Today's Pharmaceutical Criminal Investigation Is Tomorrow's Product Liability Lawsuit

In today's notoriously litigious atmosphere, a spark of governmental investigation can quickly ignite into product liability litigation. The events surrounding the recent $430 million Neurontin global agreement provide a notable example.

The Investigation

In 1996, former medical liaison for Warner-Lambert (the “company”), Dr. David Franklin, filed a qui tam action alleging that the company was marketing the drug Neurontin for uses not approved by the U.S. Food and Drug Administration (“FDA”). Dr. Franklin alleged that the company had knowingly engaged in conduct that caused violations of federal Medicaid statutes and regulations. He alleged that although the company knew that it was unlawful to promote a drug for off-label uses without first proving to the FDA that the drug was safe and effective for the intended use, the company chose to forego seeking FDA approval and engaged in a deceptive marketing scheme that included providing kickbacks to physicians for promoting and writing Neurontin prescriptions.

The Sentencing Memorandum of the United States and the Civil Complaint cite Neurontin's short patent protection as a reason for the alleged corporate campaign of off-label promotion. Once Neurontin's patent expired, other companies could seek approval to distribute generic equivalents of Neurontin. Such approval, however, would be limited to approved therapeutic use for Neurontin set forth in Neurontin's original FDA approval. If the company sought and obtained approval for any of the unapproved uses, then upon expiration of the patent, generic equivalents of Neurontin could also be sold for those unapproved uses.

The qui tam action became the catalyst for a government investigation into the company's alleged violations of federal law. The investigation was a concerted effort undertaken by the Federal Bureau of Investigation, the Veteran's Administration's Office of Criminal Investigations, the Office of Criminal Investigations for the Food and Drug Administration and the Office of Inspector General for the Department of Health and Human Services. The conduct that prompted the investigation came out of Warner-Lambert. When Pfizer acquired Warner-Lambert several years later, Pfizer also acquired Warner-Lambert's potential legal liabilities.

The Government Action

As a result of the government's investigation into allegations of regulatory violations, the United States filed a two-count criminal information against the company for its introduction into interstate commerce of a misbranded drug by reason of the drug being inadequately labeled for the company's intended uses and for its introduction of an unapproved new drug into interstate commerce.

After several years of negotiations, the company entered a global agreement to pay more than $430 million to resolve all criminal and civil charges against it. The global agreement included a civil Settlement Agreement and Release dismissing the qui tam action, a criminal plea agreement, and a Corporate Integrity Agreement. Under the global agreement, in exchange for dismissal of the qui tam action, the company pled guilty to two felonies and agreed to:

• pay a $240 million criminal fine for two counts of violating the Food, Drug and Cosmetic Act;
• settle federal civil False Claims Act liabilities and pay the United States $83.6 million, plus interest, in civil damages for losses suffered by the federal portion of the Medicaid program;
• settle civil liabilities to the 50 states and District of Columbia in the amount of $68.4 million, plus interest, for losses to state Medicaid programs;
• settle its civil liabilities to the 50 states and the District of Columbia in the amount of $38 million, plus interest, for harm caused to consumers and to fund a remediation program to address the effect of the improper marketing scheme.

Additionally, Pfizer, which acquired the company during the investigation, agreed to comply with a corporate compliance program that is designed to ensure that marketing and sales personnel are effectively trained and supervised so that off-label marketing does not occur in the future.

The Beginnings of Product Liability Litigation

The company ultimately admitted to misbranding and promoting a drug for off-label use. On the heels of the qui tam action, the plaintiffs' bar has engaged in a massive campaign to solicit plaintiffs who have taken Neurontin. Significantly, the standard for criminal prosecution is higher than it is for civil lawsuits. Plaintiffs will undoubtedly attempt to use admissions of guilt in a criminal proceeding as proof of negligence in subsequent civil proceedings.

Plaintiffs' law firms have been disseminating information likely to encourage numerous product liability actions against the company. Some Web sites address the Neurontin global settlement and then provide contact information for plaintiffs' law firms. Others directly link to Web sites for plaintiffs' law firms. A number of Web sites encourage anyone who has taken Neurontin to complete a questionnaire available through the Internet for the purpose of having a lawyer evaluate his or her potential claims.

Significantly, plaintiffs' counsel have not sat idly by while the criminal prosecution has played out. For example, a Newberg, NY law firm addressed a letter to the Honorable Richard Stearns that objected to the Neurontin plea agreement. That objection argued that the plea agreement “focuses solely on the pecuniary gain while taking no notice or consideration of the extensive physical harm and deaths caused to thousands of individuals … ” The firm also wrote, “ a financial penalty alone is insufficient … A prison sentence must be considered. … A criminal fine of only two hundred forty million dollars imposed upon a corporate entity that received over nine billion dollars in revenue directly from the admitted illegal activity allows the criminals to profit from their fraudulent scheme while completely avoiding all personal responsibility.”

The firm's petition directly impacts the filing of product liability actions on behalf of people using Neurontin. A May 20, 2004, Wall Street Journal article reported that the firm filed three lawsuits against Pfizer on behalf of people who used Neurontin. According to the article, the managing partner at that firm says he plans to file hundreds of more suits by running television ads raising questions about the drug. (Anna Wilde Mathews, “Pfizer's Neurontin Faces Petition,” Wall St. J., May 20, 2004, at D5). The plaintiffs in those lawsuits would have benefited tremendously from criminal convictions of key company personnel. Those personnel will present a human face to the pharmaceutical company in private civil lawsuits and their credibility is critical to the company's ability to defend itself in those actions.

Managing the Conundrum

A governmental investigation into a pharmaceutical company's marketing practices can snowball, leading to product liability, consumer fraud, antitrust and other actions. Companies have much to gain by being proactive before lawsuits are filed by crafting and implementing effective corporate compliance programs to ensure compliance with the law. On May 5, 2003, the Federal Register published the Office of Inspector General's (OIG) Compliance Program Guidance for Pharmaceutical Manufacturers, which provides important guidelines for companies that are creating corporate compliance programs. Additionally, employees must be sensitized to the need for discretion when crafting corporate communications, especially e-mails, which have been Exhibit A in both criminal and civil prosecutions. Additionally, because product liability is, for the most part, a state law issue, companies should be actively tracking state legislation to evaluate its impact on pharmaceutical practices. Violation of certain legislation could result in cases alleging negligence per se. For example, there is a bill pending in California, SB 1765, 2003-2004 Sess. (Cal. 2004), which, if enacted, will require pharmaceutical companies to declare annually, in writing, that they are in compliance with a corporate compliance program. California SB 1765 proposes that compliance with the Pharmaceutical Research and Manufacturers of America (PhRMA) voluntary guidelines on gifts to physicians and the OIG's Compliance Program Guidance for Pharmaceutical Manufacturers be made mandatory through state statute. Such statutory proposals have significant implications for the pharmaceutical industry as a whole. Involvement in lobbying efforts is critical to ensure that the pharmaceutical industry's voice and perspective is heard during the bill-drafting stages.

Furthermore, pharmaceutical companies must be extremely cautious when responding to government investigations. For example, companies must weigh their options carefully if they are asked to cooperate with authorities in a governmental investigation by waiving the attorney-client privilege. Such a waiver will have a far-reaching impact on private lawsuits because a waiver in a criminal proceeding may mean that countless otherwise-privileged documents are “fair game” for discovery in subsequent civil actions.

Additionally, companies must be strategic in their negotiations to resolve pending investigations, bearing in mind that the plaintiffs' bar stands “at the ready” to craft product liability, consumer fraud and antitrust claims.

In today's notoriously litigious atmosphere, a spark of governmental investigation can quickly ignite into product liability litigation. The events surrounding the recent $430 million Neurontin global agreement provide a notable example.

The Investigation

In 1996, former medical liaison for Warner-Lambert (the “company”), Dr. David Franklin, filed a qui tam action alleging that the company was marketing the drug Neurontin for uses not approved by the U.S. Food and Drug Administration (“FDA”). Dr. Franklin alleged that the company had knowingly engaged in conduct that caused violations of federal Medicaid statutes and regulations. He alleged that although the company knew that it was unlawful to promote a drug for off-label uses without first proving to the FDA that the drug was safe and effective for the intended use, the company chose to forego seeking FDA approval and engaged in a deceptive marketing scheme that included providing kickbacks to physicians for promoting and writing Neurontin prescriptions.

The Sentencing Memorandum of the United States and the Civil Complaint cite Neurontin's short patent protection as a reason for the alleged corporate campaign of off-label promotion. Once Neurontin's patent expired, other companies could seek approval to distribute generic equivalents of Neurontin. Such approval, however, would be limited to approved therapeutic use for Neurontin set forth in Neurontin's original FDA approval. If the company sought and obtained approval for any of the unapproved uses, then upon expiration of the patent, generic equivalents of Neurontin could also be sold for those unapproved uses.

The qui tam action became the catalyst for a government investigation into the company's alleged violations of federal law. The investigation was a concerted effort undertaken by the Federal Bureau of Investigation, the Veteran's Administration's Office of Criminal Investigations, the Office of Criminal Investigations for the Food and Drug Administration and the Office of Inspector General for the Department of Health and Human Services. The conduct that prompted the investigation came out of Warner-Lambert. When Pfizer acquired Warner-Lambert several years later, Pfizer also acquired Warner-Lambert's potential legal liabilities.

The Government Action

As a result of the government's investigation into allegations of regulatory violations, the United States filed a two-count criminal information against the company for its introduction into interstate commerce of a misbranded drug by reason of the drug being inadequately labeled for the company's intended uses and for its introduction of an unapproved new drug into interstate commerce.

After several years of negotiations, the company entered a global agreement to pay more than $430 million to resolve all criminal and civil charges against it. The global agreement included a civil Settlement Agreement and Release dismissing the qui tam action, a criminal plea agreement, and a Corporate Integrity Agreement. Under the global agreement, in exchange for dismissal of the qui tam action, the company pled guilty to two felonies and agreed to:

• pay a $240 million criminal fine for two counts of violating the Food, Drug and Cosmetic Act;
• settle federal civil False Claims Act liabilities and pay the United States $83.6 million, plus interest, in civil damages for losses suffered by the federal portion of the Medicaid program;
• settle civil liabilities to the 50 states and District of Columbia in the amount of $68.4 million, plus interest, for losses to state Medicaid programs;
• settle its civil liabilities to the 50 states and the District of Columbia in the amount of $38 million, plus interest, for harm caused to consumers and to fund a remediation program to address the effect of the improper marketing scheme.

Additionally, Pfizer, which acquired the company during the investigation, agreed to comply with a corporate compliance program that is designed to ensure that marketing and sales personnel are effectively trained and supervised so that off-label marketing does not occur in the future.

The Beginnings of Product Liability Litigation

The company ultimately admitted to misbranding and promoting a drug for off-label use. On the heels of the qui tam action, the plaintiffs' bar has engaged in a massive campaign to solicit plaintiffs who have taken Neurontin. Significantly, the standard for criminal prosecution is higher than it is for civil lawsuits. Plaintiffs will undoubtedly attempt to use admissions of guilt in a criminal proceeding as proof of negligence in subsequent civil proceedings.

Plaintiffs' law firms have been disseminating information likely to encourage numerous product liability actions against the company. Some Web sites address the Neurontin global settlement and then provide contact information for plaintiffs' law firms. Others directly link to Web sites for plaintiffs' law firms. A number of Web sites encourage anyone who has taken Neurontin to complete a questionnaire available through the Internet for the purpose of having a lawyer evaluate his or her potential claims.

Significantly, plaintiffs' counsel have not sat idly by while the criminal prosecution has played out. For example, a Newberg, NY law firm addressed a letter to the Honorable Richard Stearns that objected to the Neurontin plea agreement. That objection argued that the plea agreement “focuses solely on the pecuniary gain while taking no notice or consideration of the extensive physical harm and deaths caused to thousands of individuals … ” The firm also wrote, “ a financial penalty alone is insufficient … A prison sentence must be considered. … A criminal fine of only two hundred forty million dollars imposed upon a corporate entity that received over nine billion dollars in revenue directly from the admitted illegal activity allows the criminals to profit from their fraudulent scheme while completely avoiding all personal responsibility.”

The firm's petition directly impacts the filing of product liability actions on behalf of people using Neurontin. A May 20, 2004, Wall Street Journal article reported that the firm filed three lawsuits against Pfizer on behalf of people who used Neurontin. According to the article, the managing partner at that firm says he plans to file hundreds of more suits by running television ads raising questions about the drug. (Anna Wilde Mathews, “Pfizer's Neurontin Faces Petition,” Wall St. J., May 20, 2004, at D5). The plaintiffs in those lawsuits would have benefited tremendously from criminal convictions of key company personnel. Those personnel will present a human face to the pharmaceutical company in private civil lawsuits and their credibility is critical to the company's ability to defend itself in those actions.

Managing the Conundrum

A governmental investigation into a pharmaceutical company's marketing practices can snowball, leading to product liability, consumer fraud, antitrust and other actions. Companies have much to gain by being proactive before lawsuits are filed by crafting and implementing effective corporate compliance programs to ensure compliance with the law. On May 5, 2003, the Federal Register published the Office of Inspector General's (OIG) Compliance Program Guidance for Pharmaceutical Manufacturers, which provides important guidelines for companies that are creating corporate compliance programs. Additionally, employees must be sensitized to the need for discretion when crafting corporate communications, especially e-mails, which have been Exhibit A in both criminal and civil prosecutions. Additionally, because product liability is, for the most part, a state law issue, companies should be actively tracking state legislation to evaluate its impact on pharmaceutical practices. Violation of certain legislation could result in cases alleging negligence per se. For example, there is a bill pending in California, SB 1765, 2003-2004 Sess. (Cal. 2004), which, if enacted, will require pharmaceutical companies to declare annually, in writing, that they are in compliance with a corporate compliance program. California SB 1765 proposes that compliance with the Pharmaceutical Research and Manufacturers of America (PhRMA) voluntary guidelines on gifts to physicians and the OIG's Compliance Program Guidance for Pharmaceutical Manufacturers be made mandatory through state statute. Such statutory proposals have significant implications for the pharmaceutical industry as a whole. Involvement in lobbying efforts is critical to ensure that the pharmaceutical industry's voice and perspective is heard during the bill-drafting stages.

Furthermore, pharmaceutical companies must be extremely cautious when responding to government investigations. For example, companies must weigh their options carefully if they are asked to cooperate with authorities in a governmental investigation by waiving the attorney-client privilege. Such a waiver will have a far-reaching impact on private lawsuits because a waiver in a criminal proceeding may mean that countless otherwise-privileged documents are “fair game” for discovery in subsequent civil actions.

Additionally, companies must be strategic in their negotiations to resolve pending investigations, bearing in mind that the plaintiffs' bar stands “at the ready” to craft product liability, consumer fraud and antitrust claims.