A well-known plaintiff’s law firm with a stable of union pension fund clients has used the Racketeering Influenced and Corrupt Organizations Act (“RICO”), which was originally enacted in 1970 to combat organized crime, to file a class action lawsuit against Abbott Laboratories for the off-label promotions of Depakote. Unless Abbott and similarly situated big pharma companies intend to fork over hundreds of millions (if not billions) of more dollars to plaintiff’s lawyers, they need to fight such suits tooth and nail.
Background – The Plaintiffs
The Illinois federal class action suit was brought by three plaintiffs: Sidney Hillman Health Center, an employee welfare benefit plan located in Rochester, NY; Teamsters Health Services and Insurance Plan Local 404, a health services fund headquartered in Springfield, MA; and United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund (UFCW), a welfare benefit plan based in Park Ridge, IL. These plaintiffs are among the usual suspects one normally sees in shareholder litigation filed in the Delaware Court of Chancery and similar venues — always complaining about a corporation’s board of directors’ supposed breach of fiduciary duties in shortchanging stockholders following the announcement of any sizable M&A deal. The problem for the plaintiff’s attorneys who represent such clients (and who drive class action litigation and always stand to make the most money) is that in shareholder litigation they are required at some point to show that the corporation’s directors did something wrong, which isn’t easy, especially when (as is often the case) there is nothing beyond the allegations in the complaint to indicate anything wrong happened. However, when a corporation like Abbott enters into a settlement agreement with the Government following a long drawn-out investigation over allegations of False Claims Act (FCA) violations involving off-label promotion and kickbacks, the plaintiff’s bar now has something to work with . . . except in Delaware and like-minded jurisdictions, where settlements with the Government don’t automatically amount to an admission that the corporation’s directors breached their fiduciary duty of care under the prevailing “Caremark standard.” See In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996); see also David Pyott, et al., v. Louisiana Municipal Police Employees’ Retirement System, et al., No. 380,2012 (Del. April 4, 2013).
Unable to convince experienced jurists in Delaware and elsewhere (on a regular enough basis at least) that FCA settlements involving admissions of “wrongdoing” and the payment of big fines amount to breaches of fiduciary duty on the part of a corporation’s directors, the plaintiff’s class action bar quite understandably has been looking for different statutes, legal theories and venues in an effort to wring millions of dollars in damages and attorney’s fees from big pharma companies like Abbott. Unfortunately, as Pharmaric readers are aware, we flagged this “risk” several months ago in our blog posts titled, First Circuit Slams Pfizer in Three Neurontin RICO suits; Affirms $142 Million Verdict. Well, here is the latest salvo.
Background — The Abbott Suit
According to the federal complaint filed in Sidney Hillman Health Center of Rochester, et al., v. Abbott Laboratories and AbbVie, Inc., the pharmaceutical giant engaged in off-label marketing of Depakote (divalproex sodium) from 1998 through 2012 and also provided physicians with lucrative kickback payments in order to influence other doctors to prescribe Depakote for off-label uses. Specifically, the plaintiffs allege that Abbott marketed Depakote for various unapproved uses, including schizophrenia, control of aggression in elderly dementia patients, bipolar depression, developmental delays in children, and symptoms of narcotic drug withdrawal, despite the lack efficacy data for these uses and despite the danger to patients. (Note: in 2012, Abbott Laboratories split into two organizations, one focused on the development and sale of medical products (Abbott) and the other on the development and sales of research-based pharmaceuticals (AbbVie). Depakote, while originally developed and marketed by Abbott, is now sold in the United States under the AbbVie organization.)
Depakote, which was first approved by the FDA in 1983 as an anti-seizure drug, was later approved to treat acute mania or mixed episodes associated with bipolar disorder in 1995 (but not for long-term treatment) and for the prevention of migraine headaches in 1996 (but not for the treatment of migraines). As the plaintiffs point out in their complaint, although the FDA determined that the benefits for Depakote and other “valporate” products outweighed their risks for certain uses, there are serious safety issues associated with the drug, including the risk of pancreatitis — which led to a “black box warning” in July, 2000 — and Depakote’s classification as a pregnancy “Category D” drug, which is known to cause birth defects. In addition, Depakote has never been approved for use by children under the age of 10. Despite the warnings and restrictions, Depakote’s sales reached $1.5 billion in 2007.
To capitalize on its marketing efforts, according to the plaintiffs, Abbott used an elaborate network of intermediary marketing firms, shadow entities controlled by the Company, and physicians to draw attention away from Abbott’s off-label marketing of Depakote. The Company also allegedly managed a highly-structured reward system to motivate its pharmaceutical sales representatives to promote Depakote off-label. However, in order to avoid developing a standardized unlawful sales training program for Depakote at Abbott headquarters, the Company allegedly provided off-label training by outside consultants. The plaintiffs also allege that Abbott created a “Council for Excellence in Neuroscience Education” (CENE) to facilitate Depakote off-label promotion through webinars, dinner meetings and monographs to doctors. According to the complaint, CENE was advertised to doctors as a way for them to earn 36-48 hours of free Continuing Medical Education (CME) credits. Faculty and council members of CENE were allegedly part of Abbott’s speaker bureau or otherwise received financial compensation from Abbott.
According to the complaint, Abbott sales reps engaged in a variety of activities related to the off-label marketing of Depakote, including:
- A “Working the Wheel” Program —which targeted those doctors and clinics that would potentially yield the most off-label prescriptions for agitation associated with dementia;
- A “Functional Institutional Market Report”—which, among other things, tracked prescriptions for psychoactive drugs, including Depakote.
- Developing a metric for evaluating the potential for physicians to prescribe Depakote and in what manner.
- Concealing wrongful conduct by instructing sales representatives to keep separate handwritten “call notes” out of the Company-wide computer system when off-label uses were discussed.
- Setting up monthly contests that rewarded sales reps for the best scripted off-label message about Depakote.
- Securing Depakote off-label sales by obscuring differences between bipolar mania and agitation associated with dementia.
- Encouraging sales reps to attend patient and/or caregiver support group meetings in order to provide members with information about Depakote’s off-label uses.
Observations: Lawsuit Follows 2012 Depakote Settlement of $1.6 Billion
Despite the detailed and lengthy complaint, the plaintiffs’ case essentially rests on the $1.6 billion that Abbott paid to settle federal and state claims that it marketed Depakote off-label to treat bi-polar mania and migraine headaches in May, 2012. In other words, the plaintiffs are piggy-backing on the concessions the Government extracted from Abbott and are now looking to recover what they say their health benefit plans wrongfully paid for Depakote off-label prescriptions. According to the plaintiffs, “Abbott probably calculated both its risk of being caught and its potential civil and criminal exposure assuming its only liability would be to the Medicare, Medicaid and Tricare systems, but Abbot’s illegal conduct also created significant liability to private payors of Depakote under Federal law [the RICO Act under 18 U.S.C. §1962)], state deceptive trade practice acts and the common law.”
RICO is a fairly complex statute and was a favorite tool of mine when I was a DOJ attorney prosecuting traditional (La Cosa Nostra) and non-traditional organized crime groups. Although a thorough explanation of RICO involves too much detail for this blog post, suffice to say that the civil RICO statute in the plaintiffs’ complaint requires proof that Abbott engaged in a “pattern of racketeering activity” consisting of numerous violations of federal mail and wire fraud statutes. At the end of a trial, a successful civil RICO plaintiff can expect to recover three times the amount of damages suffered, which the plaintiffs argue in this case is what they paid for in off-label prescriptions of Depakote — a figure that was apparently too large to be calculated and included in the complaint.
Of course, like the Government, the plaintiffs and their lawyers in this case will remain silent on the question about whether their pensioners who took Depakote for all the alleged off-label uses benefited from the drug. To the plaintiffs, actual efficacy is irrelevant as they attempt to use the Government settlement as surrogate evidence of fraud. However, as I (and anyone else who has ever defended against abusive class action lawsuits) have learned, to the plaintiff’s bar, class action suits like the one filed against Abbott and AbbVie are usually won or lost at the class certification stage — if the class is certified, the stakes for the defendant(s) are much higher and the plaintiffs can use the class mechanism as leverage for a nice settlement; if the class is not certified, the plaintiff’s lawyers often run for the hills. While Abbott can and should fight this lawsuit all the way to trial if necessary — anything less that a full commitment to fight the plaintiff’s bar will only invite more such suits — and while there are a number of issues peculiar to RICO that will be litigated, the Company’s chief short-term objective must be to defeat class certification by arguing that the plaintiffs must prove that each member of the purported class was “defrauded” and that that determination is dependent on how each patient in the purported class fared while being treated with Depakote. In short, Abbott’s primary objective is to defeat the “commonality” and “typicality” elements necessary to establish class certification under Fed. R. Civ. P. 23(a)(2) and (a)(3). Throw in a Caronia-styled First Amendment defense that, while tough to make against the Government (which can put a company out of business), can work against a private plaintiff.
Who knows? If Abbott plays its cards right, this may be the last class action RICO suits it sees.