It has been just over a month since the Department of Justice, via the “Yates Memorandum,” reemphasized its commitment to pursue individuals when dealing with corporate misconduct, reported here. Ever since then, FDA-regulated industry has been awaiting the fallout from this pronouncement. According to media reports, the first major drug and medical device corporate settlement post-Yates (involving a $390 million payout by Novartis AG) will not apparently include any penalties against individuals. A recent case out of Boston, however, has many speculating that it is the first application of this “new” DOJ policy.
That case, reported here, resulted in a guilty plea requiring a $125 million payment by Warner Chilcott for allegations mostly related to kickback activities. It is notable in the context of this blog post because the government’s investigation also generated a criminal indictment against the former President of the company, and criminal charges filed against three other former company employees, and a doctor who allegedly received kickbacks. Charging the president of a company is serious business, and if the government intended to send a message to industry, that message has been received loud and clear.
None of the Warner Chilcott individuals was charged with a violation of the FDC Act, despite the low threshold for a strict liability misdemeanor under the Act. The focus of the criminal charges against the individuals stemmed from allegations of kickbacks or health care fraud. The charging document against the company, however, did include allegations related to marketing activities subject to FDA’s jurisdiction. The government charged that the company made unsubstantiated superiority claims about its drug, Actonel, which were not supported by clinical evidence. It is unclear what type of clinical evidence was available or whether it would withstand First Amendment scrutiny given recent litigation on this issue.
This is hardly the first time a president of a company has been charged with felony violations involving FDA-regulated conduct. The CEO of InterMune was indicted and ultimately convicted after trial for fraud in connection with reporting clinical trial results. Similarly, the president of Synthes Inc. was charged and pled to charges related to a clinical investigation of its medical device.
Of course, under the “Responsible Corporate Officer” Doctrine, the government also can bring misdemeanor charges against company executives in FDA-regulated industries even when there is no indication that the charged executive knew about the alleged wrongdoing. The leading cases imposing Responsible Corporate Officer liability against individuals under the FDC Act involved the presidents of Buffalo Pharmacal Company (United States v. Dotterweich) and Acme Markets (United States v. Park).
From the government’s statements in the case, it is impossible to tell whether the cases against the Warner Chilcott individuals were a fall-out from the Yates Memorandum, or whether they had long been in the works and the outcomes set well before DOJ’s statement a month before. Of course, the Yates Memorandum was developed over months. Thus, it is certainly possible that the decision to prosecute these individuals was based on the policy determinations already developed by DOJ leading up to issuance of the Yates Memorandum.
A close review of the plea agreement entered into between the company and the government also shows extensive language detailing the scope of cooperation required from the company. This type of cooperation is in line with what Deputy Attorney General Yates outlined in her Memorandum, including “completely and truthfully disclosing all non-privileged information” about activities of “present and former officers, directors, employees and agents of Warner Chilcott,” and providing “active assistance” in connection with the criminal prosecution against these present or former individuals. These requirements for cooperation credit are not novel in plea agreements, and thus unlikely to have been commanded by the Yates’ directive. What will be telling is whether these provisions become standard or expanded in future resolutions.