The US Food and Drug Administration (FDA) and the US Department of Justice (DOJ) recently reinforced that pharmaceutical executives are in the government’s target zone.1 Given the government’s expansive enforcement agenda, pharmaceutical executives must be vigilant to ensure compliance with federal regulations and avoid conduct that would place them in the government’s cross hairs.
On November 8, 2010, Lauren Stevens, the former vice President and associate general counsel of GlaxoSmithKline, was charged in a six-count indictment with obstructing an FDA investigation into the company’s off-label marketing of Wellbutrin, and making false statements and falsifying documents to influence FDA investigators. The indictment alleged that Ms. Stevens withheld evidence that off-label marketing occurred, despite representing that the company’s disclosures to the FDA were complete.2
The government’s investigation of Ms. Stevens involved multiple government agencies, including the DOJ, the FDA, the US Department of Health and Human Services (HHS), and the FBI, signaling that the government will deploy a bevy of federal agencies to investigate the pharmaceutical industry. When announcing the indictment, Richard DesLauriers, FBI special agent in charge at the Boston division, stated that the indictment “shows that we will investigate those responsible for unlawful acts done on a company’s behalf” and that “[w]hen individual employees are identified, they will be held accountable for their illegal activity.”3
An executive’s conduct need not rise to the level of felony obstruction to form the basis for criminal charges, however. The Food Drug & Cosmetic Act (FDCA) includes felony and misdemeanor offenses that can be used to prosecute misconduct in the pharmaceutical industry.4 Unlike felony offenses brought under Title 18 of the US Code, under the FDCA and the related “Park Doctrine,” an executive can be prosecuted for corporate violations, such as off-label marketing, even if the executive is unaware of the violations.5 All the government must show is that the executive was employed in a position of authority or supervisory responsibility at the time the violations occurred.6 Because misdemeanor violations of the FDCA are strict liability offenses, a charged executive must prove that he or she was powerless to prevent or correct the violation.7 Eric Blumberg, deputy chief of litigation at the FDA Office of Chief Legal Counsel recently told attendees at the Food and Drug Law Institute’s FDA Enforcement Conference that the government intends to reinvigorate the “Park Doctrine” to prosecute executives. The prosecution of Ms. Stevens also follows closely the government’s use of the control person theory to prosecute the CEO and chief financial officer of Nature Sunshine Products, Inc. for violating the Foreign Corrupt Practices Act and various securities laws.8 Together with Mr. Blumberg’s stated willingness to use the “Park Doctrine,” the use of the control person theory of liability demonstrates the government’s intention to rely on an arsenal of offenses to put the heat on unwitting executives.
As the government ratchets up its enforcement efforts, it is also aggressively seeking large penalties for criminal conduct. At a sentencing hearing held in USA v. W. Scott Harkonen on November 15, 2010, the government sought a 10-year prison sentence for the convicted former president and CEO of InterMune, Inc.9 In September, Mr. Harkonen was convicted of one count of wire fraud for his role in issuing a press release containing false statements and encouraging off-label uses of the drug Actimmune. US Senior District Judge Marilyn H. Patel found the government’s sentencing position so aggressive that she continued the hearing and ordered the government to file a revised sentencing position.
The FDCA and the Social Security Act (SSA) allow the government to pursue smaller, albeit devastating, misdemeanor charges. A misdemeanor violation of the FDCA can lead to imprisonment of up to one year.10 Subsequent misdemeanor violations may constitute felony offenses punishable with three years in prison and debarment that would preclude an executive from working in the pharmaceutical industry.11 Under the SSA, the Health and Human Services Department can exclude an executive from doing business with federal health care programs, when only the entity is convicted of an offense.12 Indeed, the government recently banned KV Pharmaceutical Co. (KV) executive Mark Hermelin from doing business with Medicare and Medicaid, after the company pleaded guilty to charges that it failed to adhere to required good manufacturing practices and, as a result, sold oversized drugs.13 It is believed that Mr. Hermelin is the first pharmaceutical executive to be banned by the HHS without having been convicted of a crime.14 Mr. Hermelin also was forced to resign from the Board of KV and sell his corporate shares to prevent KV from being excluded from participating in federal health care programs.15
The government’s new enforcement agenda is likely to usher in a wave of investigations and prosecutions, adding another dimension to the concerns faced by pharmaceutical executives when confronted with a regulatory investigation. As the stakes rise for pharmaceutical executives, companies must implement and effectively operate comprehensive compliance programs that include meaningful, appropriately targeted monitoring and auditing components and robust record-keeping protocols. Establishing procedures for responding to employee concerns about business practices and operations is an important component of any compliance program. Prudent executives should be demonstrably involved in promoting and assessing the effectiveness of corporate compliance efforts and document their efforts to ensure that unsatisfactory compliance findings are pursued until identified risks have been corrected or resolved.