Life Science Compliance Update

June 23, 2016

Is the Carrot Bigger Than the Stick? - The DOJ’s FCPA “Pilot Program”

Kurt Stitcher, Senior Compliance Consultant

The U.S. Department of Justice's FCPA Pilot Program is nominally designed to encourage voluntary self-disclosure of FCPA violations by providing more certainty around the outcome of such disclosure. The price of this "certainty" is fairly onerous, however, and the program suffers from many ambiguities and flaws that make it only marginally useful to Life Sciences companies when structuring compliance programs and determining the benefits of voluntary self-reporting.

On April 5, 2016, U.S. Assistant Attorney General Leslie Caldwell announced the roll-out of a Foreign Corrupt Practices ("FCPA") Pilot Program designed to encourage companies to self-report potential FCPA violations. Accompanying her announcement was an "Enforcement Plan and Guidance" from Andrew Weissman, the Chief of the DOJ's Fraud Section. The FCPA Guidance enumerates several benefits offered to companies that voluntarily disclose such violations, including reduced fines (beyond those offered under the United States Sentencing Guidelines) and the removal of any corporate monitor requirement. In the DOJ's opinion, specifying the benefits of voluntary self-disclosure provides transparency in the process and, thus, more certainty for companies when they are deciding whether to self-report.

In exchange for these potential benefits, however, the DOJ requires (1) truly voluntary self-disclosure; (2) full cooperation with federal authorities in the ensuing investigation; and (3) rapid remediation of any flaws in the company's compliance program.70 Moreover, these Pilot Program requirements are in addition to those imposed under the Principles of Federal Prosecution of Business Organizations set forth in the U.S. Attorneys' Manual71 and under the U.S. Sentencing Guidelines, both of which speak to the steps that companies must….

Read Full Article in the June 2016 Issue of Life Science Compliance Update

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June 20, 2016

Carl Reichel Warner Chilcott Executive Acquittal Deals Blow to Yates Memo

In a blow to the Department of Justice and the Yates Memo, a Massachusetts jury acquitted Warner Chilcott executive Carl Reichel. Reichel was facing charges that he violated the Anti-Kickback statute by communicating to sales representatives that they could (and should) use "sham" promotional education dinners to build relationships with physicians and force those physicians to make commitments to purchase Warner Chilcott products.

Prosecutors also alleged that Reichel instructed Warner Chilcott sales staff to bring food and drink to reward staff at physicians' offices for submitting requests to insurance companies to pay for prescriptions of Warner Chilcott drugs. The alleged wrongdoing occurred between 2009 and 2011.

Reichel pleaded not guilty, and in court documents, his attorneys noted that they felt there was no evidence that Reichel had intended to violate the anti-kickback law, nor did he have any knowledge of doing anything illegal.

Warner Chilcott

In October 2015, Warner Chilcott agreed to plead guilty to a criminal charge of health care fraud, arising out of similar allegations, and to pay $125 million to resolve a Department of Justice investigation into its payments to physicians and other parties.

Yates Memo

In September 2015, Deputy Attorney General Sally Quillian Yates issued a memo that has became known as the "Yates memo" that laid out the various steps Justice Department attorneys should take in their investigations to focus more on individuals. The DOJ is hopeful that a focus on individuals will do a better job at deterring future illegal activity and ensure that "the proper parties are held responsible for their actions."

Helpful Jury Instructions

The jury instructions may have helped Reichel out, as they provided that

A defendant cannot be convicted of the Anti-Kickback statute merely because he sought to cultivate a business relationship or create a reservoir of goodwill that might ultimately affect one or more unspecified purchase or order decisions.  If the remuneration is only for a purpose other than seeking to effect a quid pro quo transaction of payments of remuneration for order or purchase of drugs, it is not within the scope of the Anti-Kickback Statute.

Conclusion

The jury's acquittal of Reichel (following guilty pleas by several other, less senior executives) reinforces that, despite the government's recent emphasis on holding individuals responsible for corporate misconduct, successfully convincing a jury of criminal guilt remains challenging.

Prior cases have been difficult because it is tough for prosecutors to successfully prove that an individual had criminal intent in a corporate setting where decision-making tends to be spread among many.

Another criminal trial with a similar fact pattern recently began in Boston, focused on alleged wrongdoing by the former CEO of Johnson & Johnson's Acclarent unit, William Facteau and the former vice president of sales, Patrick Fabian. Both were indicted in April 2015 on charges including conspiring to market a medical device for a use not approved by the FDA and conspiring to commit securities fraud by not disclosing the conduct to Johnson & Johnson when it acquired Acclarent in 2010. Both parties have pled not guilty.

June 16, 2016

Sun Pharma Receives Grand Jury Summons

Sun Pharmaceuticals, India's largest drug maker, recently disclosed that the United States Department of Justice (DOJ) has subpoenaed the company seeking information about pricing and marketing of the generic drugs it sells in the United States.

The anti-trust division of the DOJ has also issued summons to the company's U.S. subsidiary to appear before a grand jury.

While Sun Pharmaceuticals did not elaborate on the particular reasons for the summons, it stated that the DOJ has sought "documents from [Sun Pharmaceuticals Industries Inc] SPII and its affiliates relating to corporate and employee records, generic pharmaceutical products and pricing, communications with competitors and others regarding sales of generic pharmaceutical products and certain other related matters."

Sun Pharmaceuticals stated that SPII is responding to the subpoena, and it is "of the opinion that the outcome of the above-referred inquiry is unlikely to have any material adverse impact on the consolidated operations or consolidated financial results of the company."

It Isn't Just Sun Pharma

While the specifics of the summons are not currently clear, the prices of generic drugs have come under increasing scrutiny by both the government and health insurance companies over the course of the past several years. The scrutiny essentially started when United States Senator and current Democratic candidate for President Bernie Sanders, along with Representative Elijah Cummings, opened a congressional investigation in October 2014 into fourteen drug companies, including Sun Pharma, over their price increases of generic drugs.

In February 2015, Sanders and Cummings went a step further, and asked the Department of Health and Human Services (HHS) to investigate such increases in generic drug prices, citing specifically to doxycycline hyclate 100-mg capsules, of which prices had more than doubled in the year through June 2014. Around that time, Myland and Endo International Plc received notice from the DOJ seeking details of pricing of doxycycline based drugs.

The February 2015 letter resulted in a December 2015 report issued by the HHS Office of Inspector General (OIG) that found that "generic drug price increases exceeded the statutory inflation factor applicable to brand-name drugs for 22 percent of the quarterly AMPs we reviewed." The report recommended that Centers for Medicare and Medicaid Services (CMS) consider seeking legislative authority to extend the additional rebate provisions to generic drugs. The Bipartisan Budget Act of 2015 addressed those concerns by including provisions extending an additional rebate to generic drugs.

Dr. Reddy's Lab and Allegran Plc also received summons from United States regulators seeking pricing details. However, the details of the products involved in those instances were not disclosed.

It is clear from the past two years, and the fact that summons and subpoenas are still being issued on the topic, that the DOJ is going to continue focusing on pricing of generic drugs until another hot topic surfaces.

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