The U.S. Justice Department is taking pharma's marketing violations personally. Federal prosecutors announced last week that they'd wrapped up a $125 million kickbacks investigation into Warner Chilcott; so far, not so unusual. The unusual part? They also said Warner's ex-president, W. Carl Reichel, had been arrested on related charges.
Reichel appeared in Boston federal court Thursday, was released on personal recognizance, and now faces charges that he conspired to violate the federal antikickback statute. Two former Warner Chilcott sales executives previously pleaded guilty to various charges and await sentencing.
Warner Chilcott is far from the only pharma company to face kickback allegations or to pay civil and criminal penalties to settle them. But Reichel is among the very few drug executives to personally face criminal charges. His indictment, unsealed Friday, offers a few distinctive features of Warner Chilcott's alleged activities.
Reichel's indictment alleges that he directed his sales team to treat healthcare providers to free dinners--with no formal educational agenda--and ask attendees to boost their prescription numbers. Some reps paid for doctors' family barbecues and holiday parties, the indictment says. If physicians didn't prescribe more Warner Chilcott drugs, sales reps were instructed to stop inviting them to dinners or paying for their parties, the indictment alleges.
Doctors who were heavy prescribers were paid speaking fees of up to $1,200 to attend those dinners, but they weren't there to give speeches; Reichel wanted the events to be "roundtables"--again, without clinical lectures--the indictment states. If the "speakers" let their Warner Chilcott script numbers slip, they were cut off from speaking fees until prescription levels rebounded, according to the indictment. In the words of one sales rep quoted in the indictment, "no writey no speakey."
Warner Chilcott's entertainment budget extended to physicians' office staffers who did any required paperwork to persuade payers to cover the company's drugs, the indictment says. According to the Justice Department's announcement, sales reps sometimes filled out prior authorization forms themselves, and even submitted them directly to insurers, "holding themselves out to be physicians."
According to the indictment, Reichel also recruited aggressive sales reps with little to no pharma knowledge, gave them little compliance training, and instructed them to avoid talking about clinical studies when they met with doctors, the indictment says.
Other pharma marketing lawsuits have included similar allegations--more than one company allegedly paid speaking fees for events that never took place, for instance. What makes Reichel's case different? For one thing, prosecutors appear to have detailed evidence of a wide range of alleged misbehavior, something that's not always true of such cases. But we're not lawyers. Actual pharma attorneys may be perusing court documents--including Reichel's indictment--in a more informed attempt to answer that question.
Bernstein analyst Ronny Gal has one idea: It's not Reichel's case that's different, but the DOJ. The charges follow a September memo from Deputy Attorney General Sally Quillian Yates "encouraging the targeting of individuals in corporate wrongdoing cases," Gal wrote in a Monday note. "Specialty pharma investors wondering what else could go wrong should read this memo."
Reichel's indictment follows guilty pleas from two Warner Chilcott district sales managers, who await sentencing on various charges, including conspiracy to commit health fraud. Another former employee was charged earlier this month with violating HIPAA. And one of the healthcare providers named in the indictment also faces charges of accepting kickbacks.
All of the employees facing criminal action worked for Warner Chilcott before Allergan ($AGN) bought the company in 2013. To settle kickback allegations against its Warner Chilcott business unit, Allergan agreed to pay $125 million in civil and criminal penalties; the violations took place before the 2013 deal, Allergan said.
Editor's note: This story was updated with analyst comments and a link to the Yates memo.