We hoped for the best and feared the worst. As is usually the case when it comes to the Government, our fears came out on top. Last Wednesday, the Government announced that Par Pharmaceutical Companies Inc. had pleaded guilty to civil and criminal charges relating to the company’s alleged off-label marketing of Megace ES in violation of the Federal Food, Drug and Cosmetic Act (FDCA). Now that the Government has decided to “skip” the opportunity to defend its myopic view of the First Amendment before the Supreme Court, by not appealing the Second Circuit’s decision in U.S. v. Caronia, and has succeeded in beating Par into submission, is it business as usual in the world of off-label marketing? It appears that way.
First, the facts. According to the Plea Agreement, Par Pharmaceutical Companies — the parent company of Par Pharmaceutical, Inc. (the subsidiary that marketed Megace ES) — pleaded guilty to a one-count Information of criminal misbranding under 21 U.S.C. Sections 331(a), 333(a)(1) and 352(f)(1). Although fines under the Sentencing Guidelines don’t apply to “organizational” defendants on a misdemeanor conviction, Par “agreed” that a fine $18 million was appropriate even though “the value of the quantities of Megace ES that were misbranded and distributed [by Par] in violation of 21 U.S.C. Section 331 totaled approximately $4,500,000 in United States currency.” Under the Plea Agreement, the Government also recouped its “loss” by requiring Par to forfeit an additional $4.5 million. Under the civil Settlement Agreement, Par further agreed to pay the Government and various “Medicaid Participating States” a collective total of $22.5 million for a grand total contribution of $45 million to federal and state treasuries. Not surprisingly, Par also agreed to a “GSK-type” corporate integrity agreement (CIA), which changes the way Par’s sales reps will be compensated and includes an executive compensation clawback provision for executives where they or their subordinates have engaged in serious misconduct.
But wait, there’s more! The Government further required that Par drop its First Amendment-based lawsuit challenging the Constitutionality of the FDA’s off-label regulations, as well as a previously unknown action Par filed against the Government regarding “a grand jury matter pending before the Third Circuit” (In re: Grand Jury Matter, Case No. 11-2679 (D.N.J.)). Gone from the Information, Plea Agreement and Settlement Agreement was any mention of the First Amendment, Par’s assertion that most of what went on in those nursing homes was “on-label” speech about “weight wasting” (even if directed at an off-label audience of physicians), or the fact that the Government’s investigation had also focused on marketing Megace ES to physicians treating weight wasting in cancer patients. (I guess even the Government realizes that slapping a company for providing “misbranded” drugs to people dying with cancer doesn’t make good copy). Sadly, the only allusion to Par’s gutsy First Amendment arguments, which rattled the Government into talking settlement, is a cryptic reference in the Plea Agreement that Par file a motion to strike statements it attributed to Government attorneys in Par’s briefs opposing the Government’s motion to dismiss the complaint. (Readers of this post will recall that Par “called out” the Government on statements its lawyers allegedly made, pre-Caronia, disparaging Par’s claim to First Amendment protection for off-label speech).
Of course, the Government did give up a few things in its deal with Par, like agreeing not to seek to place the Company on probation (based on the restrictive nature of the CIA), agreeing not to go after Strativa Pharmaceutical or any other Par affiliate, foregoing Par’s exclusion from participation in federal healthcare programs, unless exclusion is mandatory — I’m not joking, read the Settlement Agreement — and getting the relators to agree dropping their qui tam civil suits in exchange for $4.4 million or about 20% of the civil recovery. In short, the Government gave up nothing of consequence for avoiding another potentially disastrous court ruling finding that off-label speech that is truthful, accurate and non-misleading is constitutionally protected.
Those are the facts. Now what does this mean for the rest of us? It means that no matter how sympathetic their facts and no matter how creative and gutsy their arguments might be, publicly traded companies will eventually cave under relentless Government pressure. Although I obviously wasn’t privy to the settlement and plea negotiations, and while I agree that the fines levied against Par might not seem excessive by today’s hundred million and billion dollar standards, this was a complete collapse. Pure and simple. Being forced to plead guilty to a federal crime (even a misdemeanor), and being fined effectively 10 times more than what was purportedly gained through an off-label marketing campaign, just over a year after having the Government on the ropes — and just a few months after the Second Circuit’s stunning decision in Caronia — can only be described as a collapse and a bad omen for other companies. If Caronia helped Par in some way, the facts don’t suggest it and it seems that’s the way the Government likes it.
In the end, the only lesson to be learned from Caronia and Par (and the Allergan case before them) is that the Government need only worry about going after individuals like Alfred Caronia. It’s still Open Season on drug companies.