District judge green-lights kickback lawsuit against Novartis

Novartis ($NVS) has to face a kickbacks lawsuit filed by the U.S. Department of Justice, which alleges that the Swiss drugmaker gave pharmacies discounts and rebates to boost sales of two drugs, a federal judge ruled Thursday.

Novartis had argued that the lawsuit fails to show that the company defrauded Medicare and Medicaid, but U.S. District Judge Colleen McMahon of New York refused to dismiss the case. The suit involves Myfortic, a transplant drug, and Exjade, which reduces excess iron in patients receiving blood transfusions.

Novartis does have one more opportunity to get the case thrown out, however: McMahon gave the company until June 13 to present a compelling argument that the claims are legally inadequate. A Novartis spokeswoman told Reuters it intends to try again.

The government alleges that between 2005 and 2013, Novartis provided discounts and rebates to up to 20 pharmacies to get them to switch kidney transplant patients to Myfortic. It also claims that from 2007 to 2012, Novartis provided patient referrals and rebates to specialty pharmacy BioScrip ($BIOS) so that it would pressure patients to order refills of Exjade. The lawsuit alleges that these programs violate federal antikickback statutes because the prescriptions that they generated were submitted to government-run Medicare and Medicaid insurance programs.

Novartis continues to deny the charges. "The use of specialty pharmacies to support patients with complex medical conditions is an effective, well-established practice to help ensure patients comply with their physician-directed treatment plans," a spokeswoman for the company told Reuters.

The government's case stemmed from a whistleblower suit filed by former Novartis respiratory sales rep David Kester, who is pursuing separate claims against the company, Reuters reports. Three related state lawsuits are also pending against the drugmaker.

In April, U.S. Attorney Preet Bharara blasted Novartis for being a "repeat offender"--a reference to the $422 million in fines and civil penalties it paid in 2010 to settle allegations that it offered kickbacks to doctors to increase prescriptions of its blood pressure drugs Diovan, Exforge and Tekturna. The settlement included a 5-year "corporate integrity" pact.

Although integrity agreements are standard in these cases, history shows that if Novartis is found to have violated the rules it vowed to follow, the punishment can be harsh. When Pfizer ($PFE) reached a settlement with the DOJ in 2009, prosecutors scolded the company for being a repeat offender and then hit it with a $1.3 billion fine--the biggest criminal penalty in history.

- here's the Reuters story

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