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From the Office Suite to Cell Block C:

Potential Criminal and Regulatory Implications of

Pharma/Biotech/Device Products Liability Lawsuits

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UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES OF AMERICA

v.

HEALTHCARE CORPORATION,AND JOHN DOE DISTRIBUTORS

Defendants.

Case No. ______________

Violation: Title 18, United States Code, Section 287

INDICTMENT

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BELOW THE SURFACE: CIVIL CASES, CRIMINAL IMPLICATIONS

UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

JANE DOE

Plaintiff,

v.

HEALTHCARE CORPORATION,AND JOHN DOE DISTRIBUTORS

Defendants.

Case No. ______________

DEMAND FOR JURY TRIAL

COMPLAINT

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• “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. ”

DOJ POLICY: CRIMINAL AND CIVIL COORDINATION

- Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015

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• “[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 …”

DOJ POLICY: CRIMINAL PROSECUTION NECESSARY

- Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015

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• “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.”

DOJ: PROSECUTING INDIVIDUALS “HIGH PRIORITY”

- Deputy Assistant U.S. Attorney General Sung-Hee Suh,Jan. 20, 2015

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• 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

PROSECUTIONS ARE ON THE RISE

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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

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1. What criminal and regulatory issues does this civil case/litigation raise?

2. How can we prepare the Company for an investigation or prosecution?

KEY QUESTIONS

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1. What criminal and regulatory issues does this civil case/litigation raise?

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THREATS AT EVERY STAGE

1 – 3 YEARS

InvestigationalNew Drug (IND)

Application Submitted

Pre-Clinical

• Good Laboratory Practices (“GLP”)

•USPTO•Economic Espionage Act (Theft of Trade Secrets)

INDEFINITELY

•“Off-label” Promotion

• Failure to Recall

• FCPA• FTC• RICO• Spoliation

Launch/Post-Marketing

Up to 7 YEARS

NDA Approval

•Current Good Manufacturing Practice (“cGMP”)

•False Claims Act/FDCA

•Fraud-based charges

Manufacturing

2 – 10 YEARS

New Drug Application (NDA)

Submitted

Clinical Trials

•Allegations of “Fraud”

o Collection of Data

o Reporting of Data to FDA

o Reporting Adverse Events to FDA

o Study Results

o SEC

Clinical Trials

Clinical Trials

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• 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 statementso Stand-alone charge

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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• 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

BROAD USE OF SECTION 1001

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• 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

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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cGMP Violations

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

“Drug companies should beaware that failing to adhere togood manufacturing practicessubjects them to penalties andprosecution.”- First Assistant U.S. Attorney Louis Lappen, E.D.P.A., Mar. 10, 2015

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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

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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• 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

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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• Major drug manufacturer pled guilty to criminal charges for violating FDCA, including, inter alia:o failing to report certain safety data about a drugo providing inadequate directions for use of another drugo participating in a misleading medical journal article that made false

efficacy claims re: yet another drugo 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

EXAMPLE OF FDCA PROSECUTION

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• 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 sealo Incentive: Relator can get up to 30% of fines collected by

government

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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• 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

productso Improper stability testing for certain batches of drugso Improper storage of drug samples at correct temperatures and humidityo False statements made to the FDA in Annual Reports regarding the

dates on which stability tests were conductedo 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.

HYBRID PROSECUTIONS: FULL ASSAULT

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• 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-briberyo Accounting/Books and Records

• Challengeso Broad definition of “foreign official”o Estimated that well over 1/3 of all pharmaceutical sales occur in overseas

marketso Corporate structure/subsidiarieso Relator can get up to 30% of fines collected by government

COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY

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• 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

EXAMPLES OF FCPA PROSECUTIONS

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• SEC charged company for improper payments its subsidiariesmade 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.

EXAMPLES OF FCPA PROSECUTIONS

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2. How can we help prepare the Company for an investigation or prosecution?

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• 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

EXPECT THE UNEXPECTED EXPECTED

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• 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

UNDERSTAND THE MANUFACTURING PROCESS

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QUESTIONS?Andrew.Tharp@ButlerSnow.com