Ed Silverman04.05.10
Getting tough on the pharma industry isn't something the FDA is known for. If anything, the agency has been harshly criticized for nearly a decade for going easy on drug makers, especially when it comes to following up on safety signals. The most prominent example, of course, would be Vioxx, but other drugs come to mind, such as the Avandia diabetes Pill and the Ketek Antibiotic . In each case, internal agency bickering allegedly thwarted action that might have mitigated risks.
In the wake of protracted product-liability litigation and huge billion-dollar fines paid for off-label promotion of various medicines, cries could occasionally be heard for charges to be brought not just against the corporations, but also executives. Beyond any visceral reactions, the rationale for such demands has been that companies pay large fines or make big settlements, but the repercussions are largely, if not entirely, financial. In the end, the company pays, but who (if anyone) takes responsibility?
Certainly, the money spent on such legal matters could be better used for R&D, for instance. One former Wyeth executive once told us that the $21 billion in charges taken a decade ago for the Fen-phen diet pill litigation meant there were fewer funds for such activities as licensing or acquiring drugs from other companies. In other words, more money spent on legal problems means less money for the kind of work that generates needed jobs and products.
Nonetheless, there is a growing belief that some legal bills have become increasingly accepted in the industry as a cost of doing business, just another expense line on the income statement. And beyond a bruised public image, the c-suite rarely feels lasting ramifications of any transgression. That's because individual executives are rarely named as transgressors.
One notable exception occurred in May 2007, when the U.S. Attorney for Western Virginia reached a settlement with three current and former top executives at Purdue Frederick over the misbranding of the OxyContin painkiller. The government claimed Purdue Frederick misled patients, regulators and doctors about the drug's addictive risks. All totaled, Purdue and the three execs paid $634 million in fines, although jail time wasn't involved as part of the deal. The episode was widely followed, due to OxyContin's notoriety and the unusual display of pharmaceutical executives facing such charges.
As the result of a recent report by the Government Accountability Office (GAO), however, there are reasons to believe such scenes may become more familiar, at least for certain violations. The GAO, which is the Congressional investigative arm, found that the FDA's Office of Criminal Investigation has been operating without very much oversight. For example, the GAO found assessments of six OCI field offices aren't being done on a timely basis: of 24 total office assessments that should have been completed by August 2009, only seven, or about 30%, were completed and one office hadn't been assessed in more than 10 years.
Meanwhile, the report also found that the FDA "has relied largely on the OCI director to determine which aspects of OCI operations and investigations are made known to FDA's top management." And despite increased funding and staffing, the OCI was found not to be very productive these last few years. The implication is that the OCI is, essentially, MIA.
In response to this embarrassing revelation, the FDA plans to increase misdemeanor prosecutions of industry execs as it looks to refocus its OCI. In a March 4 letter to Sen. Chuck Grassley (R-IO), the ranking Republican on the Senate Finance Committee, which has been probing the FDA and the pharmaceutical industry on a regular basis over the past few years, the FDA wrote that an internal committee recommends the agency and OCI pursue these prosecutions because it will allow "responsible corporate officials to be held accountable and is a valuable enforcement tool."
An FDA official told The Wall Street Journal that the agency has the authority to prosecute corporate execs for criminal actions within their companies under a provision known as 'strict liability.' Still more alarming for the execs and their defenders, this same official said the government doesn't have to show intent to defraud in order to get a conviction.
The approach hasn't been used much in recent years, but now appears likely to get tested, although the violations that may be pursued weren't specified. The OCI, for instance, currently investigates counterfeit drugs and improper marketing of narcotic drugs. Although the FDA may not want to appear overly aggressive, it's also possible still other offenses may be pursued.
At the same time, this doesn't automatically suggest that a high-ranking executive will be thrown behind bars the next time a drugmaker resolves an egregious off-label marketing scheme with the Department of Justice. Nor does it mean someone will land in jail because billions of dollars are paid to settle a massive product-liability class action lawsuit. The issue at hand is criminal activity, not civil lawsuits, after all.
Just the same, the FDA's statements should serve to put companies, big and small, on notice that certain actions can cause trouble. And one attorney who counsels pharmaceutical clients cautions that companies need to tread carefully.
"I think we're likely to see something soon. The GAO was pretty critical of the FDA and, sometimes, to address a problem, that means to make an example of somebody," said Kurt Karst, an attorney who specializes in the pharmaceutical industry at Hyman, Phelps & McNamara, and is one of two authors of the FDA Law Blog, which, as the name implies, keeps tabs on the FDA.
He added, "I think they're likely to look for potential cases. It's a difficult question, though, which kind of company they're more likely to pursue. A bigger company gets headlines, which helps the FDA makes its point. But a bigger company is also more likely to fight back and mount a more significant battle, perhaps blunting the effect. With smaller companies, there usually isn't much press about that sort of thing, so the FDA may not as easily get its point across. But small companies don't usually have the resources to fight either."
Indeed, the odds are good that someone will become an example. And it will be worth watching Sen. Grassley, who has pressed the FDA to pay closer attention to drug makers for a variety of reasons: ghostwriting, financial ties to doctors, clinical trial data goes undisclosed. Taken together, these issues have bubbled up and contributed to the impression that the pharmaceutical industry can do no good.
That isn't true, of course, but Sen. Grassley has repeatedly pointed to telling incidents where this or that drug maker has erred. Moreover, he has done the same thing with the FDA, most famously for probing allegations that agency reviewers were muzzled or intimidated for attempting to convey concerns about particular medications. He issued a muted statement when the GAO report was released, but a close read suggests he has instructed his staff to keep tabs.
"This report has made a difference already by securing a much needed commitment from the (FDA) commissioner to make the FDA's investigative unit live up to its significant responsibilities," Sen. Grassley intoned. "There's no excuse for the fact that this division's failures have gone unchecked for years, and having the FDA leadership focused on fixing what's broken is the first, very important step needed."
At least one other agency is threatening to get tough with executives. Speaking to the 10th Annual Pharmaceutical Regulatory and Compliance Congress last fall, the head of the Justice Department's Criminal Division, Assistant Attorney General Lanny Breur, said the application of the Foreign Corrupt Practices Act to the pharmaceutical industry will be pushed "in the months and years ahead."
Mr. Breuer told the crowd that the Justice Department "will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations, to be sure, but also it will involve investigation and prosecution of senior executives," adding that individuals will be held accountable, according to The Legal Times.
The message coming from these agencies is that individual accountability will start to matter. To what extent any truly meaningful - let alone high-profile - cases are pursued is unclear. But there is certainly growing interest in signaling to executives that their necks on the line.
"Regardless, I would tell any company that you don't want to slip up, intentionally or not, because the FDA is more likely to come knocking," said Mr. Karst. "What everyone has to do is be compliant, because the FDA has to defend its integrity and to do that, they've got to show they'll be willing to do something."
In the wake of protracted product-liability litigation and huge billion-dollar fines paid for off-label promotion of various medicines, cries could occasionally be heard for charges to be brought not just against the corporations, but also executives. Beyond any visceral reactions, the rationale for such demands has been that companies pay large fines or make big settlements, but the repercussions are largely, if not entirely, financial. In the end, the company pays, but who (if anyone) takes responsibility?
Certainly, the money spent on such legal matters could be better used for R&D, for instance. One former Wyeth executive once told us that the $21 billion in charges taken a decade ago for the Fen-phen diet pill litigation meant there were fewer funds for such activities as licensing or acquiring drugs from other companies. In other words, more money spent on legal problems means less money for the kind of work that generates needed jobs and products.
Nonetheless, there is a growing belief that some legal bills have become increasingly accepted in the industry as a cost of doing business, just another expense line on the income statement. And beyond a bruised public image, the c-suite rarely feels lasting ramifications of any transgression. That's because individual executives are rarely named as transgressors.
One notable exception occurred in May 2007, when the U.S. Attorney for Western Virginia reached a settlement with three current and former top executives at Purdue Frederick over the misbranding of the OxyContin painkiller. The government claimed Purdue Frederick misled patients, regulators and doctors about the drug's addictive risks. All totaled, Purdue and the three execs paid $634 million in fines, although jail time wasn't involved as part of the deal. The episode was widely followed, due to OxyContin's notoriety and the unusual display of pharmaceutical executives facing such charges.
As the result of a recent report by the Government Accountability Office (GAO), however, there are reasons to believe such scenes may become more familiar, at least for certain violations. The GAO, which is the Congressional investigative arm, found that the FDA's Office of Criminal Investigation has been operating without very much oversight. For example, the GAO found assessments of six OCI field offices aren't being done on a timely basis: of 24 total office assessments that should have been completed by August 2009, only seven, or about 30%, were completed and one office hadn't been assessed in more than 10 years.
Meanwhile, the report also found that the FDA "has relied largely on the OCI director to determine which aspects of OCI operations and investigations are made known to FDA's top management." And despite increased funding and staffing, the OCI was found not to be very productive these last few years. The implication is that the OCI is, essentially, MIA.
In response to this embarrassing revelation, the FDA plans to increase misdemeanor prosecutions of industry execs as it looks to refocus its OCI. In a March 4 letter to Sen. Chuck Grassley (R-IO), the ranking Republican on the Senate Finance Committee, which has been probing the FDA and the pharmaceutical industry on a regular basis over the past few years, the FDA wrote that an internal committee recommends the agency and OCI pursue these prosecutions because it will allow "responsible corporate officials to be held accountable and is a valuable enforcement tool."
An FDA official told The Wall Street Journal that the agency has the authority to prosecute corporate execs for criminal actions within their companies under a provision known as 'strict liability.' Still more alarming for the execs and their defenders, this same official said the government doesn't have to show intent to defraud in order to get a conviction.
The approach hasn't been used much in recent years, but now appears likely to get tested, although the violations that may be pursued weren't specified. The OCI, for instance, currently investigates counterfeit drugs and improper marketing of narcotic drugs. Although the FDA may not want to appear overly aggressive, it's also possible still other offenses may be pursued.
At the same time, this doesn't automatically suggest that a high-ranking executive will be thrown behind bars the next time a drugmaker resolves an egregious off-label marketing scheme with the Department of Justice. Nor does it mean someone will land in jail because billions of dollars are paid to settle a massive product-liability class action lawsuit. The issue at hand is criminal activity, not civil lawsuits, after all.
Just the same, the FDA's statements should serve to put companies, big and small, on notice that certain actions can cause trouble. And one attorney who counsels pharmaceutical clients cautions that companies need to tread carefully.
"I think we're likely to see something soon. The GAO was pretty critical of the FDA and, sometimes, to address a problem, that means to make an example of somebody," said Kurt Karst, an attorney who specializes in the pharmaceutical industry at Hyman, Phelps & McNamara, and is one of two authors of the FDA Law Blog, which, as the name implies, keeps tabs on the FDA.
He added, "I think they're likely to look for potential cases. It's a difficult question, though, which kind of company they're more likely to pursue. A bigger company gets headlines, which helps the FDA makes its point. But a bigger company is also more likely to fight back and mount a more significant battle, perhaps blunting the effect. With smaller companies, there usually isn't much press about that sort of thing, so the FDA may not as easily get its point across. But small companies don't usually have the resources to fight either."
Indeed, the odds are good that someone will become an example. And it will be worth watching Sen. Grassley, who has pressed the FDA to pay closer attention to drug makers for a variety of reasons: ghostwriting, financial ties to doctors, clinical trial data goes undisclosed. Taken together, these issues have bubbled up and contributed to the impression that the pharmaceutical industry can do no good.
That isn't true, of course, but Sen. Grassley has repeatedly pointed to telling incidents where this or that drug maker has erred. Moreover, he has done the same thing with the FDA, most famously for probing allegations that agency reviewers were muzzled or intimidated for attempting to convey concerns about particular medications. He issued a muted statement when the GAO report was released, but a close read suggests he has instructed his staff to keep tabs.
"This report has made a difference already by securing a much needed commitment from the (FDA) commissioner to make the FDA's investigative unit live up to its significant responsibilities," Sen. Grassley intoned. "There's no excuse for the fact that this division's failures have gone unchecked for years, and having the FDA leadership focused on fixing what's broken is the first, very important step needed."
At least one other agency is threatening to get tough with executives. Speaking to the 10th Annual Pharmaceutical Regulatory and Compliance Congress last fall, the head of the Justice Department's Criminal Division, Assistant Attorney General Lanny Breur, said the application of the Foreign Corrupt Practices Act to the pharmaceutical industry will be pushed "in the months and years ahead."
Mr. Breuer told the crowd that the Justice Department "will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations, to be sure, but also it will involve investigation and prosecution of senior executives," adding that individuals will be held accountable, according to The Legal Times.
The message coming from these agencies is that individual accountability will start to matter. To what extent any truly meaningful - let alone high-profile - cases are pursued is unclear. But there is certainly growing interest in signaling to executives that their necks on the line.
"Regardless, I would tell any company that you don't want to slip up, intentionally or not, because the FDA is more likely to come knocking," said Mr. Karst. "What everyone has to do is be compliant, because the FDA has to defend its integrity and to do that, they've got to show they'll be willing to do something."
