Marketing Tactics Put Johnson & Johnson Under DOJ Microscope

Dan Levine

The Recorder

Four years after the first subpoena, the government’s investigation of health care fraud at Johnson & Johnson has reached zero hour.

Lawyers from Quinn Emanuel Urquhart Oliver & Hedges who represent the company are scheduled to meet with Assistant Attorney General Tony West and other Justice Department attorneys in Washington, D.C., next week, say lawyers familiar with the situation. Their goal: to persuade prosecutors not to indict Johnson & Johnson for off-label marketing at Scios Inc., a Bay Area subsidiary.

A handful of former executives are also under the microscope, but the dynamics involving the corporation are more complicated. Both the Bush and Obama administrations have made health care fraud a priority; over the summer, Pfizer Inc. agreed to pay $2.3 billion to settle allegations that it promoted Bextra off label. Johnson & Johnson, however, has aggressively pushed back against charges that it illegally marketed the heart drug Natrecor, lawyers said.

The government hasn’t made any final decisions, but lawyers familiar with the investigation say a criminal charge against the company is under serious consideration. During a November hearing in a parallel civil action in San Francisco, Assistant U.S. Attorney Sara Winslow said the government would "know what was happening" on the criminal side in the next couple of months.

A felony conviction against Johnson & Johnson would lead to a big fine, but it would have enormous consequences beyond that. Under federal regulations, it would mean automatic exclusion from Medicare and Medicaid, which would be catastrophic for the company — and would also deny millions of patients the range of drugs it offers.

The government could find some middle ground by bringing a misdemeanor charge, which would make exclusion optional, but not mandatory, said Kevin McAnaney, a Washington, D.C., solo who worked in the inspector general’s office at the Department of Health and Human Services. Prosecutors could also bring a felony count against Scios, which would spare the parent company.

"There is no question that the government excludes a lot more podiatrists and chiropractors than they do pharmaceutical companies," said McAnaney, who is not involved in the case.

The Food and Drug Administration approved Natrecor in 2001, finding it could help patients experiencing acute heart failure. However, doctors began prescribing serial outpatient infusions for patients with recurring heart problems.

Scios, then a Sunnyvale, Calif.-based independent company, saw sales rise from $47.3 million in 2001 to $111.2 million the next year. Based on the strength of Natrecor, Johnson & Johnson bought Scios for $2.4 billion in early 2003.

Doctors can prescribe drugs for uses not approved by the FDA, but pharmaceutical companies aren’t allowed to market their products that way. In 2005, a whistleblower accused Scios executives of conducting an "extensive and far reaching campaign" to promote Natrecor for chronic heart conditions.

Sales representatives were instructed to discuss the benefits with doctors, and the company set up instructional seminars for doctors to discuss off-label benefits, according to a qui tam suit in which the Justice Department intervened earlier this year.

The company also hired a consultant to put together reimbursement guides that doctors could use to bill Medicare for off-label use, DOJ civil division attorney Renee Orleans said in court last month.

In response, Quinn Emanuel partner John Potter argued that was "a far cry" from saying the company "specifically instructed" physicians to bill chronic patients as acute.

"A legitimate explanation as to how to bill Medicare doesn’t constitute fraud," Potter said. Through 2005, recurring use of Natrecor was approved for reimbursement through Medicare, he added.

But in 2005, reports began surfacing that repeated use of the drug caused dangerous side effects, prompting Medicare to cease reimbursement for Natrecor in nonhospital settings. A criminal probe began, spearheaded by Assistant U.S. Attorney Ioana Petrou in San Francisco. That prompted a handful of executives to lawyer up.

Former marketing and business development director George Mahaffey hired Berkeley, Calif.-based Cristina Arguedas of Arguedas, Cassman & Headley. Last month, Mahaffey became chief executive at Peplin Inc., a dermatology products developer based in Emeryville, Calif. Peplin had recently been acquired by LEO Pharma for nearly $300 million.

"I believe the government will decide that it would be unfair and wrong to prosecute George," Arguedas said. "He is a hardworking person of integrity who was doing his job in good faith in a market that lacks clear rules and definitions as to what is out of bounds."

Randall St. Laurent, the former vice president of development at Scios, was hired at Arca biopharma last year. He is represented by Michael Shepard of Hogan & Hartson, who did not respond to an e-mail.

Scios’ former vice president of sales, Kim Hillis, hired Akin Gump Strauss Hauer & Feld partner Stephen Mansfield. She is currently VP of sales at Heartscape Technologies Inc.

"Kim Hillis did absolutely nothing wrong, and she followed a marketing strategy approved by company counsel," Mansfield said.

Marketing Tactics Put Johnson & Johnson Under DOJ Microscope |


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