Venture Capitalists Complain of ‘Regulatory Challenges,’ FDA Responds

Writing in this month’s Fortune, Dan Primack is the latest to raise the alarm about indications that venture capital funding of life sciences startups is on the decline.  The decline in funding is cause for concern because venture capital-funded startups are, in the words of Tracy Lefteroff of PricewaterhouseCoopers, “where all the drugs are coming from[.]“  “[L]arge pharma[,]” Lefteroff explains, has “been extremely ineffective at developing pipeline drugs internally.”

While there are still “plenty of venture dollars … going into the [life sciences] sector,” Primack reports, they are going to mature companies.  Startups, on the other hand, “are having a much tougher go of it, with 17% fewer raising venture capital during the first three quarters of 2011 than during the same period in 2010.”  According to Primack, “a number of veteran VC firms are formally ending their pursuit of pharma startups.”

What explains the increasing reluctance to invest in the life sciences sector?  The venture capitalists blame “regulatory challenges,” primarily “the hostile FDA.”   Primack quotes Kate Mitchell, co-founder and Managing Director of Scale Venture Partners, a venture capital firm which recently announced that it will make no new healthcare investments, as follows: “It just takes a lot longer now to get approval than it used to, or to even know what the [Food & Drug Administration] is thinking.  One of our companies, Prestwick Pharmaceuticals, supposedly was put on a ‘fast track,’ but it still took another three years before receiving FDA approval.  It’s incredibly frustrating and means we need to invest more to keep the companies running.”

The Medical Innovation and Competitiveness (MedIC) Coalition, a group of “life science investors, innovators and entrepreneurs,” has been lobbying hard for the FDA to approve more drugs and devices more quickly, that is, without the careful review of efficacy and safety that it currently undertakes.  Specifically, they have prioritized “[r]ebalancing benefit-risk assessments in the drug and device approval processes to appropriately reflect the value of new therapies to patients in need” and “[e]xpanding the accelerated approval pathway into a progressive approval system for drugs, diagnostics and medical devices.”  MedIC also believes that the FDA’s conflict of interest policy threatens to “hinder[] patient access to new treatments.”  It argues for increased “utilization of non-government outside experts to facilitate and strengthen the FDA review and approval process,” presumably experts who would be barred from serving by the FDA’s current conflicts policy.

Not all of MedIC’s priorities are so extreme.  They have also called for more timely, consistent, and transparent decision-making at FDA, while acknowledging that to achieve these ends the agency must be “well resourced and endowed with state-of-the-art scientific tools, clinical input, processes and procedures.”  With this, even the most ardent consumer advocate can agree, and the FDA has recently acted to improve its decision-making in ways that do not risk sacrificing health and safety.  This is a promising development.  The results of a recent survey of venture capitalists suggests that increasing the predictability and speed of the FDA’s decision-making would have a higher impact on their willingness to invest in the life sciences sector than would “rebalancing” the agency’s weighing of safety and efficacy.

Does the Ban on Off-Label Promotion Bar On-Label Promotion?: The Case of Call Plans

As predicted, in the wake of the Supreme Court’s decision in Sorrell v. IMS Health pharmaceutical companies have raised First Amendment challenges to the ban on off-label promotion on a number of fronts.  Most recently, Par Pharmaceutical sued to invalidate the ban to the extent that it “criminalize[s] Par’s truthful and non-misleading speech to healthcare professionals concerning the FDA-approved use of its FDA-approved prescription drug.”  How is it that the ban on off-label promotion could be interpreted to bar the on-label promotion in which Par wishes to engage?  At the heart of Par’s dispute with the government are the “call plans” that pharmaceutical companies develop using the prescriber-specific prescription data at issue in Sorrell.

Call plans set forth which physicians pharmaceutical sales representatives should visit and how often.  In an article in the current issue of Next Generation Pharmaceutical magazine, Matthew Linkewich and Jay Margolis of IMS Health explain that a “properly conceived and configured … call plan directs reps to those physicians whose practice characteristics, constellation of prescribing behaviors and attitudes are conducive to supporting the brand goals.”  Because call plans embody “brand goals,” the government has focused on them as evidencing companies’ intent to engage in off-label promotion.

For example, in a December 15, 2010 press release announcing a $214.5 million settlement with Elan Corporation, the Department of Justice highlighted the fact that Elan’s “off-label marketing efforts” for its anti-epilepsy drug Zonegran “targeted non-epilepsy prescribers.”   A January 28, 2011 press release announcing the formal sentencing of Novartis in a case involving off-label promotion of its anti-epilepsy drug, Trileptal, similarly noted that the company “decided to market and promote Trileptal as a treatment for [two off-label indications, bipolar disease and neuropathic disease] and directed its sales force to visit doctors who would not normally prescribe Trileptal due to the nature of their practice.” Novartis’ plea agreement explains that while epilepsy is treated by epileptologists and neurologists, the company’s call plan included psychiatrists and pain doctors.

The corporate integrity agreement that Novartis entered into as part of the settlement of the Trileptal-related claims against it provides for independent review of “the bases upon which [health care providers] and [health care institutions] belonging to specified medical specialties are included in, or excluded from, the Call Plans based on, among other factors, expected utilization of Government Reimbursed Products for FDA-approved uses or non-FDA-approved uses[.]“  The corporate integrity agreement requires a similar review of the company’s sampling strategy and goes so far as to bar the company from delivering samples to health care providers identified by the company as “belong[ing] to a specialty group that is unlikely to prescribe” the sampled product on-label.

Currently, Par Pharmaceutical’s call plan for its appetite stimulant Megace, which is FDA-approved for the treatment of AIDS-related wasting, does not include oncology practices or long-term care facilities.  With the help of an outside consultant, Par determined that physicians in those settings “reasonably may encounter patients suffering from AIDS-related wasting, and thus may have occasion to prescribe [Megace] for its on-label use,” but all agree that they would be much more likely to prescribe the drug off-label to treat wasting in cancer and geriatric patients.  In the concluding paragraphs of Par’s complaint, it explains that the U.S. Attorney’s Office for the District of New Jersey, which is investigating the company’s marketing practices, has informed the company that before it promotes a drug for its on-label use to doctors who prescribe the drug off-label it must “confirm that there are presently a sufficient number of patients being treated for whom the drug could be prescribed on-label.”

As Par points out, the government has offered no guidance regarding the number of on-label patients that a doctor must treat before he or she can be included in a company’s call plan.  On the one hand, this is to be expected because the call plan is only one factor that the government considers in determining a company’s intent.  On the other hand, it leaves companies like Par without a clear course to follow and, after Sorrell, likely to sue.

Recommended Reading: Recent Scholarship with Implications for Pharmaceutical Pricing and Access

Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines, by Kevin W. Caves and Hal J. Singer of Navigant Economics, provides a technical but still accessible analysis of the anticompetitive effects of vaccine manufacturers’ practice of conditioning price discounts on physician buying groups agreeing to purchase the manufacturers’ vaccines in a bundle and agreeing not to purchase other manufacturers’ products.  The article begins with an interesting overview of the characteristics of the vaccine market, an introduction to the physician buying groups that purchase vaccines and to the anti-kickback concerns they raise, and a summary of the (somewhat up in the air) legal standard for when bundled discounting becomes an antitrust violation.

The authors then present their analysis of the uphill battle Novartis (a source of funding for the article) will have to fight to induce physicians to “break the bundle” and buy its new meningitis vaccine.  The authors conclude that even if Novartis were to give away its meningitis vaccine for free, “buyers defecting from [Sanofi Pasteur's bundle of vaccines, which includes Sanofi's meningitis vaccine,] would still lose $14.05 per patient in expected value.”  They present data indicating “that buyers unencumbered by … Sanofi’s loyalty contracts are over three times as likely to purchase [Novartis' vaccine], relative to encumbered buyers…” and conclude that enough of the market is foreclosed to Novartis to establish a presumption of anticompetitive effects and concomitant harm to consumers.  Per the authors, “[i]n an industry served almost exclusively by large, multi-product incumbents, with no prospects for generic competition and extremely limited entry by competitive rivals of any kind, these findings have significant implications for public policy and antitrust enforcement.”

Somewhat less accessible (due to a plethora of equations) but still well worth reading is Tort Liability and the Market for Prescription Drugs by Eric Helland, Darius Lakdawalla, Anup Malani, and Seth Seabury.  Helland and his co-authors present the results of an empirical study of the relationship between product liability rules and drug price and utilization.  While the effect of a liability rule can often be studied by comparing a state that makes a change to the rule with one that does not, the authors had to modify this approach because drugs are sold nationally.  They determined the exposure to punitive damages caps of each of nearly 16,000 drugs by first determining each drug’s geographic distribution of sales, a figure which varies from drug to drug due to geographic variation in the prevalence of disease.  The authors found that the degree of exposure to caps was correlated with an increase in drug prices but also with an increase in drug utilization.  Tighter liability standards also correlate with a reduction in adverse drug reactions.  The authors write that their numbers “imply that if every remaining state adopted some reform, there would be a 23% increase in all [adverse] events and a 25% increase in serious [adverse] events … among branded drugs.”  They conclude that “on balance, liability improves consumer and social welfare.”

FDA’s ‘Bad Ad’ Program is in Full Effect

Last spring, the Food and Drug Administration (FDA) launched the Truthful Prescription Drug Advertising and Promotion Program (known more accessibly as the “Bad Ad Program“). The goal of the program is to enlist the help of health care professionals, consumers, and industry representatives in noting FDA violations and reporting activities and messages that are false or misleading. Common drug marketing violations include omitting or downplaying risk, overstating effectiveness, promoting off-label uses and making misleading drug comparisons. The program is run by the FDA’s Division of Drug Marketing, Advertising, and Communications (DDMAC), which is responsible for “ensuring truthful advertising and promotion of prescription drugs.”

The FDA published a year-end report in May noting that the program has been successful in raising awareness. DDMAC received 328 reports of potentially untruthful or misleading promotions in one year, with the majority of those submitted by health care professionals (188 reports) and consumers (116 reports). The report notes that prior to the Bad Ad program, the FDA received an average of about 104 reports per year.

And the Bad Ad tips are still coming in. Just at the end of last month, DDMAC issued a reprimand letter to Pfizer’s Vice President of US Regulatory Affairs regarding misleading advertising of drugs on the company’s Lipitor website. A complaint to the Bad Ad program observed that the links from the Lipitor site led to pages for the drugs Caduet (for high cholesterol and blood pressure), Norvasc (for high blood pressure), and Chantix (for smoking cessation). But each of those pages failed to note any of the risk information associated with the drugs, which is a violation of the Federal Food, Drug, and Cosmetic Act.

The FDA states that “by omitting the most serious and frequently occurring risks associated with Caduet, Chantix, and Norvasc, the webpage misleadingly suggests that these drugs are safer than have been demonstrated.” The letter ends with a request that Pfizer immediately stop the dissemination of violative promotional materials for the drugs. The company was to have submitted a written response to the complaint by September 14^th that states how they will comply with the request.

While the Bad Ad program may be working to raise awareness among health professionals and consumers, one violation may not be enough to induce compliance from pharmaceutical companies. In fact, DDMAC already chided Pfizer in March of 2009 for omitting risk information for Caduet and Chantix. In that case, Pfizer sponsored links for the drugs on Internet search engines. The sites linked to did not mention any risk information and therefore, presumably,  can be said to have also represented the products in a manner which, as above, suggests that these drugs are safer than have been demonstrated.” The most recent letter states that “DDMAC is concerned that Pfizer is continuing to promote its products in a similarly violative manner.” A citizen’s task force is a good way for the FDA to multiply their eyes and ears to keep tabs on misleading and/or violative advertisement. We’ll see what further successes the next year-end report for the Bad Ad program can show. Or, perhaps, success might also be measured in the absence of violations.

Auditing Studies of Anti-Depressants

Marcia Angell has kicked off another set of controversies for the pharmaceutical sector in two recent review essays in the New York Review of Books. She favorably reviews meta-research that calls into question the effectiveness of many antidepressant drugs:

Kirsch and his colleagues used the Freedom of Information Act to obtain FDA reviews of all placebo-controlled clinical trials, whether positive or negative, submitted for the initial approval of the six most widely used antidepressant drugs approved between 1987 and 1999—Prozac, Paxil, Zoloft, Celexa, Serzone, and Effexor. . . .Altogether, there were forty-two trials of the six drugs. Most of them were negative. Overall, placebos were 82 percent as effective as the drugs, as measured by the Hamilton Depression Scale (HAM-D), a widely used score of symptoms of depression. The average difference between drug and placebo was only 1.8 points on the HAM-D, a difference that, while statistically significant, was clinically meaningless. The results were much the same for all six drugs: they were all equally unimpressive. Yet because the positive studies were extensively publicized, while the negative ones were hidden, the public and the medical profession came to believe that these drugs were highly effective antidepressants.

Angell discusses other research that indicates that placebos can often be nearly as effective as drugs for conditions like depression. Psychiatrist Peter Kramer, a long-time advocate of anti-depressant therapy, responded to her last Sunday. He admits that “placebo responses . . . have been steadily on the rise” in FDA data; “in some studies, 40 percent of subjects not receiving medication get better.” But he believes that is only because the studies focus on the mildly depressed:

The problem is so big that entrepreneurs have founded businesses promising to identify genuinely ill research subjects. The companies use video links to screen patients at central locations where (contrary to the practice at centers where trials are run) reviewers have no incentives for enrolling subjects. In early comparisons, off-site raters rejected about 40 percent of subjects who had been accepted locally — on the ground that those subjects did not have severe enough symptoms to qualify for treatment. If this result is typical, many subjects labeled mildly depressed in the F.D.A. data don’t have depression and might well respond to placebos as readily as to antidepressants.

Yves Smith finds Kramer’s response unconvincing:

The research is clear: the efficacy of antidepressants is (contrary to what [Kramer's] article suggests) lower than most drugs (70% is a typical efficacy rate; for antidepressants, it’s about 50%. The placebo rate is 20% to 30% for antidepressants). And since most antidepressants produce side effects, patients in trials can often guess successfully as to whether they are getting real drugs. If a placebo is chosen that produces a symptom, say dry mouth, the efficacy of antidepressants v. placebos is almost indistinguishable. The argument made in [Kramer's] article to try to deal with this inconvenient fact, that many of the people chosen for clinical trials really weren’t depressed (thus contending that the placebo effect was simply bad sampling) is utter[ly wrong]. You’d see the mildly/short-term depressed people getting both placebos and real drugs. You would therefore expect to see the efficacy rate of both the placebo and the real drug boosted by the inclusion of people who just happened to get better anyhow.

Felix Salmon also challenges Kramer’s logic:

[Kramer's view is that] lots of people were diagnosed with depression and put onto a trial of antidepressant drugs, even when they were perfectly healthy. Which sounds very much like the kind of thing that Angell is complaining about: the way in which, for instance, the number of children so disabled by mental disorders that they qualify for Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) was 35 times higher in 2007 than it was in 1987. And it’s getting worse: the editors of DSM-V, to be published in 2013, have written that “in primary care settings, approximately 30 percent to 50 percent of patients have prominent mental health symptoms or identifiable mental disorders, which have significant adverse consequences if left untreated.”

Those who would defend psychopharmacology, then, seem to want to have their cake and eat it: on the one hand it seems that serious mental health disorders have reached pandemic proportions, but on the other hand we’re told that a lot of people diagnosed with those disorders never really had them in the first place.

That is a very challenging point for the industry to consider as it responds to concerns like Angell’s. The diagnosis of mental illness will always have ineradicably economic dimensions and politically contestable aims. But doctors and researchers should insulate professional expertise and the interpretation of maladies as much as possible from inappropriate pressures.

How can they maintain that kind of independent clinical judgment? I think one key is to assure that data from all trials is open to all researchers. Consider, for instance, these findings from a NEJM study on “selective publication:”

We obtained reviews from the Food and Drug Administration (FDA) for studies of 12 antidepressant agents involving 12,564 patients. . . . Among 74 FDA-registered studies, 31%, accounting for 3449 study participants, were not published. Whether and how the studies were published were associated with the study outcome. A total of 37 studies viewed by the FDA as having positive results were published; 1 study viewed as positive was not published. Studies viewed by the FDA as having negative or questionable results were, with 3 exceptions, either not published (22 studies) or published in a way that, in our opinion, conveyed a positive outcome (11 studies). According to the published literature, it appeared that 94% of the trials conducted were positive. By contrast, the FDA analysis showed that 51% were positive. Separate meta-analyses of the FDA and journal data sets showed that the increase in effect size ranged from 11 to 69% for individual drugs and was 32% overall. (emphasis added).

Melander, et al. also worried (in 2003) that, since “The degree of multiple publication, selective publication, and selective reporting differed between products,” “any attempt to recommend a specific selective serotonin reuptake inhibitor from the publicly available data only is likely to be based on biased evidence.” Without clearer “best practices” for data publication, clinical judgment may be impaired.

Full disclosure of study funding should also be mandatory and conspicuous, wherever results are published. Ernest R. House has reported that, “In a study of 370 ‘randomized’ drug trials, studies recommended the experimental drug as the ‘treatment of choice’ in 51% of trials sponsored by for-profit organizations compared to 16% sponsored by nonprofits.” The commodification of research has made it too easy to manipulate results, as Bartlett & Steele have argued:

One big factor in the shift of clinical trials to foreign countries is a loophole in F.D.A. regulations: if studies in the United States suggest that a drug has no benefit, trials from abroad can often be used in their stead to secure F.D.A. approval. There’s even a term for countries that have shown themselves to be especially amenable when drug companies need positive data fast: they’re called “rescue countries.” Rescue countries came to the aid of Ketek, the first of a new generation of widely heralded antibiotics to treat respiratory-tract infections. Ketek was developed in the 1990s by Aventis Pharmaceuticals, now Sanofi-Aventis. In 2004 . . . the F.D.A. certified Ketek as safe and effective. The F.D.A.’s decision was based heavily on the results of studies in Hungary, Morocco, Tunisia, and Turkey.

The approval came less than one month after a researcher in the United States was sentenced to 57 months in prison for falsifying her own Ketek data. . . . As the months ticked by, and the number of people taking the drug climbed steadily, the F.D.A. began to get reports of adverse reactions, including serious liver damage that sometimes led to death. . . . [C]ritics were especially concerned about an ongoing trial in which 4,000 infants and children, some as young as six months, were recruited in more than a dozen countries for an experiment to assess Ketek’s effectiveness in treating ear infections and tonsillitis. The trial had been sanctioned over the objections of the F.D.A.’s own reviewers. . . . In 2006, after inquiries from Congress, the F.D.A. asked Sanofi-Aventis to halt the trial. Less than a year later, one day before the start of a congressional hearing on the F.D.A.’s approval of the drug, the agency suddenly slapped a so-called black-box warning on the label of Ketek, restricting its use. (A black-box warning is the most serious step the F.D.A. can take short of removing a drug from the market.) By then the F.D.A. had received 93 reports of severe adverse reactions to Ketek, resulting in 12 deaths.

The great anti-depressant debate is part of a much larger “re-think” of the validity of data. Medical claims can spread virally without much evidence. According to a notable meta-researcher, “much of what medical researchers conclude in their studies is misleading, exaggerated, or flat-out wrong.” The “decline effect” dogs science generally. Statisticians are also debunking ballyhooed efforts to target cancer treatments.

Max Weber once said that “radical doubt is the father of knowledge.” Perhaps DSM-VI will include a diagnosis for such debilitating skepticism. But I think there’s much to be learned from an insistence that true science is open, inspectable, and replicable. Harvard’s program on “Digital Scholarship” and the Yale Roundtable on Data and Code Sharing* have taken up this cause, as has the work of Victoria Stodden.

We often hear that the academic sector has to become more “corporate” if it is to survive and thrive. At least when it comes to health data, the reverse is true: corporations must become much more open about the sources and limits of the studies they conduct. We can’t resolve the “great anti-depressant debate,” or prevent future questioning of pharma’s bona fides, without such commitments.

*In the spirit of full disclosure: I did participate in this roundtable.

Power, Knowledge, and Big Pharma: Preliminary Reflections on the Sorrell Vacuum

I have previously commented on Sorrell v. IMS Health, as a co-author of an amicus brief, a Pharma FaceOff panelist, and a blogger. I’m disappointed by the Sorrell ruling, for reasons largely elaborated in Justice Breyer’s dissent. As he observes, the majority opinion “reawakens Lochner’s pre-New Deal threat of substituting judicial for democratic decision-making where ordinary economic regulation is at issue.” But I’m not surprised at the Lochner revival, given the First Amendment maximalism of the Citizens United Court. For this Court, “free expression” will have to do in the information age what “freedom of contract” did for the early decades of the 20th century: erase even small and incremental steps toward a fairer social order.

Bill McGeveran has characterized Kennedy’s majority opinion in the case as relatively limited, a surgical strike against an overreaching and incompetent state legislature. I want to respond to his interpretation in a future post, after I’ve digested the opinion a bit more. But for now, I’d like to focus a bit of attention on the types of problems Vermont was addressing, to give the case more of a human face. For behind all the familiar Kennedy rhetoric about sacred speech, deeply disturbing industry practices motivated Vermont’s law.

Both PhRMA and IMS Health want us to believe that the case is about the life-saving power of a marketer to recommend drugs to oblivious doctors once it has access to their prescribing records. Never mind that, as Dr. David Orentlicher notes, “For $98 a year . . . physicians can subscribe to The Medical Letter on Drugs and Therapeutics, a respected and independent, biweekly newsletter that provides evaluations of prescription (and over-the-counter) drugs.” Maybe detailing, on occasion, saves lives. But, as the dissent observes, Vermont’s law allowed doctors to permit distribution of their prescribing records in order to receive personalized solicitations. They only needed to opt in.

Now why did Vermont doctors petition the state to limit access to prescriber records? And why might a rational physician choose not to opt in? Hundreds of pages of empirical studies show the problems caused by detailing; many are cited in Breyer’s dissent. But to make the situation a little more concrete, consider some of the literature a physician who rarely prescribes, say, pscyhotropic drugs, may now be reading. These examples are all drawn from two recent pieces by Marcia Angell in the NYRB:

A large survey of randomly selected adults, sponsored by the National Institute of Mental Health (NIMH) and conducted between 2001 and 2003, found that an astonishing 46 percent met criteria established by the American Psychiatric Association (APA) for having had at least one mental illness within four broad categories at some time in their lives. . . . The new generation of antipsychotics, such as Risperdal, Zyprexa, and Seroquel, has replaced cholesterol-lowering agents as the top-selling class of drugs in the US. . . . [Author Robert Whitaker] is outraged by what he sees as an iatrogenic (i.e., inadvertent and medically introduced) epidemic of brain dysfunction, particularly that caused by the widespread use of the newer (“atypical”) antipsychotics.

***

The pharmaceutical industry influences psychiatrists to prescribe psychoactive drugs even for categories of patients in whom the drugs have not been found safe and effective. [There has been an] astonishing rise in the diagnosis and treatment of mental illness in children, sometimes as young as two years old.

The FDA approves drugs only for specified uses, and it is illegal for companies to market them for any other purpose—that is, “off-label.” Nevertheless, physicians are permitted to prescribe drugs for any reason they choose, and one of the most lucrative things drug companies can do is persuade physicians to prescribe drugs off-label, despite the law against it. In just the past four years, five firms have admitted to federal charges of illegally marketing psychoactive drugs. AstraZeneca marketed Seroquel off-label for children and the elderly (another vulnerable population, often administered antipsychotics in nursing homes); Pfizer faced similar charges for Geodon (an antipsychotic); Eli Lilly for Zyprexa (an antipsychotic); Bristol-Myers Squibb for Abilify (another antipsychotic); and Forest Labs for Celexa (an antidepressant).

Despite having to pay hundreds of millions of dollars to settle the charges, the companies have probably come out well ahead.

Whereas IMS Health’s counsel described detailing in oral arguments as “information about lifesaving medications where the detailer goes in and talks about double blind scientific studies that are responsible for the development of drugs that have caused 40 percent of the increase in the lifespan of the American public,” Angell marshals an impressive array of evidence on the unreliability of pharma marketing, and even the underlying studies some of it is based on. Angell also compiles surprising details about the pervasive role of pharmaceutical firm influence over the social construction of mental illness. When you consider the industry’s targeting of “key opinion leaders” (professors and practitioners at elite medical centers), civil society groups, and the DSM, Vermont’s law seems an almost trivial response to a juggernaut of profit-driven promotions for mind cures. And yet even that small step (toward allowing physicians more control over how they are approached by detailers) offended the delicate sensibilities of the majority.

The Breyer dissent’s litany of regulated industry information practices should have dampened Kennedy’s abstracted enthusiasm for a “commercial marketplace” that “provides a forum where ideas and information flourish.” But in the vacuum of First Amendment fundamentalist thought, the complex ecology of fair information practices and calibrated disclosure cannot survive. It’s all-or-nothing: as soon as some parties gain access to prescriber data, everybody has to have it. Doctors can’t choose to structure their interactions with detailers based on profiling of their practices; rather, they face the stark choice of letting in marketers with access to all the prescribing practice data the state requires pharmacies to maintain, or not to talk to them at all.

In Sorrell, privacy and free expression become clashing rights, rather than social values that have long been reconciled (and occasionally reinforced one another) in complex regulatory schemes. We need to maintain that tradition of nuance in information law. Sadly, Sorrell turns its back on it.

Discussion on Pharma Face-Off

I was recently invited to debate issues in the Vermont data mining case on the program Pharma Face-Off. We’ve had some pro-PhRMA and anti-PhRMA perspectives here over the past year, and the program continues the conversation. I’ve been a bit tied up giving 6 talks in four cities over the past 8 days, but I’ll have some thoughts on it next week. One preview of my counterintuitive take: I think IMS Health (and its ally, PhRMA) are likely to win this case, but it could prove a Pyrrhic victory. The less doctors can constructively structure their encounters with detailers and reps, the more likely they are to shut them out altogether (a “solution” to the excessive influence problem that both Justice Scalia and IMS Health’s counsel, Tom Goldstein, repeatedly mentioned in oral arguments). Be careful what you wish for.

The Identity Theft Smoke Screen: Data Mining of Prescription Drug Records and Personal Data Privacy

[Ed Note: We are pleased to welcome a guest article from Christopher J. Asakiewicz, J.D. He graduated from Seton Hall Law in 2011 with a concentration in Health Law, recently passed the New York Bar Exam (congratulations!) and works for ImClone Systems Corporation, an affiliate of Eli Lilly and Company, drafting and negotiating various clinical documents and patient disclosures with both US and ex-US institutions as well as central and local investigational review boards (IRBs). During law school he worked  at Saint Vincents Catholic Medical Centers of New York (SVCMC) in the department of legal affairs, and prior to pursuing a legal education, managed phase IIIB/IV international clinical trials for Pfizer Inc. in the areas of neurology and neurodegenerative diseases.]

Personal data privacy once again has taken front stage in Sorrel v. IMS Health, Inc.[1] Vermont passed the Vermont Confidentiality of Prescription Information Law that allows doctors which prescribe drugs to patients, to decide whether pharmacies can sell their prescription drug prescription records.[2] IMS Health as well as other health information companies contested the law, arguing that the law poses a restriction on commercial speech as access to such information helps pharmaceutical companies market their drugs effectively to doctors. The Supreme Court is now tasked with determining the constitutionality of the restriction on access to prescription information with regards to our First Amendment. [3]

However, this post is focused on the secondary effects asserted in amici curiae briefs supporting the petitioners of allowing companies to purchase such information, specifically the concern of data privacy and patient re-identification. [4] Under the Health Information Portability and Accountability Act (HIPAA), personal health information is de-identified by your local pharmacy prior to such information being shared with any third party. By de-identifying the data, your personal data cannot, it is believed, be linked or traced back to you. De-identifying your health information is a way for covered entities to share your information without your consent or authorization and in accordance with the law. The information once shared is completely anonymized. After the transfer to a third party, like IMS Health, your information is solely data of zeros and ones that translate to dates of dispensing and drug names. No longer does your prescription record list your name or month or day of birth. [5]

Briefs in the case assert that data mining firms could, hypothetically, create profiles based on these de-identified prescription records. Such prescription profiles would constitute certain patient’s prescription habits, including an individual’s medication types, pharmacies visited and dates dispensed. The briefs argue that linking and mining further public information to these drug profiles could result in patient re-identification.

IMS Health, Inc., of course, asserts that it has no knowledge of any patient re-identification and it protects such records with all the security privacy measures set forth under HIPAA and as strengthened by Health Information Technology for Economic and Clinical Health Act (HITECH). So what is the issue, I ask?

A pharmaceutical company does not need nor want to know who you are. Aggregate data is more beneficial to a marketing company, rather than just one record with your name on it. What benefit would a company get from a record that says, John Doe, DOB: 01-Jan-1984? The company could send you a mailer, but under the current regulations, you can opt out of the marketing material and it stops there. However, what helps a pharmaceutical company is aggregate datasets that say Dr. Jane Doe, MD writes 100 scripts for Lipitor ® a month. No one cares if the patients are unidentifiable, and most likely, the pharmaceutical company wants to keep it that way. Not only will the de-identified data be cheaper to buy, but it also assures the third party purchasing the data that it is not aiding a HIPAA violation.

Last, it is also asserted that there is no penalty for re-identification of personal health data, but there are stark penalties under HIPAA for “a person who knowingly … (1) uses or causes to be used a unique health identifier; (2) obtains individually identifiable health information relating to an individual; or (3) discloses individually identifiable health information to another person.” [6] If the offense is committed with the intent to sell, transfer or use the individually identifiable health information for commercial advantage, the penalty could be up to $250,000 and 10 years imprisonment. [7] If claims are brought against companies, like IMS Health, the companies will surely argue they are not covered entities subject to the penalties under HIPAA; however, this does not prevent civil lawsuits against them.

What will happen if a breach occurs due to patient re-identification? Most likely, the current healthcare environment where many companies are acting under corporate integrity agreements or deferred prosecution agreements, promotes reporting, if not out of altruistic purpose at least a compliance purpose. With this said, once reported to both the Department of Health and Human Services, Office of Civil Rights, as well as, in most states, the Secretary of state, privacy and confidentiality laws require notification to be provided to the patient that has been re-identified. This patient whose privacy rights have been infringed can then bring an individual civil claim against the organization responsible for the disclosure of their health information as well as the collateral damages caused by the unauthorized disclosure. Now, what company today wants to get involved with this type of bad publicity?

In conclusion, just because the possibility exists that a patient can be re-identified with data mining practices, does not mean that our current environment will foster such. The nine Justices of the Supreme Court need to be more concerned with the First Amendment and the commercial speech implications of their ruling, rather than amici curiae briefs supporting public policy positions based on unwarranted fears of patient information disclosure.[8]

I therefore urge you to put yourself in the role of your favorite Justice and consider if you should be more concerned that a company is going to buy your prescription records and try to determine that you took amoxicillin for a sinus infection when you were five years old, or if that company would rather purchase all the information you posted on Facebook ® or other social networking sites, including all the locations you have checked in. Which do you think is more useful to market its products? It is with this mindset that you must consider if the regulation directly advances the governmental interest “in protecting the public health of Vermonters, … the privacy of prescribers and prescribing information” and is no more extensive than necessary to serve that interest. [9]

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[1] Petition for Writ of Certiorari, Sorrel v. IMS Health, Inc., 131 S. Ct. 857, No. 10-779, Dec. 13, 2010.

[2] Vt. Stat. Ann. tit. 18, § 4631 (2010).

[3] See Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557 (1980).

[4] Brief of Electronic Privacy Information Center (EPIC) et. al. as Amici curiae supporting Petitioners, Sorrel v. IMS Health, Inc., 131 S. Ct. 857, (2011) (No. 10-779), 24-9, available at, http://www.atg.state.vt.us/assets/files/10-779%20EPIC%20amicus%20Sorrell.pdf; Latanya Sweeney, Simple Demographics Often Identify People Uniquely (Carnegie Mellon University, Data Privacy Working Paper No. 3, 2000), available at, http://dataprivacylab.org/projects/identifiability/paper1.pdf.

[5] Privacy Rule of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. No. 104-191 (1996), 45 C.F.R. §§ 164.312(e)(2)(ii), 164.514(b)(2)(i) (2010).

[6] 42 U.S.C. § 1320d-6(a)(1)-(3).

[7] Id. § 1320d-6(b).

[8] Brief of Electronic Privacy Information Center (EPIC) et. al. as Amici curiae supporting petitioners, Sorrel, 131 S. Ct. 857, (No. 10-779).

[9] See Vt. Acts & Resolves No. 80, § 17 (2007) (Confidentiality of Prescription Information); Vt. Acts & Resolves No. 89, § 3 (2008) (amending Act 80).

Antibiotic Resistance on the Rise, Thanks to Capital Misallocation on a Grand Scale

A Hollywood Ending for Pharma?

There is an interesting article at Xconomy San Diego on the growing tensions between venture capitalists, biotech startups, and pharmaceutical companies. Many entrepreneurs feel like they’re getting a raw deal from big pharma firms. One source alleges that dealmakers are about to kill the geese that lay the golden eggs.

In an earlier post, I worried that big pharma firms were becoming virtual to the point of ghostliness, mere nexuses of certifications, patent and trademark portfolios, tax dodges, and contractual obligations. If these trends continue, what types of controversies are likely to develop?

Gains from Gatekeeping

The just-in-time, ad hoc nature of movie production has led many economists to see in it a model for collaboration in other industries. As Marty Neumaier puts it, “By switching to a network model, the studios . . . avail themselves of the best talent for each project, thereby creating unique products and shedding unnecessary overhead.” But one-off, one-sided contracts can lead to epic conflicts. Consider, for instance, the recent rash of news about Hollywood accounting:

Michael Moore . . . claims $2.7m in unpaid royalties from Fahrenheit 9/11 [from his studio]. . . At the heart of the lawsuit is a dispute about Hollywood accounting practices that have for decades been a source of contention between the studios that release movies and “the talent” . . . Moore alleges the Weinsteins improperly deducted expenses from his share of the film’s profits – including the cost of a private jet to fly Weinstein from the US to Europe.

When an intermediary has access to extraordinary distribution networks, it has enormous leverage vis a vis “the talent.” Studios might respond that it’s a lot more fun to be Michael Moore than it is to be Harvey Weinstein: one gets to express his ideas, the other has to meet a payroll. But the enormous amounts of money generated by the film (between $228 and $500 million, according to Moore’s lawyer), and the frequency of complaints like Moore’s, lead to concerns about transparency and bargaining power in the industry.

Terry Fisher has written compellingly on the economics of Hollywood and pharmaceutical research (with Talha Syed). Intellectual property is key to both industries, and that’s one natural point of connection. Another is the economic role of middlemen, a topic that’s becoming increasingly important as certain dominant companies aim to own the “celestial jukebox,” “master switch,” or “Digital WalMart” of content connectivity.

Consider Apple’s demand for 30% of revenue from publications delivered via the iPad–and its refusal to share key customer data (for example, ads clicked on, time spent per page, etc.) with publishers. Seth Godin does not approve of this move:

The web has been a hotbed of siloed content, of deep dives for small audiences. The large scale stuff, though, has tended to be mostly about gossip and other quick reads that’s cheap to produce. Tablets offer a new chance to create content worth paying for.

[But] Apple has announced that they want to tax each subscription made via the iPad at 30%. Yes, it’s a tax, because what it does is dramatically decrease the incremental revenue from each subscriber.

These debates are very old in the tech world: when the VCR was introduced, Hollywood said its makers should pay for all the copyright infringement it enabled. Sony eventually retorted that the studios should be glad to see all the new customers that electronics would bring them.

Health Care’s Middlemen

Moore, the disgruntled biotech firms, and Godin each in their own way bring up issues that are going to be very big in health care over the next decade. Private insurers were supposed to be the magical mediators between providers and consumers in health care, demanding value and driving down prices. But, as Joseph White has shown, it was far easier for insurers to “stick it to” their customers than to constrain prices of “must-have” providers:

Remembering the pain of the late 1990s, [by 2001] managers of health care providers and insurance companies were determined to keep prices up through “pricing discipline.” “I’ve never seen discipline in the industry from a pricing standpoint like I’ve seen now” (HSChange 2004, p. 2), said one insurance industry consultant, providing part of the answer to why the underwriting cycle had yet to turn back toward lower margins. . . .

One might wonder why consolidation among insurers did not allow them to resist the providers’ demand for increased payments. The simple answer is that there were two concentrated parts of the market and one fragmented part. The insurers had to choose between fighting a full-pitched battle with the providers or exploiting their own market power vis-à-vis the employers. Raising premiums to employers was a lot easier. In theory, employers could have demanded restrictive networks (at lower prices). But since everyone had agreed that employees did not like restrictive networks, and providers (especially hospitals) were not willing to discount much to get into such networks, there were not many available for purchase. Individual employers could not invent such a product; they could only shop around and find the relatively best deal by customizing other contract terms, such as cost sharing.

Just as insurers began to align more with the interests of concentrated providers than with fragmented, disorganized consumers, so too do many Group Purchasing Organizations appear to be failing to fulfill their promise as cost-constraining intermediaries. As one analyst testified before the DOJ and FTC, “the compensation of most GPO management is almost always based on . . . fee income [from suppliers] rather than on the real savings to hospital members.” Again, the ostensible “protector” of one side of the health care equation ends up aiding one side of the deal.

Of course, the masters of all such deals work in finance. As Karen Ho suggested in her excellent ethnography, Liquidated, their values inform all the tough and opportunistic dealmaking mentioned above. As I taught health care finance over the past few years, I continually felt the topic stood in relation to finance proper as chemistry might stand in relation to physics: a discipline in its own right, but ultimately reducible to a more fundamental science. (I’m not saying I endorse this reductionism, just that it is an intuitively plausible model for what’s really driving developments in health care.)

Are there any policy lessons for health care? As Louis Uchitelle has suggested, we might want to question an economic system that delivers risk-free riches to those who invest or market future cures and little but anxiety (with limited or very unlikely upside) to many of those who create them. If we hesitate at awarding Apple a perpetual 30% bite of publisher profits merely for becoming the hippest platform, or question a finance sector that grabs 30% of all corporate profits, we might also want to articulate some decent maximum multiple of dealmakers’ over researchers’ compensation.

Reflecting on his book “The Great Stagnation” a few weeks ago, Tyler Cowen noted that many of the biggest winners in today’s economy are structuring “heads I win, tails you lose” deals. Wall Street has mastered the concentration and privatization of gain and socialization of loss. Will key players in pharma and the rest of the health care sector scramble to follow its lead?

60 Minutes, Glaxo’s Bad Day & Why Compliance is So Terribly Important

In case you missed it: 60 Minutes segment with whistleblower Cheryl Eckerd, a former manager of global quality assurance for GlaxoSmithKline. She describes her experience inspecting Glaxo subsidiary, Cidra, in Puerto Rico. It views like an in-house counsel’s nightmare and a PR professional’s worst day. CBS states:

“But in November, we found out just how much could go wrong at one of the world’s largest drug makers. A subsidiary of GlaxoSmithKline pleaded guilty to [a felony] distributing adulterated drugs.

“There was reason to believe that some of the medications were contaminated with bacteria, others were mislabeled, and some were too strong or not strong enough.”

Ms. Eckerd brought suit under the Federal Whistleblower Act, with the government ultimately recovering $750 million; Ms Eckerd who was “downsized” by Glaxo, received $96 million as her share of the recovery. In addition, when Ms. Eckerd made the information she had gathered about the plant in Puerto Rico available to the FDA, federal agents executed a search warrant and seized drugs worth “hundreds of millions of dollars.”

Pharmaceutical Research Expenditures and Industrial Policy

Anyone familiar with pharmaceutical industry restructuring will not be surprised by this prediction from the FT’s John Gapper for 2011:

A drugs company will drop early-stage research. Big Pharma has struggled for a decade with a dearth of potential blockbusters. Companies such as GlaxoSmithKline have restructured and slimmed down their research arms but the sector remains troubled, as the departure of Jeff Kindler, Pfizer’s former chief executive, on the grounds of “exhaustion” indicates.

The obvious course with something that is not working is to drop it. Shire Pharmaceuticals pioneered a strategy of outsourcing early-stage research to smaller companies and focusing on developing and trialling promising drugs. This will be the year when one of the industry’s biggest takes a similar tack.

Gapper seems pretty unworried about this transition, and perhaps from the standpoint of pure economic theory it makes little difference whether research is conducted in-house or purchased from other, smaller firms. But as a matter of public relations and political economy, this is a troubling development.

The Post-R&D PR and Jobs Crises

First, the pharmaceutical industry has long justified its profits by arguing that it invests in research and development. For those who favor a market-based approach to drug research, this is a vindication of laissez-faire. Rather than relying on the heavy hand of government to try to direct the research done at pharmaceutical firms, we can expect the “invisible hand” of the market to spin off solutions for everyone’s problems–from the richest to the poorest. Innovations eventually filter down from the highest-income individuals to those with fewer resources. Spending by the wealthy on health care leads to investment in research infrastructure that ultimately redounds to the benefit of all.

But to the extent that the industry spins off its research and development, shouldn’t policymakers be more concerned about the health of research firms than the continued thriving of Big Pharma? I suppose one could make the argument that big Pharma is evolving toward a Walmart or Google style of value creation via skilled intermediation. Its key role in that scenario is to identify the most promising researchers, CROs, marketers, distributors, and advertisers.

If that evolution occurs, it reminds me of another of Gapper’s predictions for 2011:

As China tries to make itself a hub for environmental [and energy] innovation, the US is retreating. Silicon Valley venture capital groups that identified green energy as a big opportunity are playing it down and turning to social media. China has the market, the cash and the science to stick with it.

In other words, Big Pharma’s moves toward becoming virtual companies, mere hubs of certifications, trademarks, tax dodges, and contractual obligations, mirror a longer-term hollowing out of the US economy. Whereas a nation like China has an industrial policy that encourages production of useful goods and full employment, US capital is migrating toward “platform plays” that merely redistribute bargaining power and information about goods and services. One can imagine all sorts of clever entrepreneurial ploys that fall out from this strategy—think Groupon for cheap pills! What remains unimaginable is how social networking leads to viable occupations for all but the most connected and tech-savvy.

Top US economic strategists used to claim that offshoring didn’t matter, as US citizens’ superior productivity, technological skills, and education would attract high-value jobs to the country. Given America’s massive failures in educational policy, we no longer hear much about the “high value” jobs that a global division of labor was supposed to deliver to us. Instead, we see ever higher unemployment and no plausible plan to keep decent jobs in the country, or to be sure that those that remain are paid decently. Andy Grove has also helpfully demonstrated the necessary connections between ongoing manufacturing capacity and research designed to make production better. As he puts it:

Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter. The scaling process is no longer happening in the U.S.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed? . . . .

Finally, the increased outsourcing of R&D may menace existing cross-subsidization of research for neglected drugs and tropical diseases. To be sure, not much of this is going on presently; of the 1300 compounds tested for safety and effectiveness by major drug companies from 1992-2005, only 1% were directed toward diseases that predominate in the developing world. And a recent conference at BU gave me some hope that humanitarian research efforts could be distributed among small teams of researchers. Still, I worry that the ongoing shrinkage of Big Pharma will have results in the medical field similar to the gradual dissipation of Bell Labs.

Pharma as Part of a Larger Industrial Policy

Are there any solutions to be offered? The key to effective policy here is to recognize the extensive role the US government plays in the pharmaceutical industry. Epic battles over the scope of patent rights in the US are routinely fought in the US Congress. The US Supreme Court has recently opined on a number of fundamental issues in patent law in rapid succession. Legislation like the Hatch-Waxman Act prescribes a regime of protections and obligations for drug manufacturers that is extraordinarily complex, and continually contested. The FDA is involved in every step of a drug’s approval and marketing process. Medicare Part D legislation also significantly increased the US Government’s involvement in the pharmaceutical sector, providing an enormous amount of funding for spending on drugs for the elderly. International treaties like TRIPS also play a very important role in the pharmaceutical sector. In short, if there is one sector where state action is not simply a side constraint on “the market,” but rather serves to constitute it, that is the pharmaceutical sector.

Therefore, the US government needs to be much more involved in shaping both the output and the business practices of the industry to reflect national and humanitarian needs. On the humanitarian side, there are many excellent ideas in the book Incentives for Global Public Health. On the industrial policy side, perhaps there are lessons to be learned from this article on Chinese practice:

Foreign companies have been teaming up with Chinese ones for years to gain access to the giant Chinese market. Now some of the world’s biggest companies are taking a risky but potentially rewarding second step—folding pieces of their world-wide operations into partnerships with Chinese companies to do business around the globe.

Several earlier joint ventures inside China have soured over concerns that Chinese partners, after gaining access to Western technology and know-how, have gone on to become potent new rivals to their partners. “Foreign partners are seeing they will have to sometimes sacrifice or share the benefits of the global market with the Chinese partner,” says Raymond Tsang, a China-based partner at consultancy Bain & Co. “Some of the [multinational corporations] are complaining. But given the changing market conditions, if you don’t do it, your competitors will.”

To the extent that big Pharma is a truly global industry, US policymakers should be just as aggressive as Chinese ones in assuring that present private profits leave behind infrastructure that meets national needs for both quality healthcare and a balanced and highly skilled workforce. To neglect these imperatives is to declare unilateral economic disarmament vis-à-vis a competitor to which we are already massively indebted, and which has shown no qualms about taking US-developed intellectual property. If China wants certain concessions from multinationals for the good of its citizens, the US should demand no less.

Supreme Court to Address Adverse Event Disclosure in Matrixx Initiatives, Inc. v. Siracusano

On January 10, 2011, the Supreme Court will hear oral argument in Matrixx Initiatives, Inc. v. Siracusano, a case involving a pharmaceutical company’s duty under securities law to disclose adverse event reports that is “perhaps the most significant business case in the Supreme Court this term.”

Under the Zicam brand name, petitioner Matrixx manufactured over-the-counter intranasal zinc sprays and gels to treat the common cold.  Because the products at issue were homeopathic preparations sold over-the-counter, they were not subject to the Food & Drug Administration’s rigorous prescription drug approval process or, at the time, the requirement that adverse event reports be submitted to the FDA.  Between the end of 1999 and the beginning of 2004, Matrixx became aware of but did not make public reports of between 12 and 23 (the parties disagree on the exact number) patients who complained that taking Zicam had caused them to experience persistent anosmia (loss of their sense of smell).

The central issue in the case is whether the reports of anosmia ever become material under Section 10(b) of the Securities Exchange Act of 1934, such that Matrixx had a legal duty to disclose them to investors.  (The test for materiality is whether a reasonable investor would consider the information important in deciding to buy or sell the company’s stock.)  Matrixx argues that the reports were not material because they were not statistically significant, while Siracusano contends that it adequately pled materiality “by pointing to facts including, among others, the expert physicians who had concluded … that a causal link existed between intranasal Zicam use and persistent anosmia; the seriousness of persistent anosmia and the threat it posed to Zicam as Matrixx’s principal revenue source; and the actual movements of Matrixx’s stock price after the truth came out[.]“  The Ninth Circuit sided with Siracusano and Matrixx appealed.

The question of whether and when adverse event reports are pharmacoepidemiologically significant is a difficult one, for a number of reasons.  For one, a company will know of a certain number of adverse events but it will not know how many adverse events occurred that were not brought to its attention and it usually will not know how many times the product was used without incident.  Matrixx emphasizes in its briefs that it knew of, at most, 23 adverse events while millions of units of Zicam were sold.  Even if the number of adverse events and the number of times a product was used can be estimated, a company must then determine the “background rate” of the reported adverse event.  In this case, Matrixx had to determine the percentage of people not using an intranasal zinc product who go on to develop anosmia.  Finally, the causation determination can be made more difficult by any number of confounding factors.  In this case, anosmia can be caused by the common cold — the very condition that Zicam was developed to treat — a phenomenon called “confounding by indication.”

The question of when adverse event reports are legally significant is difficult too.  Negative information about a pharmaceutical product can trigger duties across legal and regulatory regimes, but not all negative information is alike in significance.  Companies have to exercise judgment.  For example, a company can be held liable in tort for failing to warn patients and/or doctors of a product’s risks, but it cannot respond to this legal risk by adding any and all adverse event reports to the product label, due to the FDA’s concerns about information overload.  Similar concerns obtain in the context of securities disclosure.  Matrixx argues that “[t]he Ninth Circuit’s rule would effectively compel pharmaceutical companies to disclose all [adverse event reports] (to avoid potential securities fraud liability), flooding the market with trivial or meaningless information that would only obscure genuinely important information and thereby undermine sound investment decisionmaking.”  Siracusano counters that Matrixx ignores the “[l]egions of professional securities analysts and investment advisers” who help the nationwide securities markets assimilate massive volumes of information, including nuanced statistical information, about public companies.

In this case, Matrixx responded to concerns raised about Zicam by announcing that “alleg[ations] that intra-nasal Zicam products cause anosmia (loss of smell) are completely unfounded and misleading” and that the “safety and efficacy of zinc gluconate for the treatment of symptoms related to the common cold have been well established in two double-blind, placebo-controlled, randomized clinical trials.”  This show of confidence seems to have been ill-advised.  As Professor Barbara Evans explained in a recent article, double-blind, placebo-controlled, randomized trials are typically designed to test efficacy hypotheses.  While participant safety is monitored, there are almost never enough participants to produce “even high-quality observational evidence of safety.”  Matrixx eventually acknowledged that it did not know whether there was a causal relationship between Zicam and anosmia and it has since withdrawn the products at issue from the market.

Regardless of the outcome in Matrixx Initiatives, Inc. v. Siracusano, companies will likely continue to be faced with difficult judgment calls about disclosing adverse event reports.  As Siracusano suggests, even if the Supreme Court adopts a statistical significance or broader scientific reliability requirement, it is unlikely to get into specifics, e.g. “to adopt a threshold of p < 0.05.”  Companies will continue to be well-advised to consult expert regulatory counsel.  The advice Jacqueline Wolff and I gave in a 2004 article in the Business Crimes Bulletin still applies:

“[L]egal and regulatory review of promotional materials is an accepted and oftentimes required practice in the pharmaceutical industry. A company may wish to consider expanding the jurisdiction of review committees to cover sections of financial filings, press releases, analysts’ calls and all public statements relating to any matter within the FDA’s jurisdiction. Indeed, the SEC has suggested as much. In a Nov. 25, 2002 cease-and-desist order against the General Counsel of ICN Pharmaceuticals, the SEC found that he should have consulted with regulatory counsel before issuing a press release addressing the status of ICN’s new drug application.”

OIG Excludes K-V Chairman Pursuant to New Guidance

As previously reported, the Department of Health and Human Services Office of Inspector General (OIG) recently issued new Guidance on permissive exclusion of individuals, including owners, officers, and managing employees.  Accordingly, “if the evidence supports a finding that an owner knew or should have known of the conduct, OIG will operate with a presumption in favor of exclusion.”

On November 17, K-V Pharmaceutical (K-V) announced that Marc S. Hermelin, a member of its board of directors and son of K-V founder Victor Hermelin, had resigned and was being excluded from participation in federal health care programs.  He is the first pharmaceutical company official to be excluded who was not also convicted of a crime.

The exclusion by OIG took place within a month of the new Guidance, but follows almost two-years of compliance problems for K-V with the Food & Drug Administration (FDA).  As Larri A. Short of Arent Fox LLP told BNA:

This is an important development since it represents the OIG’s first use of its permissive exclusion authority under 42 U.S.C. 1128(b)(15)(A)(ii) and comes within a very short time after the OIG publicly announced its intention to begin using its discretion to exercise this authority after a company has been sanctioned. … The excluded individual is not just a board member, he was the Chairman of the Board and the majority stockholder with about 48 [percent] of the company’s stock. If he were not selling his stock and resigning, it appears that the OIG was also prepared to exercise its discretion to permissively exclude K-V itself under its authority at 42 USC 1128(b)(8)(A) and (B).

The history of K-V pharmaceuticals indicates under what circumstances OIG may pursue a permissive exclusion.  Also, the actions taken by Mr. Hermelin and K-V Pharmaceutical upon learning of his impending exclusion may be of some value to other organizations and individuals who may find themselves in a similar position.

K-V Pharmaceutical’s History with HHS

A 2008 FDA inspection determined that K-V was (1) not complying with a 2007 FDA enforcement notice requiring pre-market approval for a time-release drugs containing guaifenesin, and (2) manufacturing and distributing unapproved new drugs.  As a result, the FDA filed a civil forfeiture action in the Eastern District of Missouri in July of that year and seized $24.2 million in unapproved new drugs.

In December 2008, Mr. Hermelin left K-V after 35 years with the company.  K-V announced that Mr. Hermelin was being investigated for mismanagement and had been fired for cause.  Mr. Hermelin announced that he had chosen to retire.

In January 2009, K-V voluntarily suspended manufacture and distribution of all products and voluntarily recalled most of its products.  Under a consent decree announced in March 2009, K-V was barred from resuming manufacture and distribution until FDA officials and an independent expert inspected and certified that K-V facilities were in compliance.

In February 2010, Ethex Corp., a wholly-owned subsidiary of K-V, pled guilty to two felony counts for allegedly misbranding and adulterating drugs and not disclosing to the FDA that it had been producing oversized painkiller tablets.  K-V agreed to pay an administrative forfeiture and restitution in the amount of $27.6 million.  K-V received FDA approval to introduce its first drug to market this past September.

K-V Pharmaceutical’s Reaction to Mr. Hermelin’s Exclusion

When the owner of a company participating in federal health care programs is excluded by OIG, it places the entity in a precarious position.  Mr. Hermelin and K-V Pharmaceutical took immediate steps to avoid any adverse impact on the company.

K-V confirmed through counsel that OIG had notified Mr. Hermelin of his impending exclusion.  According to the company’s SEC filings:

If a director of our Company, or a shareholder with an ownership interest of five percent or more, is excluded from participation in federal or state health care programs, then the Department of Health and Human Services, Office of Inspector General (”HHS OIG”) has discretionary authority also to exclude the Company from such participation.

According to a K-V Press Release, in order to prevent the discretionary exclusion of K-V, Mr. Hermelin:

• resigned his position on the board of directors on November 10;
• resigned his position as trustee on all family trusts holding K-V stock; and
• agreed to divest his personal ownership of Class A Common and Class B Common stock pursuant to a divestiture plan and schedule approved by OIG.

Notice of Mr. Hermelin’s exclusion was posted on the OIG website.

Propublica, Pharma Payments to Physicians

Newly compiled data on payments to physicians from pharmaceutical companies has kindled mainstream media conversation on the ethics of such practices. NPR station WNYC ran this feature, showing the top physician earners in New York, and the radio piece, “Physicians on Pharma’s Payroll.” You can hear the radio piece immediately below. It is interesting in that in addition to giving  background, the piece also features interviews of physicians on the receiving end of those payments. One of those doctors describes the process of recruitment– wherein Pharma reps track doctors’ prescription records to see who is using their wares, and then approaching those doctors to see if they’d be interested in being paid presenters– or educators– depending I suppose upon your frame of reference.

Seton Hall University Interim Vice Provost, Law Professor and regular contributor to HRW, Kathleen M. Boozang, appeared in the Star Ledger regarding the ramifications of Pharma payments totaling millions of dollars to physicians in New Jersey. The article was prompted by a Pro Publica database which has compiled information from court documents detailing payments by six pharmaceutical companies to physicians, as well as the voluntary disclosure of two quarters of such payment information by Merck. The database tracks these payments for the period between January, 2009 and June 2010; it is sortable by state and amount.

Within the above named limitations, seven New Jersey doctors received more than $100,000 during the timeframe shown, from the pharmaceutical companies named.

In addition, The Ledger reports:

Overall, seven pharmaceutical companies wrote 1,215 checks totaling $8.3 million to doctors in New Jersey, the 10th highest total in the nation, according to ProPublica.

Doctors nationwide earned $258.7 million for speaking and consulting, according to information culled from court documents involving six companies and records from Whitehouse Station-based Merck, which voluntarily disclosed two quarters of payment information. And that’s just a taste of the $1.2 billion doctors earn on the speaking circuit annually, according to a 2008 article in the Journal of the American Medical Association….

Kathleen M. Boozang, law professor at Seton Hall University’s Center for Health & Pharmaceutical Law and Policy, said new requirements to publicly disclose how much doctors are paid by drug companies aren’t enough to protect patients, noting many won’t look up their doctor on databases.

Boozang said while doctors may be in the best position to teach each other how to make decisions about which drugs or devices should be used, drug companies shouldn’t be paying them.

The Center last year issued a report calling for an end to “commercial support for continuing medical education,” suggesting medical schools and physician associations should take over the role of educating doctors. “We have blurred the line between promotion and education,” Boozang said. “It shouldn’t be the obligation of patients to protect themselves from conflicts of interest.”

Read the Star Ledger article, “Drug companies paid N.J. doctors millions to promote their products”

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