From the Office Suite to Cell Block C: Potential Criminal and Regulatory Implications of Pharma/Biotech/Device Products Liability Lawsuits BUTLER SNOW 1
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION UNITED STATES OF AMERICA Case No. v. HEALTHCARE CORPORATION, AND JOHN DOE DISTRIBUTORS Violation: Title 18, United States Code, Section 287 Defendants. INDICTMENT BUTLER SNOW 2
BELOW THE SURFACE: CIVIL CASES, CRIMINAL IMPLICATIONS UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION JANE DOE Case No. Plaintiff, v. DEMAND FOR JURY TRIAL HEALTHCARE CORPORATION, AND JOHN DOE DISTRIBUTORS Defendants. COMPLAINT BUTLER SNOW 3
DOJ POLICY: CRIMINAL AND CIVIL COORDINATION It is Department of Justice policy that criminal prosecutors and civil attorneys should coordinate with one another and with agency attorneys Early and effective coordination is critical Parallel investigations maximize our potential to secure the appropriate resolution, whether it be criminal prosecution, financial penalties, restitution, asset forfeiture or federal program exclusion or debarment. - Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015 BUTLER SNOW 4
DOJ POLICY: CRIMINAL PROSECUTION NECESSARY [T]here is a critical need for criminal prosecutions, even if conduct could be pursued civilly or through regulatory action. [O]ften it is the threat of criminal prosecution that deters potential wrongdoers. The stakes in criminal prosecutions are high often involving prison time for individuals, and potential collateral consequences for companies - Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015 BUTLER SNOW 5
DOJ: PROSECUTING INDIVIDUALS HIGH PRIORITY The prosecution of individuals including corporate executives for criminal wrongdoing continues to be a high priority for the [Justice] department. [C]orporations do not act criminally, but for the actions of individuals. And, the Criminal Division intends to prosecute those individuals, whether they are sitting on a sales desk or in a corporate suite. - Deputy Assistant U.S. Attorney General Sung-Hee Suh, Jan. 20, 2015 BUTLER SNOW 6
PROSECUTIONS ARE ON THE RISE Pharmaceutical Industry has surpassed Defense Industry in number of False Claims Act ( FCA ) prosecutions From 2001 2010, pharmaceutical companies accounted for 25% of all FCA settlements, compared to 11% for Defense Industry In 2013, DOJ and HHS collected $3.7 billion in fines from pharmaceutical companies BUTLER SNOW 7
IMPACT OF PLAINTIFFS BAR AND MEDIA Lawyers Create Big Paydays by Coaxing Attorneys General to Sue DEC. 18, 2014 Crime and Punishment: Corporations are paying record fines for breaking ever more complex laws. Critics, though, want to see executives in the dock. Feb. 3, 2015 Is Big Pharma Addicted to Fraud? July 29, 2013 BUTLER SNOW 8
KEY QUESTIONS 1. What criminal and regulatory issues does this civil case/litigation raise? 2. How can we prepare the Company for an investigation or prosecution? BUTLER SNOW 9
1. What criminal and regulatory issues does this civil case/litigation raise? BUTLER SNOW 10
THREATS AT EVERY STAGE Pre-Clinical Clinical Trials Manufacturing Launch/Post- Marketing Good Laboratory Practices ( GLP ) USPTO Economic Espionage Act (Theft of Trade Secrets) Allegations of Fraud o Collection of Data o Reporting of Data to FDA o Reporting Adverse Events to FDA o Study Results o SEC Current Good Manufacturing Practice ( cgmp ) False Claims Act/FDCA Fraud-based charges Off-label Promotion Failure to Recall FCPA FTC RICO Spoliation 1 3 YEARS 2 10 YEARS Up to 7 YEARS INDEFINITELY Investigational New Drug (IND) Application Submitted Clinical Clinical Trials Trials New Drug Application (NDA) Submitted NDA Approval BUTLER SNOW 11
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY False Statements (18 U.S.C. 1001) o Felony to knowingly and willfully make material false statement to U.S. Government, including FDA Falsifying, concealing, or covering up a material fact by any trick, scheme, or device Making materially false, fictitious or fraudulent statements or representations Making or using a false writing or document with knowledge that it contains materially false, fictitious or fraudulent statements o Stand-alone charge BUTLER SNOW 12
BROAD USE OF SECTION 1001 False statements made to FDA in company s annual reports re: drug stability testing program False statements made to FBI and SEC during interview re: defendant s alleged insider trading of biotech company s stock False statements made re: pacemaker testing to Medicare agents conducting an audit investigating fraud BUTLER SNOW 13
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY Conspiracy to defraud the U.S. Government (18 U.S.C. 371) o Conspiracy to impair, obstruct, or defeat the lawful functions of any department of the Government o By deceit, craft, or trickery, or at least by means that are dishonest No requirement that Government suffer any loss Punishable by up to 5 years imprisonment BUTLER SNOW 14
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY cgmp Violations Drug companies should be aware that failing to adhere to good manufacturing practices subjects them to penalties and prosecution. - First Assistant U.S. Attorney Louis Lappen, E.D.P.A., Mar. 10, 2015 BUTLER SNOW 15
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY cgmp Regs (21 CFR 210; 211) cover, inter alia: Organization and Personnel Buildings/Facilities Equipment Containers/Closures Production Controls Packaging/Labeling Control Holding and Distribution Laboratory Controls Records/Reports Return/Salvaged Product BUTLER SNOW 16
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY Food, Drug and Cosmetic Act ( FDCA ): prohibits distribution of adulterated or misbranded drugs or medical devices Strict liability criminal offenses Park doctrine Death Sentence Repeated violations may result in increase from misdemeanor to felony Prison and fines (up to $1 million for medical devices) Also subject to criminal prosecution for failing to report data to the FDA BUTLER SNOW 17
EXAMPLE OF FDCA PROSECUTION Major drug manufacturer pled guilty to criminal charges for violating FDCA, including, inter alia: o failing to report certain safety data about a drug o providing inadequate directions for use of another drug o participating in a misleading medical journal article that made false efficacy claims re: yet another drug o failing to report data from two other studies in which the last drug failed to demonstrate efficacy in certain patients Over $1 billion in criminal fines and $2 billion in civil penalties Criminal plea required compliance commitments and certifications from president and board of directors BUTLER SNOW 18
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY False Claims Act ( FCA ) (18 U.S.C. 287): o Makes it a crime to knowingly submit a false, fictitious, or fraudulent claim to U.S. Government Up to 5 years in prison and fines Civil penalties may include treble damages Qui Tam ( Whistleblower ) o Filed under seal o Incentive: Relator can get up to 30% of fines collected by government BUTLER SNOW 19
HYBRID PROSECUTIONS: FULL ASSAULT Drug company pled guilty to violating FDCA by manufacturing adulterated drugs at one of its foreign facilities, and violating the false statements statute by making false statements to the FDA The criminal charges alleged: o cgmp deviations in the manufacture of ingredients and finished products o Improper stability testing for certain batches of drugs o Improper storage of drug samples at correct temperatures and humidity o False statements made to the FDA in Annual Reports regarding the dates on which stability tests were conducted o Failure to disclose improper storage practices to the FDA Paid a criminal fine of $150 million and $350 million in civil penalties under the FCA. BUTLER SNOW 20
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY Foreign Corrupt Practices Act ( FCPA ) : o Makes it a crime to bribe a foreign government official to obtain or retain business or to secure any improper business advantage Two Key Provisions o Anti-bribery o Accounting/Books and Records Challenges o Broad definition of foreign official o Estimated that well over 1/3 of all pharmaceutical sales occur in overseas markets o Corporate structure/subsidiaries o Relator can get up to 30% of fines collected by government BUTLER SNOW 21
EXAMPLES OF FCPA PROSECUTIONS SEC: Enforcement of the Foreign Corrupt Practices Act (FCPA) continues to be a high priority area for the SEC. 2013: SEC charged company with violating the FCPA by bribing doctors and other government officials in five countries to obtain or retain business and make $7.5 million in illicit profits Company agreed to pay more than $13.2 million to settle the SEC's charges BUTLER SNOW 22
EXAMPLES OF FCPA PROSECUTIONS SEC charged company for improper payments its subsidiaries made to foreign government officials to win business in Russia, Brazil, China, and Poland. Company agreed to pay more than $29 million to settle the charges. SEC charged company for illegal payments made by its subsidiaries to foreign officials to obtain regulatory approvals, sales, and increased prescriptions for its products. Company agreed to pay $45 million to settle. BUTLER SNOW 23
2. How can we help prepare the Company for an investigation or prosecution? BUTLER SNOW 24
EXPECT THE UNEXPECTED EXPECTED Understand the product lifecycle, anticipate pitfalls at each stage, and issue spot Review/Update internal policies and processes for government communications, disclosures, and reports Develop internal guides, protocols, or checklists tailored to specific departments and specific stages in product lifecycle (e.g., R&D, marketing, finance departments) Never assume executives or employees know what constitutes a violation BUTLER SNOW 25
UNDERSTAND THE MANUFACTURING PROCESS For DOJ, I didn t know is never the answer Review Guidance to understand FDA expectations Be good... and be seen being good Ensure Company openly and publicly prioritizes cgmp The company you keep Know suppliers and partners, particularly those involved in manufacturing, production, packaging, shipping, and holding Encourage and incentivize employees to report known or suspected cgmp violations Investigate complaints/issues immediately Document follow-up and steps to correct BUTLER SNOW 26
QUESTIONS? Andrew.Tharp@ButlerSnow.com BUTLER SNOW 27