Smoke Detector®Issue 96 January 2012                            report                            Life sciences           ...
Resources    Events    CBI’s 9th Annual Pharmaceutical    Compliance Congress    January 24-25, 2012    Washington, Distri...
Legislative and                                                                                                          r...
Legislative and    regulatory matters    required to submit two batches of product-stability testing. The                 ...
and oral solution — were being manufactured and sold by                                 glassware used for sterile injecta...
Legislative and    regulatory matters    information about the risks associated with the use of these                     ...
Litigation andenforcement updatesIntellectual                                              Settlements and                ...
Legislative and    regulatory matters    Medical device manufacturer Guidant will pay $9.25 million to                    ...
Industry newsNew website gives access to drugmakers’                  in Offshore Manufacturing: Evidence from            ...
The Smoke Detector® report is a summary of litigation, regulatory and industry news compiled from          Ernst & Youngva...
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Ernst and Young Life Science Report_01 2012


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January 2012 Report on Life Science Regulation and Industry News from Ernst and Young

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Ernst and Young Life Science Report_01 2012

  1. 1. Smoke Detector®Issue 96 January 2012 report Life sciences Legislative and regulatory matters US FDA updates FDA plans to assist drugmakers in accelerating the drug development and approval process The FDA plans to develop guidance documents for drugmakers in an attempt to accelerate the development and approval of promising drugs that fulfill unmet medical needs. For instance, in one of the guidance documents to be released soon, the FDA will explain how sponsors of clinical studies can use pathologic complete response as a surrogate endpoint for the accelerated approval of drugs used to treat breast cancer. The agency is focusing on seven areas of reform to strengthen the US’ position in innovation in drugs and medical devices: restructure the FDA’s small business outreach services; build infrastructure to support personalized medicines; develop an expedited development pathway for targeted therapies; explore the potential of data mining and sharing while maintaining strong privacy protection; improve the consistency and transparency of the medical device-review process; train the next generation of innovators; and streamline and reform FDA regulations. Toward this end, the FDA plans to set up a small-business liaison to assist start-up companies in product development and approval. For this, the agency is looking to hire business executives with relevant experience in setting up biomedical companies and procuring venture capital funding. To strengthen the development of personalized targeted therapies, the FDA is drafting guidance on approaches for developing a novel companion diagnostic and therapy concurrently. Finally, the FDA is devising an internal plan on how to review applications using co-development strategies, with an aim to meet the needs of innovative products in a timely fashion.1 1 “Expedited drug approval tops FDA innovation initiatives list,” Washington Drug Letter, 10 October 2011, via Factiva, © 2011 Washington Business Information, Inc.
  2. 2. Resources Events CBI’s 9th Annual Pharmaceutical Compliance Congress January 24-25, 2012 Washington, District of Columbia Ernst & Young Fraud Investigation & Dispute Services practice is sponsoring this event, and several of our professionals will speak on panels. If you’re interested in attending, you may register for $300 off of the registration rate by using the code: PCCEY5 at We hope you will join us! Loopholes in post-market data hinder drug safety surveillance, US after 21 September 2011 could be subject to enforcement says FDA action without any prior notice, unless notice is necessary to protect public health. Through this guidance, the FDA intends to clarify its FDA officials noted that gaps in the agency’s drug-use data, especially enforcement priorities and emphasize the importance of marketing those related to the use of intravenous cancer and chemotherapy only approved drugs. The FDA intends to continue giving high priority drugs, are impacting the FDA’s drug safety review. According to an to enforcement action against unapproved drugs that lack evidence agency representative, the FDA sources a major chunk of its post- of efficacy; pose safety risks to patients; are the subject of misleading market data from commercial billing systems that gather information claims; present direct challenges to the New Drug Application and on outpatient prescriptions. However, cancer hospitals are not open Over-the-Counter (OTC) drug monograph systems; violate the Food, to collecting such data. Additionally, both the FDA’s Sentinel Initiative Drug and Cosmetics Act; or are reformulated to avoid the agency’s and Adverse Event Reporting System have been criticized for not enforcement action. According to the guidance, drugs subject to an adopting a systematic approach to validate the source of data for such ongoing drug efficacy study implementation or OTC drug monograph programs. Incomplete individual case reports, submitted by physicians proceeding will be exempt from any enforcement action. The FDA and pharmacists to drugmakers and the FDA, are also undermining the will examine drugs on a case-by-case basis to determine whether any agency’s pharmacovigilance measures.2 enforcement action is required or a grace period should be given to FDA restructures and renames DDMAC that particular drug.4 The FDA has reorganized the Division of Drug Marketing, Advertising, FDA participates in the IIWA in support of the campaign against and Communications (DDMAC) and renamed it the Office of illegal-drug marketing on the internet Prescription Drug Promotion (OPDP). These changes have been The FDA recently participated in the 2011 International Internet introduced as the Center for Drug Evaluation and Research’s Office Week of Action (IIWA), a global effort to rein in the sale and of Medical Policy (OMP) transitions itself to a super office. The newly distribution of fake and illegal medical products on the internet. IIWA formed OPDP is expected to divide the review and oversight of drug is coordinated by many national and international crime agencies and marketing between the Division of Professional Promotion and the is considered the largest internet-based event of its kind in support of Division of Direct-to-Consumer (DTC) Promotion. FDA officials believe the International Medical Products Anti-Counterfeiting Taskforce. Its this will help thwart misleading promotions of prescription drugs objectives include protecting public health by spreading awareness and improve the quality of company communications. The leaders of of threats associated with purchasing medicines and medical devices DDMAC will head the new OPDP.3 online; identifying producers and distributors engaged in selling FDA updates enforcement policy on unapproved marketed drugs illegal drugs via the internet; and taking appropriate action against these companies or individuals. The FDA focused on websites selling According to revised FDA guidance, “Marketing Unapproved Drugs unapproved drugs and sent warning letters to hundreds of sites, Compliance Policy,” drugmakers selling unapproved drugs in the leading most of them to suspend operations.5 2 Johnathan Rickman, “Data ‘holes,’ reporting hinder FDA’s drug safety efforts,” Washington Drug Letter, 26 September 2011, via Factiva, © 2011 Washington Business Information, Inc. 3 “FDA promotes DDMAC to office of prescription drug promotion,” Washington Drug Letter, 26 September 2011, via Factiva, © 2011 Washington Business Information, Inc. 4 Meg Bryant, “FDA clarifies enforcement policy on unapproved marketed drugs,” Washington Drug Letter, 26 September 2011, via Factiva, © 2011 Washington Business Information, Inc. 5 “FDA participates in global efforts to protect consumers and patients from unsafe drugs on the internet,” PR Newswire, 29 September 2011, via Factiva, © 2011 PR Newswire Association LLC.2 Smoke Detector® report Life sciences January 2012
  3. 3. Legislative and regulatory mattersFDA issues draft guidance on substantiating The industry supports the extension. Theaseptic procedures for PET drugs FDA is also in advanced talks with generic drugmakers on the creation of a user feeThe FDA has issued a draft guidance stating system for generics sold in the US.7that media fills used to validate asepticmanufacturing procedures for positron FDA initiates the implementation of theemission tomography (PET) drugs should be pending GDUFAperformed in production areas. They should The FDA’s Office of Generic Drugs (OGD)also consider all manipulations that could has initiated the implementation of theoccur during production. In line with the proposed Generic Drug User Fee Actdraft guidance, media fills should be able to (GDUFA) even before the act has beenevaluate the aseptic assembly and operation introduced in Congress. The OGD isof sterile equipment and demonstrate that arranging for increased headcount andenvironmental controls are adequate to advanced reporting in line with GDUFA.produce a sterile drug by aseptic procedure. The OGD has initiated brainstormingMoreover, if a container is filled within a hot sessions to implement GDUFA and iscell, media fills must be performed in the also upgrading the FDA’s informationhot cell. Comments on the guidance are technology and generic-drug trackingrequested by 29 December 2011.6 systems. Of note is that a key barrierFDA agrees to increase user fees for for the FDA is likely to be hiring enoughdrug reviews qualified international inspectors to conduct surveillance inspections of allThe FDA has reached an agreement with foreign manufacturing facilities everybranded drugmakers on hiking the fees it two years — a key part of GDUFA.8receives for reviewing new drug applicationsby 6%. Drug industry user fees currently fund FDA’s new draft guidance could requireapproximately 62% of the more than generic drugmakers to provide 12 months of$930 million spent by the agency on product-stability datareviewing drug applications. The fees were The FDA has drafted a new guidanceoriginally created by the 1992 Prescription document that would require genericDrug User Fee Act (PDUFA) and were most drugmakers to submit 12 months ofrecently reauthorized in 2007 for five years. product-stability data, instead of theThe new agreement must be approved by the current requirement of three months, atUS Congress. the time of submitting an abbreviatedRelatedly, as it also falls under the purview new drug application (ANDA). Accordingof PDUFA, the FDA has proposed adding to the new guidance, generic drugtwo months to the deadlines of its review manufacturers will be required to submitprocesses for new drug applications — both three batches of product-stabilityits regular review (currently 10 months) and testing data covering various times andthe priority review (currently six months). temperatures. Currently, companies are6 ”FDA issues draft guidance on validating aseptic procedures for PET drugs,” Drug Industry Daily, 30 September2011, via Factiva, © 2011 Washington Business Information, Inc.; “Draft Guidance on Media Fills for Validationof Aseptic Preparations for Positron Emission Tomography Drugs; Availability,”, accessed 10 November 2011.7 “FDA, brand drug firms agree on increased fees,” The Wall Street Journal, 1 September 2011, via Factiva,© 2011 Dow Jones & Company, Inc.; Anna Yukhananov, “FDA may get two more months to review new drugs,”Reuters Health E-Line, 2 September 2011, via Factiva, © 2011 Reuters Limited.8 “FDA begins to implement pending generic drug user fee act,” Washington Drug Letter, 10 October 2011, viaFactiva, © 2011 Washington Business Information, Inc. 3
  4. 4. Legislative and regulatory matters required to submit two batches of product-stability testing. The FDA’s final guidance cites no clarification on the inclusion of new requirements, if implemented, could substantially impact PCIDs in drug labeling the overall strategy deployed by generic companies in filing Despite several requests by drugmakers and sponsors of clinical ANDAs. The FDA says generic drugmakers already have to supply studies, the FDA has given no clear instruction on whether 12-month stability data to international regulators. The guidance drugmakers will be required to reveal physical-chemical identifiers document is presently being reviewed internally.9 (PCIDs) in the labeling of solid oral dosage form drug products. The New plan could allow the FDA and Medicare to review medical FDA says laws and regulations governing drug labeling appear to devices simultaneously be unclear in this regard and, thus, has left the final judgment to drugmakers or sponsors. The agency has said it “does not intend US health officials are launching a pilot program aimed at to object” if a sponsor chooses not to include PCIDs in the list of accelerating Medicare payment decisions for newly approved ingredients on a drug’s label.13 medical devices. To date, the Centers for Medicare & Medicaid Compliance Services (CMS) initiates its review of a medical device only once the product receives FDA approval. According to the pilot program, the CMS review will now be conducted in parallel with Florida drug companies face injunction due to multiple violations the FDA’s, thereby avoiding a scenario in which a product receives FDA approval but fails to get coverage under Medicare.10 The District Court for the Middle District of Florida has entered a consent decree that bars Hill Dermaceuticals, Inc. and Hill Labs, CDRH releases a report to showcase scientific activity that supports Inc. (collectively, Hill), and individuals Jerry S. Roth and Rosario the medical device industry G. Ramirez, from introducing adulterated drugs into interstate The FDA’s Center for Devices and Radiological Health (CDRH) commerce. Government action in this case resulted from multiple has released a report highlighting CDRH activities that support violations of current good manufacturing practices (cGMP) the medical device industry while maintaining product safety and documented during the FDA’s inspections of Hill. Additionally, the US effectiveness. The FDA’s efforts cited in the report range from Government alleges that Hill submitted false statements on multiple providing device designers with computer models of cardiovascular occasions in support of its submissions to the FDA. Provisions in the devices to developing standard tests for the durability and consent decree prevent Hill from introducing adulterated drugs into performance of spinal disc implants.11 interstate commerce. Additionally, to ensure the authenticity of the data submitted, certain elements of the FDA’s Application Integrity FDA plans to issue final guidance on warnings and precautions for Policy have also been included in the consent decree.14 drug labeling FDA warns Dental Technologies of cGMP and other violations The FDA plans to issue its final guidance on various practices drugmakers should adopt for drug warnings and precautions on The FDA has warned Dental Technologies, Inc. of cGMP violations labeling. The guidance is expected to help drugmakers decide and the manufacture of unapproved prescription drugs at its whether any adverse reactions need to be included in the warnings facilities. The FDA has issued a warning letter stating that Dental or precautions section or in a boxed warning. Further, it is likely to Technologies failed to conduct at least one specific identity test for facilitate decision-making on the inclusion of contraindications on the glycerin USP as well as a thorough investigation of batch failures. label. Per the guidance, a causal connection between a drug and an Additionally, the FDA inspection found that microbial testing for adverse event is needed for the adverse event to be mentioned under Pseudomonas aeruginosa in water samples was inadequate, and the warnings and precautions section of a label.12 that unapproved products — acidulated phosphate fluoride foam 9 “Pending FDA changes for stability testing upset generic-drug makers,” Washington Drug Letter, 10 October 2011, via Factiva, © 2011 Washington Business Information, Inc. 10 Alina Selyukh, “FDA, Medicare to review medical devices in tandem,” Reuters Health E-Line, 7 October 2011, via Factiva, © 2011 Reuters Limited. 11 FDA works to improve science used to approve medical devices,” PR Newswire, 3 October 2011, via Factiva, © 2011 PR Newswire Association LLC. 12 David Pittman, “FDA issues final guidance on drug warning labeling,” Drug Industry Daily, 12 October 2011, via Factiva, © 2011, Washington Business Information, Inc. 13 Sarah Karlin, “FDA won’t object if PCIDs are left out of drug labeling, final guidance states,” Drug Industry Daily, 12 October 2011, via Factiva, © 2011, Washington Business Information, Inc. 14 “FDA enters consent decree of permanent injunction against Florida drug companies: Multiple violations prompt government action,” US Food and Drug Administration News, 28 September 2011, via Factiva, © 2011 Elsevier Engineering Information.4 Smoke Detector® report Life sciences January 2012
  5. 5. and oral solution — were being manufactured and sold by glassware used for sterile injectables was rendered non-pyrogenicDental Technologies.15 and that the company did not establish procedures to prevent microbial contamination.17FDA raises concerns over GMP issues at BMS, Schering-Ploughand Abbott plants Cephalon receives subpoenas for three drugsThe FDA has issued a letter regarding inadequate GMPs at the Puerto Cephalon Inc. has received two subpoenas from federal prosecutors.Rican manufacturing plants of Bristol-Myers Squibb Co. (BMS), The latest subpoena asks the company to submit documents relatedSchering-Plough Corporation (merged with Merck & Co., Inc.) and to promotional practices in regard to its sleep drugs Nuvigil® andAbbott Laboratories. The FDA’s inspection of Schering-Plough’s Provigil®. The earlier subpoena was for records on the cancerLas Piedras facility claimed inadequate specifications for sampling drug Treanda®.18in-process material, while inspections of Abbott’s Barceloneta facility J&J agrees to pay a fine of $85 million for the off-label promotionsuggest repeated instances of unusual extraneous matter in the of its heart drugadalimumab released from the facility. The FDA also found GMPdeviations — including environmental monitoring deviations in filling Johnson & Johnson’s subsidiary Scios, Inc. has agreed to pay aareas, improper sanitation of air-sampling devices and inadequate criminal fine of $85 million for promoting its heart drug, Natrecor®,air-flow patterns in the filling line enclosure area — at BMS’ facilities. for off-label indications. Scios has plead guilty to misbranding NatrecorAbbott confirmed that the FDA approved the measures the company for infusing chronic congestive heart failure patients despite theadopted in response to the issues raised by the agency. A BMS drug being approved for only the intravenous treatment of patientsrepresentative said the company submitted its response to the FDA’s suffering from acutely de-compensated congestive heart failure.19letter and has addressed the agency’s concerns.16 FDA issues warnings on Pfizer’s drug websitesFDA issues GMP warning letter against Uriel Pharmacy Pfizer, Inc. has received a warning letter from the US Food andThe FDA has issued a warning letter against Uriel Pharmacy, Inc. Drug Administration’s Division of Drug Marketing, Advertising,for a number of cGMP violations. The letter asserts that Uriel was and Communications for providing misleading information onnot timely in its investigation of failed product batches. It also the websites of its four drugs — Lipitor®, Caduet®, Chantix® andasserts, among other violations, that Uriel failed to demonstrate that Norvasc®. The letter states that the websites do not contain15 Johnathan Rickman, “FDA cites cGMP violations, unapproved new drugs at Dental Technologies,” Drug Industry Daily, 5 October 2011, via Factiva, © 2011 WashingtonBusiness Information, Inc.16 David Pittman, “FDA flags GMP issues at pharma giants’ Puerto Rico plants,” Drug GMP Report, 3 October 2011, via Factiva, © 2011 Washington Business Information, Inc.17 David Pittman, “FDA slaps OTC drugmaker Uriel with GMP warning letter,” Washington Drug Letter, 3 October 2011, via Factiva, © 2011 Washington BusinessInformation, Inc.18 Cephalon hit with second subpoena in two weeks for sleep drugs,” Washington Drug Letter, 10 October 2011, via Factiva, © 2011 Washington Business Information, Inc.19 Sarah Karlin, “J&J to pay $85 million fine as part of Natrecor off-label plea agreement,” Drug Industry Daily, 7 October 2011, via Factiva, © 2011 Washington BusinessInformation, Inc. 5
  6. 6. Legislative and regulatory matters information about the risks associated with the use of these information relevant to pending applications. President Obama drugs. Pfizer says it has removed the misleading content from its believes this reform will accelerate the patent process and minimize Lipitor website and is examining the content on the websites of the time needed to launch innovations in the market.22 the other drugs.20 HHS’ OIG will investigate REMS compliance and drug pricing Health care fraud The US Department of Health and Human Services (HHS) Office of Inspector General (OIG) will evaluate how compliant drugmakers are FDA identifies common scams in drug counterfeiting and with risk evaluation and mitigation strategies (REMS) assigned to diversion cases their products. The report is likely to be finalized in HHS’ next fiscal An evaluation of approximately 50% of all counterfeit cases from the year. The OIG also plans to assess drug pricing standards in Medicare FDA’s Office of Criminal Investigations between 2003 and 2008 has Part D to assess whether drug prices and rebates are rising faster revealed commonly used drug counterfeiting and diversion schemes. than inflation and identify discrepancies in negotiated amounts. Plans These include pharmacists disguising imported drugs as branded are also under way to identify challenges in the IND review process products and then selling them to the public; intercepting genuine and determine whether consumer complaints are suitably recorded drugs from wholesalers and reintroducing drugs to pharmacies and investigated.23 and individuals; and illegally obtaining genuine drug samples from Pharma trade groups oppose Obama Administration’s deficit- physician offices and then repackaging and selling them to the reduction plan public. According to the FDA’s analysis, pharmaceutical wholesalers constitute 27% of suspects in such cases, followed by pharmacists The Biotechnology Industry Association (BIO) has expressed concern with 13% and physicians with 9%. The five drugs most often over President Obama’s deficit-reduction proposal, provided for in associated with counterfeit and diversion cases include Eli Lilly & Co.’s the 2009 Affordable Care Act, which would cut the data-exclusivity Zyprexa®, Johnson & Johnson’s Risperdal®, and Pfizer, Inc.’s Viagra®, period for biologics from 12 years to 7 years. According to the Lipitor® and Zoloft®. The study suggests that capsules and tablets Obama Administration, 12 years of exclusivity hampers innovation. are the dosage forms most commonly counterfeited.21 However, industry stakeholders feel the change is unsettling for a standard settled in US law. Other legislative and BIO and PhRMA are also against a Medicare Part D rebate for dual- eligibles. According to recent estimates, a $20 billion cut in industry regulatory matters revenues could result in 260,000 job losses in the biopharmaceutical sector. Concerns over the increased authority of the Independent Obama signs Patent Reform Bill Payment Advisory Board , which could enact changes to Medicare President Barack Obama signed the America Invents Act on 16 without congressional oversight, have also been raised.24 September 2011. The Act changes the US patent system from a first-to-invent system to a first-inventor-to-file system, establishes a first window post-grant review and allows third parties to submit 20 Aparna Krishnan, “Pfizer’s drugs web page criticized by FDA,” IHS Global Insight Daily Analysis, 5 September 2011, via Factiva, © 2011 IHS Global Insight Limited. 21 David Pittman, “FDA spots common schemes in drug diversion cases,” Washington Drug Letter, 26 September 2011, via Factiva, © 2011 Washington Business Information, Inc. 22 “House Version of patent bill enacted without changes,” Telecommunications Reports, 1 October 2011, via Factiva, © 2011 Aspen Publishers. 23 David Pittman, “OIG launching investigations into REMS compliance, drug pricing in coming year,” Drug Industry Daily, 7 October 2011, via Factiva, © 2011 Washington Business Information, Inc. 24 ”BIO, PhRMA take issue with Obama’s deficit reduction plan,” Drug Industry Daily, 21 September 2011, via Factiva, © 2011 Washington Business Information, Inc.6 Smoke Detector® report Life sciences January 2012
  7. 7. Litigation andenforcement updatesIntellectual Settlements and Pharmaceuticals Inc.’s bid to declare Bayer AG’s family of oral contraceptives — includingproperty rulings Yaz® and Yasmin® — anticompetitive has been dismissed in federal court. BothAstraZeneca-Handa Pharmaceuticals settle The Medicines Company and Teva settle contraceptives collectively accounted for 29%patent case over generic Seroquel XR® patent case over Angiomax® of the market share in 2008, far below 50% as Sandoz claimed, and less than enoughAstraZeneca plc has reached a The Medicines Company (TMC) has settled to assert monopolization, said the federalsettlement with Handa Pharmaceuticals a patent-infringement lawsuit against court judge. Further, the court declared thatLLC over AstraZeneca’s anti-psychotic Teva Pharmaceutical Industries Ltd. over Sandoz could not provide sufficient evidencedrug, Seroquel XR®. Handa had filed its anti-clotting drug, Angiomax®. Teva, to prove that no two-drug combination canan ANDA for the launch of a generic which was seeking approval to market a substitute for Yaz and Yasmin.27version of the drug’s extended-release generic version of the drug, has agreed nottablets. However, because Seroquel to start selling the generic version before Medical equipment supplier Hill-RomXR is protected by patents and 30 June 2019 and to supply TMC with agrees to pay $41.8 million to settleexclusivity rights until November 2017, the drug’s active ingredient. Angiomax allegations of fraudAstraZeneca filed a patent-infringement contributes close to 100% of TMC’s Medical equipment supplier Hill-Romlawsuit against the company. Under revenues, and this settlement is expected Company Inc., while denying anythe terms of the settlement, Handa to give the company at least four more wrongdoing, agreed to pay $41.8 millionwill be allowed to launch the generic years of patent exclusivity on the drug.26 to settle allegations that it submitted falseversion of Seroquel XR in the US on 1 claims to Medicare for specialized medical Court dismisses Sandoz’s and WatsonNovember 2016 or earlier upon certain equipment. Federal prosecutors consider this Pharmaceuticals’ antitrust lawsuit againstcircumstances. The financial terms of to be a record civil fraud recovery for the US Bayer’s oral contraceptivesthe deal have not been disclosed.25 Attorney’s office in Knoxville.28 Sandoz International GmbH’s and Watson25 AstraZeneca, Handa Pharmaceuticals settle US patent infringement litigation,” Nordic Business Report, 30 September 2011, via Factiva, © 2011 M2 Communications.26 “Medicines Co. rises after settling lawsuit with Teva over generic version of its drug Angiomax,” Associated Press Newswires, 3 October 2011, via Factiva, © 2011 TheAssociated Press.27 David Pittman, “Generic-Drug Maker’s Antitrust Lawsuit on Bayer’s Yaz, Yasmin Dismissed,” Drug Industry Daily, 30 September 2011, via Factiva, © 2011 WashingtonBusiness Information, Inc.28 “Medical supplier Hill-Rom makes fraud settlement,” Associated Press Newswires, 27 September 2011, via Factiva, © 2011 The Associated Press. 7
  8. 8. Legislative and regulatory matters Medical device manufacturer Guidant will pay $9.25 million to aware of a crime being committed. The use of the doctrine has settle false-claim allegations been low since the 1980s until an uptick in prosecutions applying the doctrine began in the past few years. Of note is that the US Guidant LLC, a Boston Scientific Corp. subsidiary, has agreed to government states its Justice Department will focus on cases where pay $9.25 million to settle allegations that it falsely promoted its it believes executives are responsible for the offense(s) of interest.31 pacemakers and defibrillators. Guidant was accused of making false claims about credits it gives when products under warranty need PharmAthene, Inc. wins a 50% profit share in the global sales of a replacement that resulted in Medicare overpaying for pacemakers smallpox antiviral therapy and defibrillators. The whistleblower in the case is slated to receive The Delaware Chancery Court has ruled in favor of PharmAthene, more than $2.3 million from the settlement.29 Inc. in a litigation case against SIGA Technologies Inc., citing the Novartis and Watson agree to pay $145 million to settle false- former’s stake in ST-246, an orally available smallpox antiviral drug claim allegations candidate. According to the ruling, once SIGA earns $40 million in net profits from sales of ST-246, PharmAthene will receive 50% of all Watson Pharmaceuticals Inc. and Novartis AG have agreed to net profits from such sales thereafter, from the point of the judgment collectively pay the US Government $145 million to settle allegations until the expiry period of 10 years following the first commercial sale of submitting false claims to Medicaid. Watson Pharmaceuticals of any product derived from ST-246. will pay $79 million, while Novartis will pay $66 million. The whistleblower in the case, Ven-A-Care of the Florida Keys, Inc., accused the companies of misleading federal and state governments to overpay for Medicaid-reimbursed drugs. Since 2000, Ven-a-Care has earned more than $380 million in reimbursements from at least 18 false claims lawsuits.30 Other litigations and enforcement updates US authorities step up enforcement against corporate officials US authorities have recently increased their application of the “responsible corporate officer doctrine,” a legal principle used to prosecute corporate executives for corporate violations of US food and drug laws. Since Congress approved criminal sanctions against corporate officers in 1938 under the Food, Drug and Cosmetic Act, the Supreme Court has interpreted the law to allow personal and criminal prosecutions of executives without evidence that they were 29 ”Medical device manufacturer to pay $9.25m in false claims settlement,” Associated Press Newswires, 26 September 2011, via Factiva, © 2011 The Associated Press. 30 “Drug companies agree to $145 million in settlements with government,” Health Law Week, 23 September 2011, via Factiva, © 2011 Strafford Publications, Inc. 31 Vanessa O’Connell and Michael Rothfeld,“U.S. targets drug execs — law allows courts to hold corporate officials responsible for pharma violations,” The Wall Street Journal, 13 September 2011, via Factiva, © Dow Jones & Company, Inc.8 Smoke Detector® report Life sciences January 2012
  9. 9. Industry newsNew website gives access to drugmakers’ in Offshore Manufacturing: Evidence from Drug industry remains divided on specialpayment disclosures the Pharmaceutical Industry, the study used consideration for orphan drugs FDA inspection reports dating from 1994Nonprofit corporation ProPublica has The drug industry remains divided on to 2007 as one of its primary sources ofreleased “Dollars for Docs,” a website that whether the FDA should release a policy information. The sample comprised 30 pairsoffers a look into data on payments to statement stating that orphan drugs of regulated drug facilities in mainland UShealth care professionals. The database should be given special consideration. and Puerto Rico. Facilities in the latter werewas compiled using the disclosures of 12 Some believe this is critical to boost observed to carry significantly more risk thancompanies that represent more than 40% investment in the high-risk sector, while corresponding plants in mainland US. Localof US drug sales. The database features others feel it is unnecessary. According to populations’ skills and cultural differencesmore than 500,000 payments — recorded an industry representative at the National were cited as potential factors contributingbetween 2009 and 2011 and amounting Organization for Rare Disorders (NORD) and to this quality over $760 million — for promotional Drug Information Association conferencespeaking, consulting, research, travel, The study suggests that pharmaceutical on rare diseases and orphan products inmeals and educational items. The website, executives include increased monitoring Washington, DC, industry seeks, includes costs and the heightened probability of clarity on whether the use of validateda doctor-search facility and information adverse events in their analyses when surrogates to prove efficacy is acceptable aton companies and their drug lists.32 selecting production locations, as quality the agency.34 risk is difficult to effectively manageQuality of drugs manufactured offshore is long-distance. The rotation of managerat greater risk than those manufactured in and line employees from mainland plantsthe US, reveals study has also been suggested to allay offshoreDrugs manufactured at companies’ offshore quality issues. The study further suggestsfacilities are likely to have more quality the FDA should be given the authority toconcerns than those manufactured in the conduct unannounced, on-site inspections atUS, a new study suggests. Titled Quality Risk international sites.3332 “The money trail between firms, doctors,” The Washington Post, 18 September 2011, via Factiva, © 2011 The Washington Post Co.33 “Manufacturing Outside US Shows Higher Risk of Drug Quality Problems—Study,” IHS Global Insight Daily Analysis, 9 September 2011, via Factiva, © 2011, IHS GlobalInsight Limited; Cheaper Offshore Manufacturing May Not Be Worth Risks, Study Says,” The Food & Drug Letter, 7 October 2011, via Factiva, © 2011, WashingtonBusiness Information, Inc.34 “Drug industry reps diverge on need for FDA policy statement on orphan products,” Drug Industry Daily, 13 October 2011, via Factiva, © 2011 Washington BusinessInformation, Inc.; “Drug industry says orphan-sector push has prompted a more receptive FDA,” Drug Industry Daily, 13 October 2011, via Factiva, © 2011 WashingtonBusiness Information, Inc. 9
  10. 10. The Smoke Detector® report is a summary of litigation, regulatory and industry news compiled from Ernst & Youngvarious media resources. Ernst & Young is not responsible for the accuracy of the underlying data, Assurance | Tax | Transactions | Advisoryreports or articles contained in the Smoke Detector report. The information presented in the Smoke About Ernst & YoungDetector report should not be construed as legal, tax, accounting or any other professional advice orservice, nor should it be a substitute for detailed research or the exercise of professional judgment. Ernst & Young is a global leader in assurance, tax,The user is urged to contact his or her Ernst & Young or other advisor prior to taking any action based transaction and advisory services. Worldwide, our 152,000 people are united by our sharedupon the information in this report. Ernst & Young can accept no responsibility for loss occurred to any values and an unwavering commitment to quality.person acting or refraining from action as a result of any material provided in the report. We make a difference by helping our people, our clients and our wider communities achieveFor more information or questions about Fraud Investigation & Dispute Services, please contact: their potential.Ted Acosta at +1 212 773 3022, Ernst & Young refers to the global organization ofGregory Crouse at +1 202 327 6670, member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Fraud Investigation & Dispute Services Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to achieve your company’s potential. Better management of fraud risk and compliance exposure is a critical business priority — no matter the industry sector. With our more than 1,000 fraud investigation and dispute professionals around the world, we assemble the right multidisciplinary and culturally aligned team to work with you and your legal advisors. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It’s how Ernst & Young makes a difference. © 2012 EYGM Limited. All Rights Reserved. EYG no. WW0258 1110-1300070 BOS This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.