Washington Editor

WASHINGTON – Flexing its enforcement muscle, the Department of Health and Human Services (HHS) is threatening to exclude Forest Laboratories Inc.'s founder, CEO and president from participation in federal health care programs.

The action against 83-year-old Howard Solomon stems from the New York company's guilty plea last year to two misdemeanor "strict liability" violations of the Federal Food, Drug and Cosmetic Act (FDCA).

The pleas were part of a $313 million agreement with the Department of Justice to settle charges that Forest obstructed justice, illegally distributed its thyroid hormone Levothroid (levothyroxine) and unlawfully marketed its antidepressants Celexa (citalopram) and Lexapro (escitalopram) for use in children. (See BioWorld Today, Sept. 17, 2010.)

While that agreement, which included no finding of knowledge or wrongdoing by Solomon, settled Forest's account with the Department of Justice, it opened the door for disciplinary action by HHS' Office of Inspector General (OIG).

The letter Solomon received from the OIG Wednesday, informing him of the potential exclusion, blindsided the biotech.

"Numerous other major pharmaceutical companies have pled guilty to much more egregious offenses," noted Herschel Weinstein, Forest's vice president and general counsel, "and none of them has faced the exclusion of a senior executive who has not himself been convicted of a crime or pleaded guilty to a crime."

While some analysts were equally surprised by the action, they do not expect it to affect Forest's operations. Shares of Forest (NYSE:FRX) were down 14 cents Thursday, closing at $33.75.

The "worst case, which [Forest] views as unlikely, would be the departure of . . . Solomon from his role as CEO since we don't believe he'd put federal reimbursement of products at risk," Leerink Swann analyst Seamus Fernandez said.

The company has been working on a plan to ensure a smooth CEO succession at the appropriate time, according to William Candee, a board member and chairman of the audit committee.

The plan includes several executive management promotions that were announced in November: Elaine Hochberg as executive vice president and chief commercial officer, Frank Perier as executive vice president and chief financial officer, Marco Taglietti as senior vice president for R&D and David Solomon as senior vice president for corporate development and strategic planning.

Solomon vowed he will fight exclusion, which would require him to step down from his position at Forest and could effectively ban him from the biopharmaceutical industry for the rest of his life.

He has 30 days to respond to the letter and could request a 20-day extension. Should OIG follow through with the exclusion, Solomon will take the fight to the courts.

"We believe that HHS-OIG is contemplating using a statute that has never before been used under these circumstances and would be exceeding the bounds of its authority," Weinstein said.

Under the Social Security Act, HHS has the authority to exclude company owners, officials and managing employees from future participation in Medicare and Medicaid programs if their company violates off-label promotion rules.

HHS can only exclude owners if there's evidence that they knew, or should have known, about the misconduct. However, corporate officers and managing employees can be excluded based solely on their position in the company.

"While OIG does not intend to exclude all officers and managing employees, 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," OIG said in a guidance issued last year to explain the factors the office will consider in determining whether to exclude someone.

In the past, OIG has rarely used its discretionary exclusion power.

However, it excluded Marc Hermelin, the former CEO of KV Pharmaceutical Co., last year after a KV subsidiary pleaded guilty to two felony counts of criminal fraud in connection with the distribution of oversized morphine sulfate tablets.

Although Hermelin was no longer the CEO of the Bridgeton, Mo.-based company when he was excluded, the distribution of misbranded product occurred on his watch. The exclusion forced him to step down from the KV board.

Subsequently, Hermelin pleaded guilty last month to two misdemeanor FDCA violations; he was sentenced to 30 days in prison, fined $1 million and ordered to pay $900,000 in restitution.

The threatened action against Solomon and Hermelin's exclusion and prison sentence may be just the beginning as federal agencies crack down on off-label promotion.

With multimillion-dollar settlements becoming the cost of doing business for many drugmakers, HHS, the DoJ and the FDA indicated last year that they would begin holding individuals accountable for their company's actions. (See BioWorld Today, Oct. 4, 2010.)