Hard Time for Biopharma CEOs

Yes, times are hard for many biopharma executives. But we're referring to hard time in the other sense, as in time behind bars in a federal penitentiary.

If history is any guide, top executives across the industry should prepare for a wave of high profile enforcement activity from the Food & Drug Administration and the Department of Justice--cases where a civil settlement and fines may no longer be enough to satisfy prosecutors. It sure looks like the government wants to start putting people in jail.

The RPM Report has just published an article highlighting recent, not-so-friendly reminders from top FDA officials that they have immense power to pursue criminal cases against corporate executives--starting with the CEO--even if those executives did not participate in, or even know about, criminal conduct that occured on their watch.

Two officials quoted in press releases this week underscore that point. Here is the first:

“It is unacceptable that Americans have died and been seriously injured by what appears to be deliberate tampering. Whether this contaminant was introduced intentionally or by accident, the full force of the law must be brought to bear to bring those responsible to justice.”

That is Senator Edward Kennedy responding to FDA's announcement that it has identified the contaminant that apparently caused severe adverse reactions to Baxter's heparin products in the US. FDA still does not know if the contamination was accidental or deliberate, but note Kennedy's response: Accidental or not, someone must be held accountable. He underscored that point in a separate letter to FDA Commissioner Andrew von Eschenbach, asking for a criminal investigation.

Here is the second quote:

"Pharmaceutical companies do not run themselves, and those who engage in criminal conduct will be held personally accountable."

That is FDA Special Agent Kim Rice, quoted in a Department of Justice press release announce the indictment of Scott Harkonen, the former CEO of Intermune Inc., on charges of wire fraud and violations of the FD&C Act. The indictment follows from an off-label promotion and False Claims Act investigation settled by Intermune in 2006.

Intermune settled the investigation by agreeing to strict new codes of conduct and paying a fine of $37 million. That is a relatively large sum for a small company, but also is the type of fine that upsets some members of Congress who believe pharmaceutical companies are not been punished aggressively enough. Harkonen, on the other hand, faces a theoretical maximum penalty of 20 years in prison.

The company points out that the indictment of Harkonen, who left Intermune in 2003, does not in any way affect the settlement or Intermune's current business prospects. And of course we have no idea whether any of the allegations against Harkonen are merited.

What we do know is this: if the tough talk from FDA and Congress is to be believed, Harkonen will not be the only pharmaceutical executive brought up on charges.