Life Science Compliance Update

April 26, 2016

AVEO Pharmaceuticals to Pay $4 Million to Settle SEC Charges

Readers who attended CBI's Annual Pharmaceutical Compliance Congress last year may have seen Securities and Exchange Commission (SEC) Enforcement Director Andrew Ceresney's speech about various focuses for the SEC. One of the focuses he mentioned was disclosures that concerned Food and Drug Administration (FDA) communications. Mr. Ceresney stated, "One significant type of key event that we see causing problems with disclosure in your industry is disclosures on your dealings with the FDA. Accuracy of reporting in your dealings with the FDA is critical to getting investors the information they need."

Though the life science industry is not typically where the SEC has historically been active, in the wake of Mr. Ceresney's speech and the AVEO case, life science companies and their executives should be aware that disclosures relating to the regulatory process will be scrutinized by not just private litigants, but also the SEC.


On May 11, 2012, AVEO met with FDA officials to discuss the results of its Tivozanib clinical trial, prior to filing its related New Drug Application ("NDA"). During the meeting, the FDA expressed concern over the survival rates among clinical trial participants and recommended that AVEO "conduct a second adequately powered randomized trial in a population comparable to that in the US."

In an August 2012 press release and Form 10-Q, AVEO disclosed the FDA's concern, but not that the FDA actually recommended AVEO conduct another clinical trial. AVEO did not stop there, however. During an August 2, 2012, investor call, executives were specifically asked what the FDA might be looking for with resect to additional studies or analysis, and company executives responded by declining to "speculate."

Still not disclosing the FDA's concerns, during a January 2013 public offering, AVEO raised $53 million. It wasn't until April 30, 2013, when the FDA released a "pre-meeting summary" in advance of a meeting with an advisory panel of experts to evaluate AVEO's NDA, that the May 2012 recommendation was made public.

The SEC filed a Complaint on March 29, 2016, against AVEO alleging violations of Section 10(b) and 10b-5 and Section 17(a) against AVEO and three former officers; Exchange Act Rule 13a-14 violations against AVEO's CEO Tuan Ha-Ngoc and CFO David Johnston; and 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13 violations against AVEO.


Without admitting or denying any allegations in the complaint, AVEO has agreed to pay a $4 million penalty. While this settlement is still awaiting court approval, the SEC is continuing the cases against AVEO's former CEO, CFO, and Chief Medical Officer William Slichenmyer.

This case makes apparent that companies should not downplay, spin, or ignore FDA comments or concerns. Pharmaceutical companies and their officers could face liability if they affirmatively misrepresent or omit key facts about their dealings with the FDA, and executives should also take care to verify that all public disclosures accurately reflect the company's communications with the FDA or other regulatory body.

April 19, 2016

Public Citizen Study Shows Significant Reduction in Pharmaceutical Settlements 2014 - 2015

Public Citizen updated that report, and issued a new report, which included settlements for all years, starting in 1991, through 2015. This new report found that there was a nearly eighty percent drop in settlements between companies and state governments in 2014-2015 from 2012-2013. Federal financial penalties also dropped in that same time period: in 2012 to 2013, $8.7 billion was collected, compared to $2.4 billion in financial penalties in 2014 to 2015.

As some of our readers may recall, in late 2012, Public Citizen published a study of all major financial settlements and court judgments between pharmaceutical manufacturers and the federal and state governments from 1991 through July 18, 2012. At the time of that report's publication, over $30 billion was paid by the pharmaceutical industry to settle allegations of numerous violations, including alleged off-label marketing and defrauding of Medicare and Medicaid.

The 2016 study also indicated that over the course of the twenty-five years that were examined, the companies that had the most expensive learning lessons were GlaxoSmithKline ($7.9 billion in financial penalties) and Pfizer ($3.9 billion in penalties). Pfizer had the most settlements over that time period, followed by Merck in second place, and tied for third place were GSK, Novartis, and Bristol-Myers Squibb.

While the report does mention that eighty-eight percent of the settlements referenced were civil, not criminal, it fails to mention - or even entertain the idea that - civil settlements often do not resolve the issue of guilt and payment of a civil settlement is not the same as admitting guilt to the alleged wrongdoing.

Of the settlements found in the report, the most common violation by companies was overcharging of government health insurance programs. The violation that resulted in the largest financial penalties was the unlawful promotion of drugs.


Public Citizen is claiming that the aforementioned decrease in amount of money pharmaceutical companies have paid to settle charges for violating federal healthcare laws means there needs to be an increase in enforcement efforts.

However, our interpretation is that the decrease in settlements is actually due to an increase in awareness of corporate compliance. As we have seen, and have documented in our sister publication, corporate compliance has received a renewed focus by many companies, including large compliance departments at many United States corporations. PhRMA agrees with that assessment, stating, "the report makes scant mention of the tens of millions of dollars companies spend annually to develop and maintain state-of-the-art legal compliance programs."

PhRMA continued their statement, "among its many methodological flaws, the report aggregates all settlements involving the pharmaceutical industry, with little regard as to whether the companies actually broke the law. Civil settlements rarely resolve the question of guilt. Yet the report glosses over its own finding that 88 percent of the settlements reported were civil, not criminal."

Another reason for the decline in settlements may be that the courts are becoming more demanding when it comes to whistleblowers being able to successfully prove a False Claims Act case, or possibly that the Department of Justice (DOJ) and the Food and Drug Administration (FDA) are starting to back off off-label marketing claims as free speech defenses have begun to collect successful momentum.

PhRMA continues to advocate for conversations on how to direct healthcare enforcement to "promote ethical corporate conduct, patient safety, innovation, and security of the public [treasury]," believing (as do we) that such conversations are "important and necessary." However, effective conversations on those topics are more difficult to have when reports are published with conclusions based on faulty reasoning, like the reasoning shown in this report.

Our interpretation of this study, and the decrease in settlements, is that compliance officers are worth their weight in gold. Each pharmaceutical company and device company should have at least one compliance officer who is kept abreast of all actions taken by the company, to help continue this downward trend of settlements.

A Basic Geometry Lesson - FDA’s Off-label Losses

Lon - FDA's Off-label

The new decision in United States v. Vascular Solutions, Inc., provides the third point in a curve of the FDA's regulation of off-label promotion. This article provides a detailed explanation of the case, including the relevant jury instruction, an overview of the 2014 FDA Guidance document on scientific and medical publications, and possibilities for next steps for compliance officers

It is a fundamental tenet of geometry that three points are needed to determine a curve. Concerning the Food and Drug Administration ("FDA") and its regulation of off-label promotion versus the First Amendment, with United States v. Vascular Solutions, we now have our third point in the curve.

In Vascular Solutions, the government charged both Vascular Solutions and its president, Howard Root, with selling medical devices without FDA approval and with conspiring to defraud the United States by concealing the allegedly illegal activity.40 The government alleged that Vascular Solutions and Root engaged in a campaign to promote the Vari-Lase devices for ablation of perforator veins when the devices were only approved for use in superficial veins.


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