 U.S. 658 (1974) The prosecution is based on a now familiar type of legislation whereby penalties serve as an effective means of regulation. Such legislation dispenses with the conventional requirement for criminal conduct awareness of some wrongdoing. In the interest of the larger good, it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger. Dotterweich, 320 U.S. at 280-81; quoted in Park, 421 U.S. at 668-69. 10 5
The RCO Doctrine 1960s-1980s: FDA requested DOJ to bring Park cases arising out of: Persistent violations observed during successive FDA inspections that were not remedied despite FDA notice to the company; or Instances where a regulatory violation caused injury to consumers or animals 11 The RCO Doctrine Fell into disuse: Little DOJ interest in misdemeanors Labor-intensive investigation Small fines Judges impatient with clogging up the courts with matters that should be handled by civil penalties 12 6
The RCO Doctrine Revived in Purdue Pharma case in 2007: Government charged that Purdue falsely claimed that OxyContin was less addictive, less subject to abuse, and less likely to cause withdrawal symptoms than other pain medications Company pleaded to felony misbranding with intent to defraud or mislead CEO, GC and VP of Worldwide Medical Affairs each pleaded to a one-count misdemeanor Disgorgement of $19M, $8M, $7.M, respectively; $5000 criminal fine, 3 years probation; 400 hours community service In accepting plea, court noted absence of proof of knowledge 13 Pfizer/Pharmacia UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS ) Criminal No. UNITED STATES OF AMERICA, ) ) 21 U.S.C. 331(a), 333(a)(2) v. ) and 352 (Introduction into PHARMACIA & UPJOHN COMPANY, INC. ) Interstate Commerce of a Defendant. ) Misbranded Drug) ) 14 7
Focus on Individuals Pharmacia Guilty Plea Hearing September 15, 2009 Judge Woodlock stated to the prosecutor: The concern I have. I m sure you understand, is that corporations don t do things, people do things.and so the question is, given the amount of money involved here, where are the people? 15 Focus on Individuals Pharmacia Guilty Plea Hearing September 15, 2009 AUSA Sara Bloom replied: And we certainly think in this case that there were real human beings that knew what they were doing was illegal and did it anyway. And the difficulty (is) figuring out who to prosecute criminally where it is a corporate culture and corporate conduct. 16 8
Focus on Individuals FDLI Conference September 22, 2009 AUSA Sara Bloom stated: I have to confess, we are looking forward to having these certifications. One of the difficulties of holding people responsible when the conduct has been widespread across the company and acquiesced in is, Who do you hold responsible? 17 InterMune A grand jury indicted Scott Harkonen, former CEO of the Brisbane, Calif.-based biotech firm InterMune Inc., Tuesday for allegedly fraudulently marketing the company s drug Actimmune. prosecutors accuse Harkonen of crafting a 2002 press release falsely claiming the drug could treat a fatal lung disease called idiopathic pulmonary fibrosis. 18 9
InterMune September 30, 2009 Former Drug Executive Convicted of Wire Fraud In a verdict that could strike fear into pharmaceutical industry executive suites, the former head of a drug company was convicted of wire fraud Tuesday for issuing what federal prosecutors called a misleading press release that contributed to off-label sales of his company s drug. 19 Stryker Biotech UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS ) UNITED STATES OF AMERICA, ) Criminal No. ) ) Violations: v. ) ) 18 U.S.C. 2 (aiding and abetting) (1) STRYKER BIOTECH, LLC, ) 18 U.S.C. 371 (conspiracy) (2) MARK PHILIP, ) 18 U.S.C. 1001 (false statements) (3) WILLIAM HEPPNER, ) 18 U.S.C. 1343 (wire fraud) (4) DAVID ARD and ) 21 U.S.C. 331(k), 333(a)(2) (5) JEFFREY WHITAKER, ) and 352 (misbranding) ) Defendants. ) ) INDICTMENT 20 10
U.S. v. Lauren Stevens Former Associate GC indicted for obstructing an official proceeding, concealing and falsifying documents, and making false statements, in violation of 18 U.S.C. 1512, 1518, 1001 Allegedly sent letters to FDA denying off-label promotion and withheld incriminating documents Judge acquitted 21 U.S. v. Marc Hermelin Former CEO and Chairman of the Board indicted as RCO for misbranding. Company allegedly shipped oversized and irregularly shaped product. Hermelin sentenced to 17 days in prison/ $1,000,000 fine and $900,000 forfeiture. 22 11
Synthes Indictment 23 Synthes Indictment 24 12
Executives Sentenced President of Synthes North America 9 months in prison/ $100,000 fine President of Synthes Spine 9 months in prison/ $100,000 fine Vice President of Operations 8 months in prison/ $100,000 fine Director of Regulatory and Clinical Affairs 5 months in prison/ $100,000 fine 25 The RCO Doctrine New Provision of FDA Regulatory Procedures Manual (February 2011) on Recommending Park Doctrine Prosecutions Relevant factors: Whether the violation Involves actual or potential harm to the public Whether the violation is obvious Whether the violation reflects a pattern of illegal behavior and/or failure to heed prior warnings Whether the violation is widespread Whether the violation is serious The quality of the legal and factual support for the prosecution Whether the proposed prosecution is a prudent use of agency resources 26 13
27 OIG Exclusion Exclusion of Convicted Individuals under SSA 1320a-7 1320a-7(a): Mandatory for felony convictions 1320a-7(b): Permissive for misdemeanor convictions: Relating to health care fraud Involving an act or omission in a government operated or financed health care program Relating to the prescription, or dispensing of a controlled substance 28 14
OIG Exclusion Friedman v. Sebelius, D.D.C. (Dec. 13, 2010) Executives argued that RCO pleas did not reflect any personal wrongdoing and were based solely on their positions in the corporate hierarchy Court affirmed OIG authority to exclude any individual or entity convicted of an offense bearing a common sense connection to delivery of a health care item or service Length of exclusion justified 29 OIG Exclusion New Guidance on (b)(15) Permissive Exclusion Following Corporate Plea (October 2010): Different standards for two categories of individuals: those who have an ownership or a control interest officers and managing employees 30 15
OIG Exclusion New Guidance on (b)(15) Permissive Exclusion Following Corporate Plea (October 2010): Owners: Can exclude only when evidence shows owner knew or should have known of misconduct If such evidence exists, there is a presumption in favor of exclusion Presumption may be overcome when OIG finds significant factors weigh against exclusion Significant factors not identified 31 OIG Exclusion New Guidance on (b)(15) Permissive Exclusion Following Corporate Plea (October 2010): Officers and managing employees: Managing employee : an individual (including a general manager, a business manager, an administrator, or a director) who exercises operational or managerial control over the entity or who directly or indirectly controls the day-to-day operations of the entity 32 16
OIG Exclusion New Guidance on (b)(15) Permissive Exclusion Following Corporate Plea (October 2010): Officers and managing employees: While OIG does not intend to exclude all officers and managing employees [comforting], when there is evidence that an officer knew or should have known of the conduct, OIG will operate with a presumption in favor of exclusion. Presumption may be overcome in presence of significant [unidentified] factors that weigh against exclusion 33 OIG Exclusion Circumstances of the Misconduct and Seriousness of the Offense Nature and scope of the misconduct Level of the entity where the misconduct took place (one field employee vs. HQ direction) Criminal and civil sanctions imposed Actual or potential harm to beneficiaries or other individuals or financial harm to federal health care program Isolated incident or part of a pattern 34 17
The Next Frontier Quality Investigations FDA focus on cgmp violations: 483 Observations Warning Letters Criminal investigations 35 Quality Investigations FDCA Violations Misbranded products Adulterated products 36 18
Quality Investigations FDCA defines adulterated products in several ways, including: A drug that is manufactured, processed, or packed in a way that violates cgmps. What are Current Good Manufacturing Practices? Regulations (21 CFR 210-211) 37 Quality Investigations cgmp Regulations Organization and Personnel Buildings and facilities Equipment Control of Components, Drug product Containers and Closures Production and process controls Packaging and Labeling Control Holding and Distribution Laboratory Controls Records and reports Returned and Salvaged Drug products 38 19
Quality Investigations October 26, 2010 GSK subsidiary pleads guilty to FDCA charges based on cgmp violations. GSK pays $750M to resolve civil False Claims Act claims and criminal matter. No individuals charged. 2010-2012 Ongoing criminal investigations of quality issues. 39 Questions & Answers Thomas M. Gallagher 215.981.4068 gallaghert@pepperlaw.com 40 20