The DOJ says it intends to more aggressively pursue executives who they believe have engaged in corporate malfeasance.

Two men who once ran a device maker that was later sold to Johnson & Johnson will go on trial on Tuesday for marketing a product for unapproved uses, the latest case in which the federal government is targeting high-ranking executives for illegally promoting a drug or device.

According to documents filed in federal court in Boston, William Facteau and Patrick Fabian allegedly sought to “quickly” develop and market a device in order to generate sales and make the company, Acclarent, a desirable target for either an acquisition or an initial stock offering. Facteau was the Acclarent chief executive and Fabian was the vice president of sales.

Between 2008 and 2011, the former Acclarent execs allegedly concealed an illegal distribution and promotion scheme for a device they planned to market for delivering steroids to sinuses. The feds charged, however, that they deceived the US Food and Drug Administration by falsely claiming the intended use was to maintain an opening to the sinus, and that the device was supposed to be used with saline.

advertisement

In 2010, Acclarent was sold to Johnson & Johnson for $785 million, and Facteau and Fabian received approximately $30 million and $4 million, respectively, in stock options and other compensation in connection with the deal, according to court documents.

The trial gets under way as the US Department of Justice says it intends to increase its pursuit of executives who they believe have engaged in corporate malfeasance.

advertisement

Last fall, Deputy Attorney General Sally Yates issued a memo that is designed to serve as a blueprint for pursuing such cases. The move followed sustained criticism that pharmaceutical industry executives, in particular, were rarely held accountable for practices that led many drug makers to pay large fines to settle criminal and civil charges of illegal marketing or paying kickbacks to doctors.

Other drug company executives have faced penalties for illegal activities. In 2007, three former Purdue Pharma executives pleaded guilty to misleading the public about the risk of addiction posed by the OxyContin painkiller. They were also banned from any dealings with federal health care programs, notably, Medicare and Medicaid. But such steps are relatively rare.

As it turns out, a few cases were in the works when the Yates memo was issued. One is under way this month in the same courthouse in Boston, where a former Warner-Chilcott executive, W. Carl Reichel, is defending himself against accusations that he orchestrated a campaign between 2009 and 2012 to give doctors money, free meals, and phony speaking fees in exchange for prescribing medicines.

The cases are likely to be closely tracked by drug and device makers for insights into the strategies employed by prosecutors and the extent to which existing compliance efforts are sufficient, according to Peter Goss, a partner at the Blackwell Burke law firm, who defends pharmaceutical and medical technology companies. But the federal government also has a lot riding on the outcome, he added.

“If the defendants (in the Acclarent) case prevail, it means you can’t be prosecuted for baiting and switching the intended use of the device,” he explained. “And the FDA, essentially, would not have power to hold device manufacturers to their statements about intended use (of a product) … So there is a lot at stake here for the government.”

Newsletters Sign up for Pharmalot Your daily update on the drug industry. Please enter a valid email address. Privacy Policy Leave this field empty if you're human:

Nonetheless, the Acclarent case appears to differ from a famous ruling that has set the tone for off-label marketing, or promoting a product for an unapproved use. In 2012, a federal appeals court overturned a criminal conviction of a sales rep named Alfred Caronia for promoting off-label uses of a drug. The court ruled his speech was protected and information given to doctors was truthful and not misleading.

The Acclarent case, however, raises issues about fraudulent marketing since the executives peddled the device for an intended use other than what had been told to the FDA, according to the feds. This differs from truthful commercial speech and is not entitled to free-speech protection, Goss explained.

Interestingly, the FDA last fall proposed changing the definition of “intended use” so that it would no longer include the notion that a company knows its product is to be used off-label. This change, which has been sought by industry, would make it easier for companies to defend themselves against charges of off-label marketing.

Moreover, the trial will be decided by a jury, which may not provide much clarity if the government loses. “If the jury simply decides the executives aren’t guilty, we generally don’t know their basis for reaching that decision,” said Rachel Sachs, a fellow at The Petrie-Flom Center for Health Law at Harvard Law School. “They might not think the executives had the intent to market the device fraudulently.”

Earlier this year, for instance, a federal court jury in Texas decided that a device maker called Vascular Solutions and its president were not guilty of off-label promotion since the information the company gave to doctors about a laser therapy device was deemed truthful and not misleading.

For this reason, any subsequent appeal in the Acclarent case would also be watched closely since such decisions would be made by judges, who are presumably better informed about facts and issues.