Hard Time For Biopharma CEOs (Part 2)

The indictment of former Stryker Biotech President Mark Philip should hammer home a message that the Food & Drug Administration and other federal health care enforcement authorities have been delivering for at least two years: senior management at FDA regulated companies can and will be held criminally liable for marketing practices that run afoul of regulators.

Before today, that message has been (mostly) words. Prosecutions of executives have been rare, and when they do occur they tend to focus on individual sales reps and their direct managers, rather than reaching into the C-suite.

There have been exceptions. Former Intermune CEO Scott Harkonen is facing jail time after being convicted of wire fraud in a case involving claims that the company inappropriately promoted Actimmune via a press release. For Big Pharma CEOs, though, it is easy enough to dismiss that precedent, since Harkonen was personally involved in the activities at issue in the case—a small biotech CEO necessarily leaves more fingerprints, as it were.

Then there is the case of several top Purdue executives, who paid criminal fines as part of a settlement of an investigation into the promotion Oxycontin. That prosecution involved the application of the so-called Park Doctrine, named for a Supreme Court ruling which allows the government to hold top executives accountable for violations of the Food Drug & Cosmetic Act even if they were personally unaware of the violation. That is, the law makes it a crime to introduce misbranded or tainted products into commerce—and a CEO can be guilty of that crime even if he or she had no knowledge that someone somewhere in the company was doing that. (We discussed the implications of that prosecution in The RPM Report; click here.)

Still, the Purdue case was a bit of an outlier, a prosecution motivated by concerns about abuse of Oxycontin in some rural communities, rather than by the more common themes of recent industry marketing cases. It was a classic war-on-drugs case—not part of the war on the drug industry and its marketing practices.

Much more common has been what happened in the recent Pfizer settlement. The case included a record-setting fine ($2.3 billion) and lots of tough talk about holding individuals responsible. But the prosecution in that case focused on only one sales manager, who was convicted for her actions in promoting Bextra. For Pfizer’s senior management, the settlement means another corporate integrity agreement—but not direct accountability in the form of criminal charges.

At least so far.

But one wonders how long that pattern will continue. It is worth noting that the Pfizer settlement was negotiated before Inauguration Day—that is, before the new Administration had a chance to decide what if any changes it wants to make in approaching health care fraud prosecutions.

The Stryker case does not by itself answer that question. This investigation also began in the prior administration, and the charges (against the company and several sales executives in addition to Philip) focus on explicit acts, not the broader notion of executive liability inherent in Park. Specific counts include wire fraud and conspiracy, as well as overt acts of introducing misbranded or tainted products to the market—all based on what the government claims was a deliberate campaign to market bone morphogenic protein beyond the limits allowed by its humanitarian device exemption approval by FDA.

We have no idea whether those allegations are true, of course. But we also know this: Philip is no longer the President of Stryker Biotech, and he is no longer free to travel.

Philip “self-surrendered yesterday and appeared in court,” the US Attorney’s Office told us. “He was released on standard conditions and surrendered his British passport. His arraignment is set for tomorrow (Friday) at 2:00 p.m. in front of Chief Magistrate Judge Judith Dein.”

We’re betting Philip won’t be the only top executive to find himself standing before a judge as the Justice Department works though its backlog of marketing cases.