sharing the spoils…

Posted on Thursday 27 October 2011

Abbott Said to Agree to Pay $1.3 Billion for Depakote Suits
Bloomberg
By Jef Feeley and Margaret Cronin Fisk
Oct 21, 2011

Abbott Laboratories agreed to pay at least $1.3 billion to settle claims by the U.S. government and 24 states alleging the company illegally marketed its Depakote epilepsy drug, people familiar with the accords said. Abbott executives, federal prosecutors and state officials reached a tentative agreement calling for the drugmaker to pay about $800 million to resolve civil claims over Depakote and about $500 million in criminal penalties for marketing the epilepsy medicine for unapproved uses, said three people familiar with the settlement who declined to be identified because the agreement hasn’t been made public. Abbott said earlier this week it was reserving $1.5 billion to cover costs of the potential settlement.
I ran across this settlement announcement on the Soulful Sepulcer blog this morning. I’d missed it before, but it immediately reminded me of a piece on Pharmalot last week. It wasn’t about a Psychiatric drug, but I thought the lawyer had an insightful comment:
Pfizer Pays $14.5M To Settle Detrol Off-Label Suit
Pharmalot
By Ed Silverman
October 20, 2011

Five years ago, a pair of former Pfizer sales reps accused Pfizer of illegally marketing its Detrol pill as a salve for enlarged prostates, even though the pill had only been approved to treat overactive bladders. Now, the drugmaker has agreed to pay $14.5 million to settle the charges in what is only the latest in a string of cases in which Pfizer engaged in off-label marketing. The lawsuit, which the US Department of Justice declined to join, was brought by David Wetherholt and Marci Drimer, who also claim they suffered retaliation and wrongful termination for pursuing the whistleblower charges. However, their attorney, Tom Greene, declined to comment on whether claims concerning wrongful termination were settled.

Why did Pfizer covet the enlarged prostate crowd? Detrol was largely prescribed to women, but sales would grow if a way could be found to market the pill to men. And since the prevalence of enlarged prostates rises steadily as men grow older, “the sharply increasing prevalence of benign prostate hyperplasia after age 40 points to a veritable gold mine,” according to the lawsuit. And so, Pfizer sought to boost Detrol by paying illegal kickbacks to doctors who prescribed large amounts of Detrol for off-label purposes; offering raises and bonuses to Pfizer employees who promoted off-label uses and denying salary increases and promotions to employees who refused, and actively trained employees on ways to avoid being caught by the FDA, according to the lawsuit

There’s more. Pfizer, the lawsuit charges, paid a medical writing firm to compose ghostwritten articles that appeared in such medical journals as the Journal of the American Medical Association; distributed studies to reps that lacked evidence Detrol could treat enlarged prostates; and funded and controlled content in continuing medical education programs. As an example of the alleged shenanigans, Wetherhold claimed at a February 2004 plan of action, or POA, meeting, his district manager was conducting a training session that involved videotaping sales reps as they made their Detrol presentations. He declined to include the off-label information and she publicly chastised him. She also instructed reps to target military accounts, such as the Veterans Administration, because these are “filled with middle aged men with enlarged prostates”…

“Marketing fraud is profitable, even when you get caught,” says Greene, the attorney for the whistleblowers. “When the marketing teams of pharmaceutical companies like Pfizer are given an opening to increase sales off-label, they seem to take it ten times out of ten.”
That certainly seems correct. When I first heard someone make that "cost of doing business" comment about a settlement, I thought it was cute, but didn’t really realize how true it was. I guess I thought the marketing departments were just betting on not getting caught, but that doesn’t seem right anymore. What they’re betting on is that even if they’re caught and have to pay some horrific fine, they are still going to make a lot of money in the process.

As I understand things, there are three general approaches to crime: rehabilitation, punishment, and deterrence. We rehabilitate kids and punish adults [hoping for deterrence]. In the case of these settlements with the drug companies, we do none of the above. We just profit from their crime and cut down on their overall take-home pay.

Again, from the Bloomberg article about Abbott Laboratories:
Sales of Depakote “rocketed to over $1.4 billion per year” as a result of improper marketing, according to a complaint filed in February by ex-Abbott sales representative Meredith McCoyd. “Compensation for senior executives soared as well.” Abbott began marketing to elderly patients with Alzheimer’s and dementia in about 1998, McCoyd said in the complaint. Abbott knew that Depakote “was unapproved for the treatment of Alzheimer’s, did not work to treat the disease and was actually dangerous for use by the elderly,” McCoyd said.
That’s a crime in my book. I’d vote for deterrence by punishment – real punishment like actual people going to jail, being personally fined, being banished from industry, or all of those things – something that mattered. Right now, we’re just co-conspirators sharing the spoils…

Other background:
Abbott Takes $1.5B Charge For Depakote Probe
Pharmalot
by Ed Silverman
October 19th, 2011

Two years after disclosing that the feds were investigating the marketing of its Depakote medicine, Abbott Laboratories has set aside $1.5 billion to cover the cost of a potential settlement. The disclosure was made as part of its quarterly earnings statement [see the back story here and the statement here].

The US Attorney in Virginia has been probing whether the drugmaker violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act, and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement to third parties. Depakote, by the way, is approved to treat bipolar disorder, seizures and migraines.

Earlier this year, the US Department of Justice intervened – or joined – a whistleblower lawsuit that was filed in late 2008 by three former Abbott sales reps, who accused the drugmaker of concocting an illegal scheme to promote Depakote. Among the charges were allegations Abbott paid kickbacks to docs to boost prescriptions and, subsequently, defrauding Medicare and Medicaid [see the lawsuit here].

Abbott [NYSE: ABT] today announced financial results for the third quarter ended Sept. 30, 2011.
    • Diluted earnings per share, excluding specified items, were $1.18, at the high end of Abbott’s previous guidance range, reflecting 12.4 percent growth. Diluted earnings per share under Generally Accepted Accounting Principles [GAAP] were $0.19, net of specified items, including a $1.5 billion pre-tax reserve related to previously disclosed litigation.  
    Worldwide sales increased 13.2 percent to $9.8 billion, including a favorable 5.3 percent effect of foreign exchange. Proprietary Pharmaceuticals sales increased 13.5 percent in the quarter. Durable Growth Business sales increased 15.3 percent, including double-digit growth in Nutritionals, Established Pharmaceuticals, Core Laboratory Diagnostics and Diabetes Care. Innovation-Driven Device Business sales increased 6.0 percent, including double-digit growth in Molecular Diagnostics.
    • Emerging markets sales were $2.6 billion, up 21.0 percent from the prior year and representing 26.1 percent of total sales, with strong growth across all of Abbott’s operating divisions.
    • The gross margin ratio was 60.4 percent in the third quarter, above Abbott’s previous guidance, driven by favorable product mix.
    • Abbott is confirming its guidance for double-digit ongoing earnings-per-share growth for 2011 and is narrowing its previous guidance range. Abbott’s ongoing earnings-per-share guidance for full-year 2011 is $4.64 to $4.66, excluding specified items, reflecting 11.5 percent growth at the midpoint of the range.
"Strong performance across our businesses allowed Abbott to continue to deliver superior results," said Miles D. White, chairman and chief executive officer, Abbott. "We also experienced strong growth in emerging markets and success in our broad-based pipeline, including several new product approvals, regulatory submissions and clinical trial initiations."

Abbott Laboratories plans to spin off its branded drug business and become two separate companies, the drug and medical device maker said Wednesday. The split-up marks a dramatic change in strategy for the 123-year old company, which has long been noted for its diversified mix of medical products. As many pure pharmaceutical companies weathered losses as the patents on their blockbuster drugs expired, Abbott has continued to post double-digit earnings growth quarter after quarter, performance that many analysts credited to the company’s structure.

But Wednesday’s announcement indicates Abbott’s management increasingly views the company as two separate businesses. "It makes sense for stockholders because it’s a company with two very different risk profiles and investment propositions: high-risk drug discovery and lower-risk generics and nutritional products," said Erik Gordon, a professor and analyst at the University of Michigan’s business school. "Investors will be able to pick the one they like or, if they like the old Abbott, keep both."

Abbott, based in North Chicago, Ill., also reported a 66 percent decline in third-quarter net income as it set aside $1.5 billion for legal reserve related to an investigation into its marketing of the drug Depakote. The new spinoff will sell Abbott’s branded pharmaceuticals, including the blockbuster arthritis and immune-disorder drug Humira and the cholesterol drug Niapan. The business, which has not yet been named, will be led by Abbott’s Richard Gonzalez who currently heads the company’s pharmaceutical business. The new drug company would have annual revenue of about $18 billion, Abbott said, based on 2011 estimates…

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