Life Science Compliance Update

May 16, 2016

Aegerion Pharmaceuticals Reaches Settlement Agreements in Principle with the Department of Justice

Aegerion Pharmaceuticals has reached agreements in principle with the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC"), relating to the ongoing investigations by both agencies into the Company's sales activities and disclosures related to JUXTAPID® capsules.

The inquiries into the company started last year, following an investigation done by Brazilian authorities to determine whether or not Aegerion's commercial activities violated local anti-corruption laws.

The agreement in principal comes after former Aegerion Chief Executive Marc Beer resigned after saying on CNBC's Fast Money that "patients are going to die of a cardiac event, either a stroke or a heart attack, if we don't have them on therapy." Those remarks set off the U.S. Food and Drug Administration ("FDA"), who claimed that those comments "misleadingly" suggested that the drug could reduce cardiovascular events and prolong life, when the FDA approval was based on data that showed that the pill lowered cholesterol in people with homozygous familial hypercholesterolemia.

The agreement in principle has Aegerion paying a fine of $40 million, payable over five years with outstanding amounts accruing interest at 1.75% per annum. The breakdown of payment will likely proceed as follows: approximately $3 million upon the finalization of the settlement with the DOJ and the SEC, approximately $3.7 million per year (payable quarterly) during the first three years of the five-year payout, and approximately $13 million per year (also payable quarterly) in years four and five.

The settlement payments are subject to acceleration in the event of certain change of control transactions or the sale of JUZTAPID or MYALEPT® assets.

The company will also plead guilty to two misdemeanor misbranding violations of the Food, Drug and Cosmetic Act ("FDCA"): one count pertaining to the marketing of JUXTAPID with inadequate directions for use and the other for the failure to comply with the Risk Evaluation and Mitigation Strategies ("REMS") for the drug.

Aegerion will also enter into a five-year deferred prosecution agreement in connection to charges that it violated the Health Insurance Portability and Accountability Act ("HIPAA") and engaged in obstruction of justice relating to the REMS program. The deal with the DOJ requires Aegerion to enter into a civil settlement agreement to resolve alleged violations of the False Claims Act. The specific nature of the violations was not disclosed.

Lastly, Aegerion will enter into a non-monetary consent decree with the FDA prohibiting future violations of the law. It remains uncertain whether or not Aegerion will be subject to a corporate integrity agreement with the Department of Health and Human Services.

The SEC's Division of Enforcement will recommend that the SEC accept a settlement offer from Aegeroin on a neither-admit-nor-deny basis that contains alleged negligent violations of the Securities Act of 1933, related to certain statements made by the Company in 2013 regarding the conversion rate of patients receiving JUXTAPID prescriptions, with remedies that include censure.

Aegerion Chief Executive Officer Mary Szela is hopeful about the company moving forward following these agreements in principle, stating:

These preliminary agreements in principle with the DOJ and the SEC represent an important step forward towards addressing the immediate issues facing Aegerion and positioning the Company for near-term value creation and growth. As a company, we are deeply committed to legal and regulatory compliance, and we have made significant investments to ensure that these values resonate throughout our organization. We look forward to putting these matters behind us and to continuing our focused efforts on developing and commercializing innovative therapies for patients with debilitating rare diseases.

The terms as outline above are subject to change following further negotiations, and other terms of the final settlement remain subject to further negotiation. This preliminary agreement is also subject to approval of supervisory personnel within both the DOJ and the SEC. The agreements in principle do not cover the DOJ or SEC's inquiries into Aegerion's Brazilian operations.

May 03, 2016

Peeling Back the Olympus Onion – The Importance of Culture

This article examines an apparent breakdown in corporate culture that goes beyond the subsidiaries to the parent company, Olympus Corporation. It is a cautionary tale for life science compliance officers on the importance of corporate culture's impact on successful (or in this case unsuccessful) compliance.

With the recently announced settlements by Olympus Corporation of the Americas (OCA) and Olympus Corporation of Latin America (OLA), the size of the civil and criminal penalties ($646 million) represent the largest penalties imposed on a medical device manufacturer. Also with the settlements involving conduct violating three statutes, the Foreign Corrupt Practices Act, the Anti-Kickback Statute (AKS), and the False Claims Act (FCA), it is no surprise that corporate culture and the "tone from the top" are hot topics of conversation among life sciences professionals.

Cultural issues certainly are at the heart of the complaint brought by John Slowik, the whistleblower in the case. According to his story, Slowik was a twenty-plus year veteran of OCA, who as Chief Compliance Officer for OCA became the victim of retaliatory acts for his efforts to create an effective and efficient compliance program. OCA ultimately fired Slowik. He alleged that he was unsuccessful in part because of what "seemed to be a system of actions [involving non-compliance] long in practice."   

Read the entire story in the May Issue of Life Science Compliance Update - Now Available.

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April 27, 2016

Novartis Korea in Kickback Investigation – Medical Journal Rebates

In a recent securities filing, Novartis alluded to future issues for the Swiss company. In their Interim Financial Report, Novartis stated, "In Q1 2016, the Seoul Western District Prosecutor initiated a criminal investigation into allegations that Novartis Korea utilized medical journals to provide inappropriate economic benefits to healthcare professionals."

This admission follows a February raid of Novartis' Korean offices. On Monday, February 22, 2016, the Seoul Western District Prosecutor's Office raided Novartis' Korean offices, taking documents and accounting books. According to The Korea Herald, at issue are allegations that Novartis Korea "handed out money and other kickbacks, known in the industry as "rebates," to local doctors."

According to an official involved in the case, the prosecution is looking to find out how the rebates were offered, though "it is too early to confirm any charges against the company, as the investigation is still ongoing."

In an emailed statement to the Wall Street Journal, Novartis stated,

Novartis is cooperating with the investigation being conducted by the Seoul Western District Prosecutor's office. Novartis is committed to the highest standards of ethical business conduct and regulatory compliance in all aspects of its work and takes any allegation of misconduct extremely seriously.

According to an anonymous industry insider, the government and the Korea Pharmaceutical Manufacturers Association have been under increasing pressure to crackdown on the rebate program through harsher punishments and insider reports. It is possible that "foreign drug makers may be stepping up their marketing activities in Korea in a bid to remain competitive amid the introduction of generics, though such moves should stay within legal boundaries."

Part of the allegation includes Novartis giving a rebate on subscriptions to medical journals purchased by Korean physicians.

Novartis' Recent FCPA Violation

This new legal trouble comes after Novartis paid the Securities Exchange Commission $25 million in March 2016 to settle charges that it violated the Foreign Corrupt Practices Act when two China-based subsidiaries bribed doctors and others to prescribe its drugs. Novartis subsidiaries allegedly gave money and gifts to doctors and other healthcare professionals as bribes, leading to several millions of dollars in sales to China state health institutions. In the March 2016 settlement, the SEC stated that Novartis "failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent the schemes."

What Does This Mean

While this probe is still in its early stages, it is likely to be closely watched for signs that global drug makers continue to have problems in their practices in various foreign markets. As we have written many times on this website and in our sister publication, Life Science Compliance Update, global pharmaceutical companies often find themselves balancing laws, regulations, and local customs, in each market they operate in. Such an operational status makes compliance extraordinarily difficult, making the need for a thriving compliance department in each regional office exceedingly important.

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