Forest Laboratories and the FactsWhen Howard Solomon's son, Andrew, age 31, came down with depression in 1994, Solomon did what any other father would do-he tried to make him better. He sought a medication that would help Andrew.
Real Clear Markets
May 5, 2011
Howard Solomon had an advantage over most dads. He was chief executive officer of a pharmaceutical company, Forest Laboratories, a New York-based $4.2 billion firm that primarily sold vitamins, so he knew something about drugs.
Solomon learned about a Danish drug, Celexa, marketed for depression in Europe as Cipramil. His company acquired the licensing rights and in 1998 the drug was approved by the Food and Drug Administration. Forest Labs also developed another anti-depressant, Lexapro.
Andrew never took Celexa or Lexapro, because in the intervening years he had been helped by other drugs. Andrew's nonfiction book about surviving depression, The Noonday Demon, won the National Book Award for nonfiction in 2001.
But millions of other Americans did take Celexa, and the company's sales took off. Celexa is the fastest-growing of its class of drugs, and its share of new prescriptions is 17.5 percent, because it helps patients.
Four drugs, Celexa, Lexapro, Namenda and Savella, account for almost 90 percent of Forest's overall sales, or about $3.8 billion in the fiscal year that ended on March 31. Profits have grown from about $37 million in 1998 to $322 million in the first quarter of 2011.
It sounds like an American success story. But, if the Office of the Inspector General of the Department of Health and Human Services has its way, Howard Solomon, now 83, will be forced to leave Forest Labs, where he is still chairman and CEO.
What happened? In September 2010, Forest Labs reached a plea bargain with the Justice Department for distributing Levothroid, an anti-depressant drug, and marketing Celexa to children and adolescents before approval by FDA. The company paid $313 million in criminal and civil penalties, even though Mr. Solomon was not charged with any wrongdoing.
Under the Social Security Act, a company's guilty plea gives the Health and Human Services Department the discretion to prevent a company that is convicted of criminal activity from selling to Medicare and Medicaid. Unfortunately, HHS has exercised this discretion inconsistently over the years, choosing to punish some firms and not others.
Worse, HHS has begun using this discretion to threaten companies with an ultimatum on personnel matters: fire a certain person, or else, even if that person has not been charged or indicted. Mr. Solomon is one such person.
Donald White, spokesman for the Office of the Inspector General at HHS, told me that Secretary Kathleen Sibelius "has delegated the authority" to the Inspector General to exclude companies from participating in Federal health care programs.
Testifying before the House Ways and Means Committee on March 2, Lewis Morris, chief counsel to the HHS Office of the Inspector General, said, "Once we determine that an individual or entity is engaged in fraud, waste, abuse, or the provision of substandard care, OIG can use one of the most powerful tools in our arsenal: exclusion from participating in federal health care programs."
What's interesting is that OIG recognizes its discretion in the use of the phrase "can use," rather than must use. Mr. Morris continued by explaining how he would go after some companies and not others, and some executives and not others. Mr. Morris is explaining a system where no hard and fast rules exist, and where the fate of a company and individuals associated with it rest not on the predictable rule of law, but on the whims of bureaucrats.
That discretion is troubling to pharmaceutical companies trying to interpret federal rules. Regulations concerning marketing of drugs for approved and unapproved uses are confusing. Companies may not recommend or advertise unapproved or off-label uses. But physicians may prescribe them, anyway.
To avoid high costs of litigation, and the consequences of possibly losing, when companies are accused of breaking the law, they are tempted to plea bargain, or settle, and pay a fine.
But there's nothing wrong with prescribing off-label use. The Defense Department buys drugs for off-label use. Medicare, Medicaid, and insurance companies lawfully reimburse individuals for purchases of drugs for off-label use.
Doctors frequently ask questions of sales representatives of drug companies about such uses. But if the representatives give doctors information about uses not approved by FDA, the company may be accused of trying to sell a "misbranded" product.
Plea-bargains for selling misbranded and off-label products are common. Eleven companies have paid over $6 billion to the government in the past two years alone. Among them were Novartis, Allergan, and Johnson & Johnson.
For example, last September, Novartis paid $422 million for off-label promotion of Tripeptal and allegations against other products. The same month, Allergan paid fines of $600 million for off-label use of Botox for headaches, pain management, and cerebral palsy.
In July 2010, Johnson and Johnson paid $81 million for off-label promotions of Topomax, used to treat epilepsy.
These companies, as of now, have not been threatened with exclusion from participating in Medicare and Medicaid. Their CEOs have not been asked to step down.
On the other hand, in 2010 Marc Hemelin, CEO of KV Pharmaceuticals, pleaded guilty to two misdemeanors and was banned from doing business with the government. And in January 2009, three executives of Purdue Frederick, the manufacturer and distributor of OxyContin, pleaded guilty to one misdemeanor and were debarred for 15 years from federal health care programs.
In another example of the government going after an individual, former GlaxoSmithKline vice president Lauren Stevens was indicted last year, accused by the Justice Department of lying to the FDA about information provided on uses of Wellbutrin, a weight-loss drug.
Her defense was that she consulted with internal and external lawyers about what evidence to send the FDA, and sent what her lawyers advised.
The government's case was dismissed by U.S. District Judge Roger Titus in March, because the judge ruled that her reliance on her lawyers' advice showed she didn't intend to break the law. However, the Justice Department is proceeding with another indictment.
There is an inherent contradiction between pharmaceutical companies' duty not to promote a drug for off-label use and physicians' desire for knowledge as to how to prescribe these drugs for off-label uses that might help their patients. This contradiction needs to be resolved-and in my view it should be resolved in favor of giving companies broader leeway to answer doctors' questions so that they may better treat their patients.
Millions of Americans, such as Andrew Solomon, have serious medical conditions that pharmaceuticals can treat. Rather than help Americans get better drugs, our government at times seems intent on making it difficult for pharmaceutical companies to do business in America, whether the law requires such harassment or not. It is not a good way to run a government, and the consequence is that pharmaceutical companies will spend more time litigating than innovating. Just ask Howard Solomon.
Diana Furchtgott-Roth is a contributing editor of RealClearMarkets, an adjunct fellow at the Manhattan Institute, and a columnist for the Examiner.