From the Office Suite to Cell Block C: Potential Criminal and Regulatory Implications of Pharma/Biotech/Device Products Liability Lawsuits BUTLER SNOW | 1
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION UNITED STATES OF AMERICA Case No. ______________ v. Violation: Title 18, United States Code, HEALTHCARE CORPORATION, Section 287 AND JOHN DOE DISTRIBUTORS Defendants. INDICTMENT BUTLER SNOW | 2 BUTLER SNOW | 2
BELOW THE SURFACE: CIVIL CASES, CRIMINAL IMPLICATIONS UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION JANE DOE Case No. ______________ Plaintiff, v. DEMAND FOR JURY TRIAL HEALTHCARE CORPORATION, AND JOHN DOE DISTRIBUTORS Defendants. COMPLAINT BUTLER SNOW | 3 BUTLER SNOW | 3
DOJ POLICY: CRIMINAL AND CIVIL COORDINATION • “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 . ” - Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015 BUTLER SNOW | 4 BUTLER SNOW | 4
DOJ POLICY: CRIMINAL PROSECUTION NECESSARY • “ [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 …” - Assistant U.S. Attorney General Leslie Caldwell, April 14, 2015 BUTLER SNOW | 5 BUTLER SNOW | 5
DOJ: PROSECUTING INDIVIDUALS “HIGH PRIORITY” • “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.” - Deputy Assistant U.S. Attorney General Sung-Hee Suh, Jan. 20, 2015 BUTLER SNOW | 6 BUTLER SNOW | 6
PROSECUTIONS ARE ON THE RISE • 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 BUTLER SNOW | 7 BUTLER SNOW | 7
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 BUTLER SNOW | 8 BUTLER SNOW | 8
KEY QUESTIONS 1. What criminal and regulatory issues does this civil case/litigation raise? 2. How can we prepare the Company for an investigation or prosecution? BUTLER SNOW | 9 BUTLER SNOW | 9
1. What criminal and regulatory issues does this civil case/litigation raise? BUTLER SNOW | 10 BUTLER SNOW | 10
THREATS AT EVERY STAGE Launch/Post- Manufacturing Clinical Trials Pre-Clinical Marketing • Current Good • “Off-label” • Good • Allegations of “Fraud” Manufacturing Promotion Laboratory o Collection of Data Practice Practices • Failure to (“cGMP”) Recall o Reporting of Data to (“GLP”) • False Claims FDA • FCPA • USPTO Act/FDCA • FTC o Reporting Adverse • Economic • Fraud-based Events to FDA • RICO Espionage Act charges • Spoliation (Theft of Trade o Study Results Secrets) o SEC 1 – 3 YEARS 2 – 10 YEARS Up to 7 YEARS INDEFINITELY Clinical Trials Investigational Clinical Trials New Drug NDA Approval New Drug (IND) Application (NDA) Application Submitted Submitted BUTLER SNOW | 11 BUTLER SNOW | 11
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY • 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 statements o Stand-alone charge BUTLER SNOW | 12 BUTLER SNOW | 12
BROAD USE OF SECTION 1001 • 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 BUTLER SNOW | 13 BUTLER SNOW | 13
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY • 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 BUTLER SNOW | 14 BUTLER SNOW | 14
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY cGMP Violations “Drug companies should be aware that failing to adhere to good manufacturing practices subjects them to penalties and prosecution.” - First Assistant U.S. Attorney Louis Lappen, E.D.P.A., Mar. 10, 2015 BUTLER SNOW | 15 BUTLER SNOW | 15
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY 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 BUTLER SNOW | 16 BUTLER SNOW | 16
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY • 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 BUTLER SNOW | 17 BUTLER SNOW | 17
EXAMPLE OF FDCA PROSECUTION • Major drug manufacturer pled guilty to criminal charges for violating FDCA, including, inter alia : o failing to report certain safety data about a drug o providing inadequate directions for use of another drug o participating in a misleading medical journal article that made false efficacy claims re: yet another drug o 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 BUTLER SNOW | 18 BUTLER SNOW | 18
COMMON ALLEGATIONS IN CIVIL CASES THAT MAY GIVE RISE TO CRIMINAL LIABILITY • 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 seal o Incentive: Relator can get up to 30% of fines collected by government BUTLER SNOW | 19 BUTLER SNOW | 19
HYBRID PROSECUTIONS: FULL ASSAULT • 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 products o Improper stability testing for certain batches of drugs o Improper storage of drug samples at correct temperatures and humidity o False statements made to the FDA in Annual Reports regarding the dates on which stability tests were conducted o 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 . BUTLER SNOW | 20 BUTLER SNOW | 20
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