For Whistleblowers, Complaining to the Government Pays: GlaxoSmithKline Pays $750 Million to Resolve Criminal and Civil Liability for Alleged cGMP Failures

By Peter M. Jaensch & John R. Fleder –

A company has “current Good Manufacturing Practice” (“cGMP”) issues.  FDA learns about the issues and engages in dialogue with the company regarding the purported violations.  No big deal and no news story!  Add in a terminated employee who files a whistleblower law suit against the company, and we have a case that will undoubtedly send shock waves throughout the pharmaceutical industry.

In a much ballyhooed public announcement, the Department of Justice announced on October 26, 2010 that GlaxoSmithKline (“GSK”) will pay $750 million to resolve civil and criminal liability in connection with operations by its subsidiary, SB Pharmco Puerto Rico, Inc., of a manufacturing facility in Cidra, Puerto Rico. The settlement and plea agreements address both the federal civil claims brought initially as a qui tam action under the Federal False Claims Act, and a criminal action for violations of the Federal Food, Drug, and Cosmetic Act.

According to the criminal Information, between 2001 and 2005, the Cidra facility manufactured several GSK drugs: Kytril, a sterile, injectible anti-nausea medication, Avandamet, “a combination Type II diabetes drug,” Bactroban, “a topical anti-infection ointment,” and Paxil CR, which is a controlled release antidepressant.  The manufacturing of these products was allegedly subject to massive failures in terms of complying with cGMP requirements, including the alleged contamination of bulk products and water supplies, physical defects in products and improper procedure changes, and other issues. Despite purportedly being aware of these errors, GSK continued to ship these products to market.

The parallel civil case, U.S. ex rel. Cheryl Eckard v. GlaxoSmithKline, et al., was brought six years ago by a former GSK employee under the federal False Claims Act.  The suit alleged that GSK had caused to be submitted claims for payment for these drug products to the TRICARE program, the Federal Employees Health Benefits Program (“FEHBP”), the Department of Veterans’ Affairs, and state Medicaid programs. The suit alleged that GSK knowingly sold and distributed flawed tablets, contaminated products, and products which diverged in purity and strength from their NDA-approved values. The plaintiff (Relator) was previously employed by GSK to address quality issues at the Cidra plant following an FDA inspection that had discovered some, but not all of the issues that were involved in the civil and criminal cases. She claimed that GSK had ignored her reports on quality issues, and GSK allegedly fired her after which she reported the problems to FDA.

In settlements (here, here, and here) of the civil and criminal cases, GSK agreed to pay $750 million, plus interest.  GSK’s subsidiary, SB Pharmco Puerto Rico, Inc., will plead guilty to one count of having introduced for delivery into interstate commerce various quantities of adulterated drugs in violation of 21 U.S.C. §§ 331(a), 333(a)(2), and 351(a)(2)(B).  Of the $750 million, $140 million is a criminal fine and $10 million is a forfeiture.  The $600 million resolution of the civil case is being paid to: the United States ($436,440,000.00);  Medicaid Participating States ($163,560,000.00); and the Relator (approximately $97 million plus interest).

One might think that this settlement bought GSK “global peace” with regard to the problems that led to the settlement.  Not so! Although the settlement releases GSK from further liability under the False Claims Act for the underlying conduct, it leaves open the possibility that the government agencies may seek to exclude GSK from participation in Medicare, Medicaid, TRICARE and FEHBP.   Moreover the agreements leave open the possibility that current and/or former GSK employees could be criminally prosecuted for the problems involved in the cases.

There is no doubt that this settlement raises serious warning signs for companies regulated by FDA.  First, it demonstrates that the federal government is ready and willing to bring felony charges against companies that engage in cGMP violations.  Second, it demonstrates that the government may seek to obtain huge fines relating to these violations in the context of a criminal case.  Last, the case sends a message to employees throughout all companies which cause government agencies to reimburse for sales of the companies’ products that are regulated by FDA: You too may get rich by filing a whistleblower case which alerts the government to what many may deem to be routine regulatory violations.

Companies generally pay close attention to visits to their facilities by FDA when the agency raises concerns about a company’s operations.  However, most companies do not face day to day or even frequent scrutiny by FDA.  Now it is clear that companies must pay close attention to concerns raised by their own employees, or risk facing the same type of suit that GSK faced.  For more information on dealing with potential whistleblowers see our recent article on this subject.