Washington Editor

WASHINGTON – Novartis AG last week became the latest drugmaker to pony up hundreds of millions of dollars to settle charges of illegal drug promotion, joining recently busted firms Pfizer Inc., AstraZeneca plc, Eli Lilly and Co., Forest Laboratories Inc., Allergan Inc. and Bristol-Myers Squibb Co.

The Basel, Switzerland-based company's U.S. subsidiary, Novartis Pharmaceuticals Corp., agreed last week to plead guilty and pay a criminal fine and forfeiture of $185 million and also pay $237.5 million to resolve civil liabilities for its off-label marketing of its antiseizure medicine Trileptal (oxcarbazepine) and payment of kickbacks to health care providers to induce them to prescribe that drug plus Diovan (valsartan), Exforge (amlodipine-valsartan), Tekturna (aliskiren), Zelnorm (tegaserod) and Sandostatin (octreotide).

Novartis' settlement follows an earlier deal in May with prosecutors, in which the Swiss drug and vaccine maker paid out $72.5 million to settle civil False Claims Act allegations of off-label promotion of its cystic fibrosis drug TOBI. (See BioWorld Today, May 10, 2010, and May 17, 2010.)

Last month, Forest Laboratories Inc.'s pharmaceuticals unit agreed to plead guilty and pay $313 million to settle charges involving unlawful peddling of its antidepressants Celexa (citalopram) and Lexapro (escitalopram) for use in children. (See BioWorld Today, Sept. 17, 2010.)

In the largest settlement of its kind, New York-based Pfizer last year agreed to pay $2.3 billion to settle federal charges of improper off-label promotion of its pain drug Bextra (valdecoxib), which the company voluntarily removed from the market in April 2005. (See BioWorld Today, Sept. 8, 2009.)

Similar settlements have involved Lilly paying $1.4 billion, Allergan shelling out $600 million, AstraZeneca forfeiting $520 million and BMS paying $515 million. But some have questioned whether civil and criminal fines are enough to deter drugmakers from the illegal schemes – especially since prosecutors negotiate the amounts of those monetary penalties in settlements with drug companies – or if throwing a few CEOs in jail would work better.

With net profits from off-label promotion likely far exceeding civil and criminal penalties, multimillion dollar settlements with federal and state governments have become "just the cost of doing business" for many drugmakers, said former Justice Department lawyer Shelley Slade, a partner at the Washington whistleblower law firm Vogel, Slade & Goldstein LLP. It's a business decision," she told BioWorld Today. And, Slade added, most companies are gambling that they will not get caught.

But, she said, the "government recognizes this and appreciates the need to employ additional measures to deter off-label marketing." Slade said Justice and FDA officials have recently indicated that they will start holding individuals within the pharma companies accountable for off-label promotion violations.

One measure that has been kicked around by government officials is using a statute that would permit prosecutors to charge executives with a misdemeanor offense of not acting as a responsible corporate officer if the company fails to comply with misbranding rules, Slade said.

She noted that officials from the Department of Health and Human Services Office of Inspector General recently proposed excluding culpable individuals from future participation in Medicare and Medicaid if their company violates off-label promotion rules. Officials also have talked about assigning responsibilities to corporate board members in corporate integrity agreements, Slade added.

But while all of those are "excellent" ideas, "ultimately, more is needed," she insisted. Slade said law enforcement needs to specifically target a case where off-label sales paid for by Medicare and Medicaid were "down-right dangerous" to beneficiaries' health and high-level company officials were "clearly knowledgeable" of the violations their firm was committing and then charge those corporate executives with a felony. "Only once high-level managers see their colleagues actually going to jail or being forced to pay really significant financial fines as individuals will you see a change in the culture," Slade said.

But as things currently stand, corporate CEOs whose firms have been caught by the government often retire with multimillion-dollar golden parachutes, she said. Slade pointed to the recent retirement of OmniCare Inc. CEO Joel Gemunder, who earned $14.1 million in 2009 and then reportedly received a severance package of close to $130 million.

Since 2006, Covington, Ky.-based Omnicare – the largest provider of prescription drugs to U.S. nursing homes – has paid about $200 million to settle False Claims Act lawsuits, which involved allegations of soliciting and paying kickbacks and switching patients onto different forms of medications than what was originally prescribed by their doctors, solely to maximize Medicaid reimbursement to the company.

"For Joel Gemunder, from the strictly financial point of view, in the end, it was in his personal self-interest to have kept profits high notwithstanding his firm's alleged overbilling of government health programs," Slade said.

Supreme Court to Hear Overcharges Case

The Supreme Court last week agreed to hear an appeal from several drugmakers, including Pfizer Inc., AstraZeneca plc and Merck & Co. Inc., in a case involving a federal drug discount program for hospitals and clinics.

California's Santa Clara County filed a lawsuit in 2005 claiming that its hospitals and health clinics had been overcharged for prescription medications by the drugmakers. A federal judge had earlier dismissed the suit, agreeing with the drugmakers that only the government could enforce Medicaid rules.

But a U.S. appeals court said the county had standing in the case, known as Astra USA v. County of Santa Clara.

FDA Issues New Safety Guidelines

The FDA last week issued a final rule about what safety information must be reported during drug trials.

Under the new rules, companies must report within 15 days findings that suggest a significant risk to study participants, serious suspected adverse reactions that occur at a rate higher than expected, plus serious adverse events from bioavailability studies, which determine what percentage and at what rate a drug is absorbed by the bloodstream, and bioequivalence studies, which determine whether a generic drug has the same bioavailability as the brand-name drug.

The new rule also revises definitions and reporting standards.