Forest CEO Faces Ban From Medicaid & Medicare // Pharmalot

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http://www.pharmalot.com/2011/04/forest-ceo-faces-ban-from-medicaid-medicare/

Forest CEO Faces Ban From Medicaid & Medicareâ 

By Ed Silverman // â  April 14th, 2011â  // 6:30 am

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Six months after Forest Labs pleaded guilty to obstruction of justice,

distributing an unapproved drug and illegally promoting two other meds, ceo and

president (photo at left) now faces being excluded from

participating in federal healthcare programs, according to a letter the

drugmaker received yesterday from the US Department of Health and Human Services

Office of the Inspector General. In a statement released last night,

says he will challenge the move, which Forest calls “unwarranted and

unprecedented.â€

To settle matters, Forest made a $313 million payment that included $164 million

in criminal penalites, and signed a corporate integrity agreement. The drugs in

quetion were Levothroid, an oral med for thyroid conditions, and two

antidepressants - Celexa and Lexapro. Forest was charged with distributing

Levothroid in the early 1990s without obtaining FDA approval (â back storyâ ).

This marks one of the rare instances in which the feds have moved to ban a top

executive from a drugmaker from participating in Medicare and Medicaid. However,

the feds have repeatedly signaled their intentions to make examples of the c

suite in response to a growing number of cases over the past several years

involving off-label marketing, among other violations (â read hereâ ).

Last year, former KV Pharmaceutical chairman Marc Hermelin was excluded and he

later pleaded guilty to presiding over the production and distribution of

oversized morphine sulfate tablets (â see hereâ ). And three current and

former Purdue Pharma execs, who pleaded guilty to a criminal misdemeanor in

connection with the misbranding of the OxyContin painkiller, were also banned

(â read thisâ ).

As for , he was given 30 days to explain why he should not be excluded

and, if he fails to convince a court, he would have to resign his executive jobs

with Forest. Not surprisingly, he plans to take immediate legal action. In its

statement, the drugmakers says “the only basis given in the letter notifying

Mr. of the potential action is that he is ‘associated with’

Forest.†Of course, the feds have made clear they would target top execs who

have ultimate responsibility for illegal actions.

“It would be completely unwarranted to exclude a senior executive against whom

there has never been any allegation of wrongdoing whatsoever. Mr. has

always set a tone of the highest integrity from the top. At Mr. ’s

direction, the Company has significantly enhanced its sales force monitoring and

compliance procedures. We believe the potential HHS-OIG action may well be

beyond its legal authority.†J. Candee III, a Forest board member who

chairs the audit committee says in â the statementâ .

“At no time during the government’s six year investigation of Forest was Mr.

ever accused of any wrongdoing in connection with the matters settled in

2010. We are hopeful that HHS-OIG will decide that the facts and circumstances

as to Mr. do not warrant an exercise of its exclusion authority.â€

Forest also complains that no ceo from other big drugmakers that have pleaded

guilty to similar infractions, a list that includes Pfizer and Eli Lilly.

“Numerous other major pharmaceutical companies have plead guilty to much more

egregious offenses, and none of them has faced the exclusion of a senior

executive who has not himself been convicted of a crime or pleaded guilty to a

crime. We believe that HHS-OIG is contemplating using a statute that has never

before been used under these circumstances and would be exceeding the bounds of

its authority,†says Forest vp and general counsel Herschel Weinstein.

To justify its views, Forest also recited recent management changes following

the guilty plea. Last November, the drugmaker promoted several execs as part of

a succession plan. Those involved were Elaine Hochberg, exec vp and chief

commercial officer; Perier Jr., cfo and exec vp for finance and

administration; Marco Taglietti, sr vp R & D who heads the Forest Research

Institute; , sr vp corporate development and strategic planning

(and ’s son). And the statement says these folks can run the show in the

event must “step aside temporarily pending the outcome of

litigation.â€

UPDATE: We asked Credit Agricole Securities analyst Maris for his thoughts

and he wrote us this: “This whole thing is odd and mysterious. Did Forest

violate their Corporate Integrity Agreement, and if so how? The Corporate

Integrity Agreement that Forest signed includes penalties for material breaches

of conditions, and one of them is exclusion from Federal programs.

“We wonder if is the target of HHS or is Forest and is simply

ready to take the fall in order to try to satisfy the HHS? It is also important

to know whether Forest received a Material Breach Letter or a Notice of

Exclusion letter. Our understanding is that a Material Breach Letter would have

come before a Notice of Exclusion, so if they received a Notice of Exclusion,

then when did they get the Material Breach Letter?

“The $64,000 question to us are whether Forest or are being accused of

wrongdoing. The action by HHS is rare, but that does not mean it is unwarranted.

If HHS makes companies sign corporate integrity agreements, but then never

enforces them, they don’t have teeth. Well, yesterday, HHS showed it has teeth

- sharp ones.

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