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Big Pharma executives facing legal threat

Rats that infested a Philadelphia warehouse 40 years ago have found their way into the legal nightmares of the nation's drug companies.

Eric Blumberg, FDA litigation chief, says he is seeking to use the Park Doctrine to "change the corporate culture" of firms.
Eric Blumberg, FDA litigation chief, says he is seeking to use the Park Doctrine to "change the corporate culture" of firms.Read more

Rats that infested a Philadelphia warehouse 40 years ago have found their way into the legal nightmares of the nation's drug companies.

Frustrated that even billion-dollar fines seem to have little effect on pharmaceutical firms, the Food and Drug Administration has increasingly signaled its intent to use a legal doctrine spawned by those long-gone rodents to bring criminal charges against top executives, even those who might have been unaware of company misdeeds.

Earlier this month, Eric Blumberg, FDA litigation chief, told an industry audience that his agency was looking for cases to use what is known as the Park Doctrine as a tool to "change the corporate culture" of firms that have thus far shrugged off other penalties.

In one area the FDA is targeting are companies that have illegally promoted products for unapproved uses, a practice known as off-label marketing.

"I don't know when, where, or how many cases will be brought," Blumberg told a gathering of the Food and Drug Law Institute, "but if you are a corporate executive - or counsel advising such a client - I would not wait for the first case to decide now is the time to comply with the law. They won't get a mulligan on their conduct."

In an interview Thursday, Blumberg was pointed.

"They need to take this seriously and find out what is going on in the marketing and sales divisions of their companies," he said of pharmaceutical executives. "In my view, one thing that will get executives' attention is a few cases in which we have convicted two-legged defendants."

He singled out firms, including Pfizer Inc. and Eli Lilly & Co., that have paid multiple penalties in recent years.

Eli Lilly, for instance, was hit with a $1.4 billion fine last year for illegally marketing Zyprexa, a antipsychotic drug. The same year, Pfizer was fined $2.3 billion for illegally marketing the pain reliever Bextra. Neither company's stock price suffered significantly, leading some to conclude that even massive fines are viewed by investors and executives as simply the cost of doing business. Neither firm responded to calls for comment.

"It is clear that fines are not working here," Blumberg said. "We need to put something else on the scale to make people think twice, three times, before they promote drugs for unapproved uses."

That something is the threat of prison and industry debarment, which could result from a successful prosecution using the Park Doctrine.

Under the Park Doctrine, a corporate officer is liable for illegal corporate actions the officer should have known about or was responsible for preventing.

It stems from a case involving John Park, president of Acme Markets Inc. in 1970, when the company was cited for rodent infestations at a warehouse here.

The FDA charged Park personally with violating sanitation laws after other rodent infestations were discovered despite a number of agency warnings.

Park argued that as company president he was too far removed from warehouse supervision to be held responsible.

The U.S. Supreme Court ultimately agreed with the FDA that Park, as president, was responsible for ensuring rodent-free warehouses.

Park got off relatively easy: a $250 fine.

Prosecutors now hope to extract stiffer penalties under the doctrine, including up to a year in prison and $100,000 fines.

Those are the possible punishments facing four executives of Synthes Inc., a West Chester firm that pleaded guilty early this month in connection with illegal clinical trials of a bone cement. Charged under the Park Doctrine by the U.S. Attorney's Office in Philadelphia, the executives have also pleaded guilty.

The Park Doctrine can be "a very powerful tool," said Assistant U.S. Attorney John Pease, who supervises criminal prosecutions involving pharmaceutical-industry fraud cases in eastern Pennsylvania. But it also presents prosecutors with a number of hurdles, he said.

The crimes under scrutiny have a five-year statute of limitations, for instance. Often, prosecutors are not even alerted to them for several years, he said.

"And with multinational pharmaceutical companies with billions in revenue, you find responsibility is very diffuse," Pease said. "The real challenge is finding a person who was in a position to know about and prevent the conduct that occurred."

Scott Gottlieb, a former FDA commissioner who is now a partner with Arcoda Capital in New York, said another challenge would be assuring that an off-label case would hold up in court, particularly if it involved executives several layers above the departments that committed the illegal acts.

"There are clearly cases where the management is so far removed from the activity, they have no direct knowledge of the issue," he said. "To hold them criminally liable is a significant policy step that needs to be done with great care."

He agreed, however, that bringing criminal charges against executives "would be a significant deterrent."

James Prutow, a consultant to pharmaceutical companies on regulatory matters, said just the talk of charges had caught the attention of his clients.

"Executives are really stepping back and asking, 'OK, how can we ensure that we are doing, both, the right thing as a company and also as individuals so we are not on the FDA's radar screen?' "

Prutow, a partner with the management-consulting firm PRTM, said he expected that the FDA would bring a high-profile off-label case under the Park Doctrine sometime in the next six months.

"When that happens, it really is going to wake people up," he said.