Abstract: Pharmaceutical companies that rely upon subcontractors to do their research and testing of products will probably wind up being sued under the Federal False Claims Act for errors, omissions, and misrepresentations to the FDA in the NDA process–even if they had no knowledge of their subcontractors’ falsifications. FDA guidelines for “Good Clinical Practice” state that pharma are responsible for the actions of their subcontractors. The financial penalty could be three times the gross sale of a drug. Corporate leaders should implement policies and procedures protecting their company from unscrupulous research subcontractors and establish industry-wide standards–or the government will do it for them.

Warning: In the near future, pharmaceutical companies that rely upon subcontractors to do their research and testing of products will probably wind up being sued under the Federal False Claims Act for errors, omissions, and misrepresentations to the FDA in the NDA process–even if they had no knowledge of their subcontractors’ falsifications. Historically, outsourcing has appeared to make financial sense to pharma and even to protect parent companies from liability, but it is just a question of time before major litigation exposes the weakest link in the way drugs are brought to market. A string of successful federal prosecutions over the years against individuals who falsified research data, in which corporations narrowly escaped litigation, suggests that lawsuits against corporations are sure to follow, involving the recovery of (what are likely to be) millions of dollars from pharmaceutical companies, as well as incalculable amounts of bad press for the industry as a whole.

For example, a prominent doctor was convicted of research fraud in clinical studies of the psychiatric drug Anafranil. Another doctor pled guilty to conspiring to falsify drug test data and making false statements to the FDA in clinical studies for anti-inflammatory arthritis drugs, after he had submitted thousands of falsified reports in at least 18 experimental drug studies for nine drug manufacturers. Yet another physician, a board-certified urologist, pled guilty to charges of faking research data. In these cases, corporations fortuitously escaped prosecution under the Federal False Claims Act because of technicalities, because the duplicity of their doctor-subcontractors either was discovered before the FDA approved their drugs or was not a determining factor in the approval of the drugs. So, it should be obvious that, by any stretch of the imagination, the industry is sitting on a legal time bomb.

The language of the FDA’s guidelines for “Good Clinical Practice” makes it clear that pharmaceutical companies are responsible for the actions of their subcontractors: “A sponsor may transfer any or all of the sponsor’s trial-related duties and functions to a CRO [contract resource organization], but the ultimate responsibility for the quality and integrity of the trial data always resides with the sponsor.” Lawyers who file suit under the qui tam provisions of the Federal False Claims Act are sure to argue that if the FDA were to approve a product based upon false research data, it might not be safe and effective. Then, such a drug would not be eligible for reimbursement under federal healthcare programs, and any claims submitted for payment would be fraudulent and the company could be held liable. Under the powerful measures of the Act, the financial penalty to a pharmaceutical company could be catastrophic–calculated at three times the gross sale of the drug, payable to Uncle Sam, with a hefty percentage going to whoever blew the whistle on the fraud.

Falsifying pharmaceutical research data is nothing new, of course. The 1990s saw the uncovering of widespread fraudulent data on applications for the approval of generic drugs that pharmaceutical companies submitted to the FDA. The difference is that, after disclosures of criminal behavior by major corporations like WorldCom and Enron, the public has zero tolerance for corporate wrongdoing. So, it is no longer realistic for corporations–especially pharmaceutical companies–to assume that they can get away with anything, even if they did not mean to.

For one thing, the Internet has made the exchange of vast amounts of (even esoteric) information commonplace. No one can protect a secret misdeed, especially a potentially culpable corporation. Research fraud will no longer go undetected for long. As more and more high-profile whistleblower and False Claims Act cases are making headlines, average men and women sharing the public’s outrage against unscrupulous corporations are becoming increasingly emboldened to expose their employer’s fraud. In addition, reeling from business scandals and excesses, Congress and the general public are shooting for bears at a time when federal moneys are scarce or non-existent because of our international commitments, sagging economy, and small-government policies. In short, the external environment couldn’t be worse for an ethical pharmaceutical company that has placed its trust in (what may turn out to be) an unscrupulous subcontractor, let alone a company that set out to defraud the government and American consumers.

Since no cases for fraudulent resources have yet been adjudicated under the Federal False Claims Act, pharmaceutical companies should use the breathing-space they have until the first shoe drops to their collective advantage. It’s good-apple-bad-apple-time in the industry. Ethical corporate leaders need to take steps to be certain that they have in place policies and procedures that protect their company from unscrupulous research subcontractors and should move quickly to establish industry-wide standards.

To begin with, any pharmaceutical company that enters into a relationship with a CRO should do so only after fully vetting the company in as objective a way as possible–including unannounced on-site inspections of its facilities, private off-site interviews with its researchers, as well as an in-depth review of its history of providing responsible research. In addition, there should be a firewall between a sponsoring pharmaceutical company and its CRO, so that marketing, production, and other pressures it might bring to bear that might compromise a responsible research process will not be placed upon the CRO. Finally, the pharmaceutical company’s compliance program should make the CRO’s activities a part of it–from access to the compliance hotline to internal investigations. The upfront cost of what might at first appear to be an unaffordable, even unnecessary, process might prove less than draining (even destructive) litigation should a research process be compromised.

Whatever strategies the pharmaceutical industry might adopt, executives must be committed to constant vigilance and reassessment of their policies and procedures. There is no quick or one-time fix. Companies must continuously retrain their employees in ethical behaviors and insist that their research subcontractors do the same. Such compliance programs are, in fact, their best defense against prosecution under the Federal False Claims Act should a complaint arise against them. Companies that can show that they have done everything possible to avoid fraud are not likely to be charged or convicted of it.

The alternative–there really isn’t one, even tough some companies might delude themselves into thinking the sky might not be falling down. Unless pharmaceutical executives take the initiative to ensure impeccability in their research data, the government will eventually do it for them, as soon as one major case breaks. The law of averages will meet the temper of the times to the distinct disadvantage of an industry that could and should have known better. Anyone who suggests that the upfront costs of vigilance would break the corporate bank should consider the long-term effect of losing major revenue if the FDA reacts with more stringent guidelines for research protocols and slows its approval process to allow for greater oversight and review of research. Self-policing is always preferable to government intervention. The choice is up to the industry, but it is running out of time.

Nolan & Auerbach, P.A. is located in Fort Lauderdale, FL, and can be reached at 1-800-372-8304 or at http://www.whistleblowerfirm.com Mr. Nolan has significant experience in qui tam/False Claims Act recoveries. His clients’ cases are responsible for the return of over $70 million to the federal treasury, including the first qui tam to successfully recover monies for the federal government due to “off-label” sales of FDA-regulated products.

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