Life Science Compliance Update

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March 25, 2013

Par Pharmaceuticals Settles Off-Label Case, Drops First Amendment Case

Settle image

Earlier this month, New Jersey-based Par Pharmaceutical Companies Inc. (“Par”) pleaded guilty in federal court agreed to pay $45 million to resolve its criminal and civil liability in the company’s off-label promotion of its prescription drug Megace ES. According to the press release from the U.S. Department of Justice, Par was fined $18 million and ordered $4.5 million in criminal forfeiture.  Par also agreed to pay $22.5 million to resolve its civil liability. 

What is unique about this off-label settlement is that Par has agreed to dismiss its First Amendment case that it filed against the FDA with respect to its off-label promotion and protected commercial speech (similar to what was done when Allergan settled with the government).  As a result, we are left with United States v. Caronia as the most current case law on off-label promotion being protected as commercial speech.

As noted by, Par also dropped a previously unknown action Par filed against the Government regarding “a grand jury matter pending before the Third Circuit” (In re: Grand Jury Matter, Case No. 11-2679 (D.N.J.)).  Interestingly, the post notes that “Gone from the Information, Plea Agreement and Settlement Agreement was any mention of the First Amendment, Par’s assertion that most of what went on in those nursing homes was “on-label” speech about “weight wasting” (even if directed at an off-label audience of physicians), or the fact that the Government’s investigation had also focused on marketing Megace ES to physicians treating weight wasting in cancer patients.”  The post noted that the government did give up a few things in its deal:

  • agreeing not to seek to place Par on probation (based on the restrictive nature of the CIA)
  • agreeing not to go after Strativa Pharmaceutical or any other Par affiliate,
  • foregoing Par’s exclusion from participation in federal healthcare programs, unless exclusion is mandatory, and
  • getting the relators to agree dropping their qui tam civil suits in exchange for $4.4 million or about 20% of the civil recovery. 

It is difficult, however, to see how DOJ could agree to not excluding Par since that is the jurisdiction and authority of HHS-OIG.

Case Background

Par pleaded guilty to an information charging it with a criminal misdemeanor for misbranding Megace ES in violation of the Federal Food, Drug and Cosmetic Act (FDCA). Megace ES, a megestrol acetate drug product was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS.  The Megace ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA.

In addition to the criminal fine and forfeiture, the plea agreement mandates that Par implement several compliance measures and annually provide the U.S. Attorney’s Office with a sworn certification from its chief executive officer that the company has not unlawfully marketed any of its pharmaceutical products.

The civil settlement resolves allegations that Par, by promoting the sale and use of Megace ES for uses that were not FDA-approved and not covered by Federal health care programs, caused false claims to be submitted to these programs. The United States further alleged that Par deliberately and improperly targeted sales to elderly nursing home residents with weight loss, whether or not such patients suffered from AIDS, and launched a long-term care sales force to market to this population.  During this marketing campaign, Par was allegedly aware of adverse side effects associated with the use of megestrol acetate in elderly patients, including an increased risk of deep vein thrombosis, toxic reactions in elderly patients with impaired renal function, and mortality.

The United States alleged that Par made unsubstantiated and misleading representations about the superiority of Megace ES over generic megestrol acetate for elderly patients to encourage providers to switch patients from generic megestrol acetate to Megace ES, despite having conducted no well-controlled studies to support a claim of greater efficacy for Megace ES. Except as admitted in the plea agreement, the claims settled by the civil settlement agreement are allegations only, and there has been no determination of liability as to those claims.

Corporate Integrity Agreement

Par also agreed to enter into a five-year corporate integrity agreement (CIA), which contains provisions similar to those contained in the recent GlaxoSmithKline CIA.  Specifically, Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services, noted that “company executives may have to forfeit annual bonuses if they or their subordinates engage in significant misconduct, and sales representatives may not be paid incentive compensation (based on volume) for [Megace ES] in the case, or successor branded versions of that drug.”  Par cannot discipline employees for sales performance as well.

The new “Employee and Executive Incentive Compensation Restriction Program and Executive Financial Recoupment Program,” goes into effect April 1, 2013, and must last while Par is under the CIA.  The financial recoupment program puts at risk of forfeiture and recoupment an amount equivalent to up to 3 years of annual performance pay for an executive who is discovered to have been involved in any significant misconduct (Executive Financial Recoupment Program).  The financial recoupment program applies to Covered Executives who are either current Par employees or who are former Par employees at the time of a Recoupment Determination.

The eligibility and repayment conditions described above are triggered upon a Recoupment Determination that finds:

  1. significant misconduct (e.g., violation of a significant Par policy, or regulation, or law) by the Covered Executive that, if discovered prior to payment, would have made the Covered Executive ineligible for an annual bonus, bonus deferral, or other deferred or unvested Equity Awards in that plan year or subsequent plan years; or
  2. significant misconduct by subordinate employees in the business unit over which the Covered Executive had responsibility that does not constitute an isolated occurrence and which the Covered Executive knew or should have known was occurring that, if discovered prior to payment, would have made the Covered Executive and/or employees in question ineligible for an annual bonus, bonus deferral or other deferred or unvested Equity Awards in that plan year or subsequent plan years.

Reporting of Physician Payments

Par’s CIA is the first since CMS issued the finalized Physician Payment Sunshine Act regulations.  Interestingly, the CIA requires Par to post payments before CMS would be able to post such payments – by August 30, 2013.  Thereafter, 60 days after the end of each calendar quarter, Par must post on its website a report of the cumulative value of the Payments provided to each physician and Related Entity during the preceding calendar quarter.

On or before March 31, 2014, and 90 days after the end of each subsequent calendar year, Par must post on its website a report of the cumulative value of the Payments provided to all U.S.-based physicians and Related Entities directly or indirectly from Par during the prior applicable calendar year.  Each quarterly and annual report must be easily accessible and readily searchable. The first annual report will contain information for the second through the fourth quarters of 2013.

In setting out the definitions, OIG notd that “payments” are defined  to include all “payments or other transfers of value” as that term is defined in §1128G(e)(10) under Section 6002 of the Affordable Care Act (the Sunshine Act) and any regulations promulgated thereunder. The term Payments includes, by way of example, the types of payments or transfers of value enumerated in §1128G(a)(1)(A)(vi) of the Affordable Care Act.  The term includes all payments or transfers of value made to Related Entities on behalf of, at the request of, for the benefit or use of, or under the name of a physician for whom Par would otherwise report a Payment if made directly to the physician.

The term Payments also includes any payments or transfers of value made, directly by Par or by a vendor retained by Par to a physician or Related Entity in connection with, or under the auspices of, a co-promotion arrangement.

OIG also recognized the Sunshine Act provisions for payment delay for “research.”  Specifically, “For purposes of its annual and quarterly website postings as described above, and only with regard to payments made pursuant to product research or development agreements and clinical investigations as set forth in § 1128G(c)(E) of the Affordable Care Act, Par may delay the inclusion of such payments on its website listings consistent with § 1128G(c)(E) of the Act and any subsequent regulations promulgated thereunder.”

OIG recognized that the term “Payments” does not include transfers of value or other items that are not included in or are excluded from the definition of “payment” as set forth in § 1128G(e)(10) under Section 6002 of the Affordable Care Act and any regulations promulgated thereunder.



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