More than 6 years of pre-penalty discussions between Forest Laboratories (“Forest”) and the U.S. Attorney’s Office for the District of Massachusetts culminated September 15 in an agreement that settles criminal and civil investigations by the government into the company’s activities. Forest agreed to plead guilty to a single felony charge of misrepresentations to FDA inspectors during a 2003 plant visit, and two misdemeanor violations of the Food, Drug and Cosmetic Act. The first misdemeanor charge was for distributing Levothroid® after the FDA told the company an NDA would have to be filed for the drug; and the second related to off-label promotion of Celexa® for treating pediatric patients. The fines for these charges cost Forest $150 million, and the company also forfeited another $14 million in revenues.
On the civil side, Forest also settled claims under the False Claims Act and several whistleblower (qui tam) claims relating to distribution of Levothroid® and several years of off-label promotion of Celexa® and Lexapro® for pediatric uses. The off-label promotion in this case related to an earlier formulation of Lexapro®; Forest later requested and received approval to promote a later formulation for pediatric use. The total payout under these civil claims, including to the feds and state Medicaid programs, was $149 million.
As a commitment to future good behavior, the government also required that Forest operate under a Corporate Integrity Agreement for five years. Nowadays, these agreements not only call for a compliance program to be put in place, but the government also wants key senior managers, not just the CEO, to monitor and oversee activities within their scope of responsibility, and to certify they have done what is required every year. These leaders include the heads of Marketing, R&D and Human Resources, to name a few. The Board of Directors is also required to retain an independent Compliance Expert to review and report on the effectiveness of the Compliance Program annually.
Interestingly, news that this drawn-out investigation has come to a point of resolution seems to have helped the company’s stock performance today. Forest closed up 2.02% from yesterday’s trading at a respectable $31.27 per share. This might have been helped by the news that the fines were well within the reserves the company had set aside to cover the financial damage from the legal proceedings.
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