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Criminal Convictions in Drug Company Fraud…It’s About Time!

By Rheingold Giuffra Ruffo Plotkin & Hellman LLP

Off-label marketing has been around for ages. The long process of getting a drug/producer approved by the FDA has become by-passed by many companies in pursuit of substantial revenue. A lot of companies, such as Merck (MRK), Pfizer (PFE), Abbott Labs (ABT), and GlaxoSmithKline (GSK), have had to pay fines to settle this issue, but Synthes was the first to have executives go to jail for their actions. As many news reports have recently detailed, not only was the company accused of off-label marketing, they were also sued for performing “human experiments.” Up to that point, no executive had ever gone to jail on those charges. Synthes (Norian) broke that record.

Synthes is better known as an industry giant that specialized in making plates and screws to stabilize broken bones. It was not until the late 1990’s that the collaboration occurred between Norian and Synthes. Norian was a startup that had developed a calcium-phosphate-based cement called Norian. The cement not only filled the cracks of broken bones but it also gradually transformed itself into actual human bone.

Synthes bought the company in 1999 at which point Norian already possessed an FDA approval to market two versions: Norian SRS (for the arm) and Norian CRS (for the skull). There was a third application in the process that Synthes thought would be a very lucrative procedure called vertebroplasty. This procedure is used to treat vertebral compression fractures (VCFs) in which the surgeon injects bone cement into the spine to reinforce the bone and prevent future damage.

In pursuit of marketing the high-risk medical device, Synthes had to convince regulators that the new use was safe and effective. Government officials stated that the device needed to be tested in numerous clinical trials, which entailed receiving an Investigational Device Exemption (IDE) from the FDA. Employees from Synthes estimated that the clinical trials would take three years and cost about $1 million which discouraged executives from taking that route.

The company reported that more than 500,000 Americans suffered from VCFs each year and that the “market potential” was “considerable”, which prompted them to make one of its fatal mistakes. Instead of wasting time on clinical trials, Synthes decided to launch itself into market research. The first surgery conducted in which two patients died went unreported. Synthes claimed that because the surgeon did not blame the product, they did not have to report the case to the FDA. Dr. Paul Nottingham performed the surgery that finally prompted Synthes to write an FDA report.

As he was operating on Ryoichi Kikuchi, an 83-year-old prize-winning physicist, Kikuchi’s blood pressure sank and within minutes he was pronounced dead. Nottingham blamed Norian for the unsuccessful surgery stating that Synthes “sales consultants had pushed the product on him” without explaining Norian’s status in the market. Synthes filed a report to the FDA but kept it vague and omitted key details. The detail Synthes made sure to leave out in its marketing pitch to surgeons was the study performed on a pig using Norian. During that study, researchers noted that if the cement were to leak during vertebroplasty, the pig’s blood pressure would plummet causing its demise. The cause of the pig’s death was the volumes of blood clots containing Norian that amassed the pig’s lungs (causing the animal to die in 30 seconds).

After five years of FDA proceedings, federal prosecutors were ready to indict not only Synthes, but also four individuals; Huggins, Higgins, Bohner, and Walsh. The executives’ attorneys negotiated a deal in which the men would plead guilty to a misdemeanor under the Responsible Corporate Officer Doctrine. On June 16, 2009, the grand jury indicted Synthes and its executives. Norian, the company, was charged with 52 felony counts and its corporate parent, Synthes, was charged with 44 misdemeanors. On October 2010, Synthes pleaded guilty to the charges and had to pay $23 million in fines. In 2011, the executives were sentenced to serve 6-9 months in prison for their fraudulent schemes.

This proved to be a shock in the healthcare industry because no longer were companies worried about paying fines for off-label marketing; they now have to think about their actions to avoid imprisonment of the company’s executives.

Our firm has often seen internal discovery documents which appear to confirm fraudulent corporate behavior. However, this is usually under a confidentiality order, and the documents only come to light if there is a trial or a judge willing to do the right thing and demand public production.

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