Mallinckrodt used 'dirty data' to snow payers on Acthar, whistleblower suit says

Mallinckrodt faces a new whistleblower lawsuit over Acthar. (Mallinckrodt)

Mallinckrodt has faced legal heat for years, partly for its pricey and controversial H.P. Acthar Gel, but the company is under yet more scrutiny this week with a whistleblower lawsuit alleging fraud, retaliation and more.

Again, the $1.2 billion Acthar is at the center of the allegations. Employees at Mallinckrodt don't know what's in the key drug, the lawsuit states, and "dirty data" backing it up has caused the government to overpay.

But this time, the allegations go all the way up to the top of the company. 

Rasvinder Dhaliwal, a former associate director of market access, claims she brought her worries about Acthar to her bosses. But the higher-ups followed up only for show, the lawsuit states. Mallinckrodt conducted a sham internal investigation in response and moved on as usual, it claims.

And in answer to her internal whistleblowing, Mallinckrodt retaliated, Dhaliwal claims. She was fired last month after the company used intimidiation tactics to make her life increasingly difficult, the suit claims. The company's intimidation triggered "extreme anxiety attacks for which [Dhaliwal] required and continues to seek medical attention," the lawsuit says.

A Mallinckrodt representative told FiercePharma that "when Ms. Dhaliwal made the allegations outlined in her lawsuit, … the company promptly engaged the services of an outside legal counsel, Skadden Arps, who conducted a thorough review of her concerns. We believe the company has acted responsibly at all times, strongly disagree with these allegations and intend to vigorously defend this matter.”

RELATED: Mallinckrodt’s Acthar drama continues with $100M FTC settlement

Dhaliwal started at Questcor in August 2014 and within weeks, Mallinckrodt agreed to acquire the company. It didn't take Dhaliwal long to become suspicious about Acthar, the lawsuit says, and she routinely asked questions about its price, claims data, study data and more. She couldn't get answers.

Along the way, she says she faced financial and emotional hardship at the company because she repeatedly voiced legal and ethical concerns. She even flagged those problems to Trudeau and Bailey, the suit says.

The lawsuit details examples of Dhaliwal's dealings with payers and Mallinckrodt's attempts to overcome their skepticism with vague responses and compromised data. In one meeting, representatives of Blue Cross Blue Shield Rhode Island alleged Mallinckrodt was "engaged in unethical and illegal conduct" with Acthar. When Dhaliwal brought the accusation to her supervisor, she was instructed to respond to the payer herself, the suit claims, and the supervisor didn't raise the issue to Mallinckrodt's compliance department.

Mallinckrodt advised employees to prevaricate when payers asked questions about the drug. They were told to "talk in circles," give a "non-responsive response," or to not "say anything," the suit says.

That's because direct answers could be damaging, the lawsuit essentially suggests. Dhaliwal said BCBS wanted clinical data to support 18 FDA-approved indications for Acthar outside of infantile spasms. In September 2014, she was told that the company "did not have the clinical data and it likely did not exist," according to the suit.

Dhaliwal was then assigned to come up with a "consensus statement … to overcome the 'lack of data' issue and the Medicare hurdle." The statement was to say that "Acthar was 'well-established' in clinical practice for an indication/use, with the intent to increase reimbursement or paid and shipped rates for Acthar with Payers, specifically Medicare," the suit alleges. 

RELATED: Mallinckrodt stifled Acthar competition, payer lawsuit claims, clearing path for 85,000% rise in prices 

One of Dhaliwal's supervisors then suggested she try a particular strategy for overcoming the "lack of data" hurdle to obtain reimbursement, according to the lawsuit. Dhaliwal was instructed to experiment with it on a "low risk" account to gauge the response. The lawsuit says Dhaliwal was "unwilling to engage in such unethical and illegal conduct." 

The plaintiff's problems at Mallinckrodt started soon after. Dhaliwal says she voiced her concerns, and her supervisor responded by belittling her. The next month, the company started a "campaign of intense and relentless retaliation," the lawsuit says. 

RELATED: Short-seller Andrew Left puts Mallinckrodt and its Acthar pricing on the spot--again 

Dhaliwal persisted, the lawsuit says. In November 2014, after months of trying to get answers to provide to payers, she sent an email to CEO Mark Trudeau and board member Don Bailey titled "Concerns Regarding Company’s Business Activities." Chief Compliance Officer Ray Furey replied later that night to set up a meeting.  

At that meeting, Furey and the company's counsel "feigned that they did not understand" the issues Dhaliwal raised. Instead, according to the lawsuit, Furey told her not to communicate externally as the "cover up was taking shape." 

RELATED: Mallinckrodt subpoenaed, again, over sales of oxymorphone in growing opioid crisis 

From that meeting through March 2018, the retaliation intensified, the lawsuit states. Dhaliwal was demoted and assigned a new "unmanageable amount of work." The plaintiff claims the company was trying to "manage her out" by portraying her as a poor performer. The company's counsel also warned of "consequences" if she didn't comply with the instructions, according to the allegations. 

Dhaliwal realized the internal investigation wasn't going anywhere, and so she followed up in an email to Trudeau and Bailey in January with a 46-slide deck titled "Mallinckrodt Pharmaceuticals Unethical and Potentially Illegal Business Activities." She created the slide deck to "fulfill one of the many requests" from Furey, the suit says. 

Days later, Dhaliwal was placed on a "temporary stand down" that lasted about 9 months. While she was on leave, she submitted a whistleblower tip to the Securities and Exchange Commission, the suit says. She met with federal investigators in May 2015 and August 2015. 

Mallinckrodt didn't approve, the lawsuit suggests. A month after she returned to work, Mallinckrodt management drafted a severance agreement that ordered her to give notice before talking to government investigators. It also required her to pay $250,000 for each violation of her confidentiality agreement. She rejected the deal, saying the intent was to "muzzle a whistleblower."

RELATED: Mallinckrodt to settle oxycodone diversion case for $35M with Justice Department 

Mallinckrodt ultimately terminated Dhaliwal on March 26, and she filed her whistleblower lawsuit this week. 

Mallinckrodt's shares were down about 7% on Thursday after Business Insider first reported on the lawsuit. In a note to clients, Wells Fargo analyst David Maris pointed out that a lawsuit brought by a Rasvinder Dhaliwal against Salix Pharmaceuticals was previously dismissed on summary judgment, but he couldn't confirm whether it was the same plaintiff. 

RELATED: Questcor's Acthar maneuvers land Mallinckrodt in hot water with FTC, state AGs 

Maris wrote that whistleblower suits "often read poorly for a company" because the defendants can't fully respond right away.  

"That said, whistleblowers often face financial and personal consequences and many do not undertake suits lightly, although some plaintiffs have a history of filing suits at several firms which does not make the allegations untrue, but may add an important perspective," he added. "Because of this, and because of our inability to assess the veracity of the allegations, we would not take the complaint at its word for being true, nor would we suggest investors dismiss it as completely irrelevant." 

Stifel analyst Annabel Samimy, for her part, downgraded Mallinckrodt on Thursday, as the company's legal overhang with Acthar is still present, according to 

It's far from the first time Mallinckrodt has faced pointed questions about blockbuster med Acthar, which has long attracted criticism. Originally approved in 1952, it cost $40 per vial in 2001 and has soared to about $40,000 per vial, according to drug pricing website Acthar is approved to treat 19 different conditions in disease areas including neurology, rheumatology, nephrology, pulmonology, and ophthalmology, though it has faced questions about the drug's efficacy in many of those indications.

Short seller Andrew Left, for one, pointed to scarce data supporting Acthar as a treatment for such broad use. Left once offered a $1 million charity donation if the company conducted a clinical test on the drug.

Mallinckrodt's share prices have fallen significantly from a high point in March 2015, losing nearly 90% of their value in that time.