No Walk in the Park: Buck Stops at the Top with FDA Enforcement
By Mari Serebrov
Being the CEO of a U.S. biopharma company is a whole lot riskier these days as the FDA continues to keep its promise to hold corporate officials accountable for the off-label promotion activities of their companies and employees.
Noting that huge settlements such as Abbott's $1 .5 billion agreement this month do little to curb off-label promotion, the FDA has joined forces with the Department of Justice (DoJ) and Health and Human Services' (HHS) Office of Inspector General (OIG) in repeatedly promising to use the so-called Park Doctrine of strict liability to force life sciences companies into compliance. (See BioWorld Today, March 5, 2010, and Oct. 4, 2010.)
As a result, a number of corporate executives have been hit personally with hefty fines, and a few executives at device maker Synthes Inc. were given five- and nine-month prison sentences on misdemeanors founded solely on their position in a company that promoted off-label uses of its products.
As recently as November, Assistant Attorney General Tony West reiterated the government's commitment to prosecuting corporate officers under the Park Doctrine for their companies' criminal violations of the Food, Drug and Cosmetic Act (FDCA).
The government also is looking at patent seizures as another possible enforcement tool to make drug companies toe the line, an OIG official told BioWorld Insight earlier this year.
An outlier in the U.S. judicial system, strict liability is based on a person's status, rather than action or knowledge, said Cory Andrews, senior litigation counsel at the Washington Legal Foundation (WLF). And it's the only crime for which there can be no defense.
While strict liability can be applied to officials of any company convicted of fraudulent activities, it is particularly onerous in the life sciences industry because of the FDA's efforts to criminalize off-label statements about a drug or device. Thus, the Park Doctrine can be used to send a biopharma exec to federal prison when a marketing rep shares truthful, but off-label, information about a product with a doctor, Andrews told BioWorld Insight.
Even more onerous for corporate officials at life sciences firms is the "bootstrapping" of strict liability to federal exclusion, Andrews said. When coupled with a lengthy federal exclusion from participation in federal programs, strict liability can effectively turn into a lifetime punishment for a convicted executive.
Under the Social Security Act, HHS can exclude individuals or companies from future participation in Medicare and Medicaid programs if they have been convicted of charges related to "fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct." Those individuals, for the length of the exclusion, are barred from working for any company that participates in the federal programs.
In recent years, HHS has used this authority to exclude company owners, officials and managing employees if their company violates off-label promotion rules. While HHS can only exclude owners if there's evidence that they knew, or should have known, about the misconduct, it can exclude corporate officers and managing employees based merely on their position in the company.
For instance, HHS excluded three former senior executives at Purdue Frederick Co. for 20 years after they pleaded guilty to a misdemeanor, brought under the Park Doctrine, involving the promotion of OxyContin (sustained-release oxycodone). The exclusion, later reduced to 12 years, is on appeal to the U.S. Court of Appeals for the District of Columbia.
Last year, HHS tried to exclude Howard Solomon, Forest Laboratories Inc.'s founder, CEO and president, after the New York company's guilty plea to two misdemeanor FDCA violations. However, DoJ didn't prosecute Solomon individually in that case, so he was never convicted of wrongdoing. When Solomon challenged the exclusion, HHS backed down. (See BioWorld Today, April 15, 2011.)
Although HHS could exclude entire companies, it has chosen to exclude corporate officials instead because of the impact a company exclusion could have. If a drugmaker were excluded, Medicare and Medicaid recipients would be denied access to the patented drugs that company makes.
But that could change if the government were to seize a company's patents. While OIG has not outlined a plan to attack patents, it has at least studied the possibility.
One way to do it would be through a civil asset forfeiture, similar to what the government does when it seizes property from a drug dealer. Another possibility would be to "march in" on a company's patent, which would allow another drugmaker to produce the product.
Andrews questioned the constitutionality of taking a firm's patent. "It would be a completely new way of thinking even for the judges," he said.
WLF also has questioned the legality of linking a Park Doctrine conviction to federal exclusion, as well as the expansion of strict liability itself. When the Supreme Court first allowed strict liability 70 years ago, it stipulated that penalties must be small with no grave damage to the defendant's reputation.
Another issue Andrews raised is the lack of federal guidance in this area. In response to a Freedom of Information query last year, the FDA issued the nonbinding criteria it uses for authorizing Park Doctrine prosecution. But the vagueness of the list provides little guidance on who could be a potential target, Andrews said, as the criteria are identical to those that would be used in considering any prosecution.
Specifically, the FDA said the criteria include whether:
the violation involves actual or potential harm to the public;
the violation is obvious;
the violation reflects a pattern of illegal behavior or failure to heed prior warnings;
the violation is widespread;
the violation is serious;
the quality of the legal and factual grounds supports prosecution;
the proposed prosecution is a prudent use of agency resources.
As for federal exclusion, OIG issued a guidance in 2010 in which it said, "When there is evidence that an officer or managing employee knew or should have known of the conduct, OIG will operate with a presumption in favor of exclusion."
With the lack of firm guidance, it's hard to guess when an off-label settlement will include a strict liability charge that can be linked to federal exclusion. Abbott's settlement over the off-label promotion of its anticonvulsant drug Depakote (valproic acid) included no strict liability charges.
However, the settlement hinges on completion of a five-year corporate integrity agreement with OIG that calls for certification and compliance monitoring activities by Abbott's board and specific corporate officers. If the company breaches the agreement, it will be subject to exclusion. The settlement also included an asset forfeiture of $198.5 million.
To protect themselves in this unpredictable regulatory and enforcement environment, "companies pay millions of dollars to law firms, consultants and others to try to be compliant," Andrews said, adding that this is money that's being diverted from R&D.
While he advised companies to have a rigorous internal compliance program, he noted that may not be enough to ward off an aggressive prosecution. "If they want to find something, they will," he said.
His other advice? If a company has acted responsibly and is still indicted, it needs to fight the government rather than settle, Andrews said.
Suite: 1100 | Atlanta, Georgia 30346, USA
In the U.S. and Canada: 1-800-477-6307
Outside the U.S.: 1-770-810-3144
In the U.S. and Canada: 1-800-336-4474
Outside the U.S.: 1-215-386-0100
Hours: Monday - Thursday, 8:30 am - 6:00 pm EST
Friday, 8:30am - 4:30 pm EST
Sign up for Perspectives FREE e-mail newsletter