Cephalon will plead guilty to a single federal misdemeanor violation of the Food, Drug and Cosmetic Act and pay a $425 million fine to settle a federal investigation into promotional practices for three of its drugs, including its first marketed product, Provigil , the firm announced Nov. 8.

The settlement also requires the company enter into a corporate integrity agreement with the HHS Office of Inspector General.

While Cephalon expects the deal will put an end to a more than three-year investigation into Medicaid fraud claims, terms are "subject to negotiation and the execution of the final settlement and corporate integrity agreements," the firm noted in an SEC filing.

The inquiry involved cancer pain treatment Actiq (fentanyl), Provigil (modafinil), a narcolepsy treatment and the anti-epileptic Gabitril (tiagabine). The company said in September 2004 it had received a subpoena from the U.S. Attorney's Office in Philadelphia requesting documents relating to the sales and promotional practices of the products (¹ Also see "Cephalon Marketing Practices Under Investigation By Philadelphia U.S. Attorney" - Pink Sheet, 7 September, 2004.).

Despite the outcome, putting the federal investigation behind it is likely a relief for Cephalon, capping a difficult year fraught with congressional scrutiny and negative attention for off-label use of its drugs.

Most recently, FDA issued a MedWatch alert advising health care professionals of serious adverse events in patients treated with Actiq follow-on Fentora (fentanyl buccal tablets), including death. Of four reported deaths associated with the breakthrough cancer pain drug, two were in patients prescribed the drug to treat headache or migraines, an unapproved indication (² Also see "Cephalon Revises Fentora Labeling To Highlight Patient Selection Criteria Following Deaths" - Pink Sheet, 13 September, 2007.).

Earlier this year, the House Committee on Oversight and Government Reform began an inquiry into Actiq and Fentora marketing practices, which also focused on Lilly and AstraZeneca (³ Also see "Lilly, AstraZeneca, Cephalon Marketing Practices Under Review By House Committee" - Pink Sheet, 6 March, 2007.). The company said it is cooperating with that investigation and continues to supply documents to the committee.

Details of the corporate integrity agreement are not yet final, but Cephalon told "The Pink Sheet" DAILY that "it is our expectation that the CIA will reflect our current compliance program and the way we are now doing business."

Like many neuroscience therapies, Provigil and Gabitril are frequently prescribed off-label. During a same-day third quarter earnings call, CEO Frank Baldino acknowledged that the CIA is unlikely to have an impact on off-label use.

The "corporate integrity agreement will focus on methodologies and opportunities that we need to pursue to promote our drugs on label," he stated. "It doesn't speak to, nor does it address, how physicians use the drug in the marketplace."

Baldino noted the company has been working over the past several years to improve "policies and practices in our commercial operations [that] are not only consistent with the letter, but also the spirit of the law."

"To that end, we recently elevated the chief compliance officer position to an executive vice president, reporting directly to me, with a dotted line to the Audit Committee of the Board. Our goal is to build compliance into the very fabric of our operations."

The firm announced Nov. 1 it had hired former assistant U.S. attorney Valli F. Baldassano as CCO. In addition to her experience in the Philadelphia U.S. Attorney's Office, Baldassano negotiated two CIAs in her capacity as a compliance officer with Schering-Plough.

The company will be able to pay the settlement out of pocket, CFO Kevin Buchi indicated. "We ended the quarter with cash of over $700 million in the bank ... [and] the business is generating a fair amount of cash, so a $425 million settlement in and of itself will not require a financing."

The fine is on par with those paid by other drug companies who have entered into settlements as a result of federal investigations into marketing practices.

Schering-Plough paid $435.5 mil. to resolve charges stemming from an investigation into the promotional practices for several of its drugs, including the brain cancer drug Temodar (temozolomide) and hepatitis C therapy PEG-Intron (peginterferon alfa) last year (⁴ Also see "Schering Settles Off-Label Promotion, Fraud Allegations For $435 Mil." - Pink Sheet, 29 August, 2006.). The firm also signed a $345 million settlement with federal prosecutors in 2004.

That year, Pfizer paid $430 million and signed a five-year CIA to settle an investigation into Neurontin promotional practices (⁵ Also see "Pfizer Will Monitor Off-Label Drug Use And Report To IG Under Neurontin Settlement" - Pink Sheet, 13 May, 2004.).

While the federal investigation is closed, Cephalon is still awaiting the outcome of separate investigations into off-label marketing at the state level.

The Connecticut Attorney General has been reviewing off-label marketing of Provigil, Gabitril and Actiq, and Cephalon said it is still in discussions with the office.

In late October, the firm received a civil demand from the Massachusetts Attorney General for information "that is focused on sales and promotional practices with respect to Actiq, Fentora ... and certain of our other products," Cephalon said.

"Both of these matters may involve civil penalties and/or fines. The payment of any settlement or judgment amount and/or fines could have a material adverse effect on our financial position, liquidity and results of operations," the company said in the filing.

However, the firm expects any settlements at the state level will involve fines far below the $425 million that resolved the federal investigation. According to Cephalon General Counsel John Osborn, "the potential liability, the scope of the sales that we are talking about here, when you are talking about federal and state Medicaid, [it] would dwarf any potential claim by a state non-Medicaid-based allegation."

-Brooke McManus (b.mcmanus@elsevier.com)

Cephalon Settles Federal Investigation Of Marketing Practices For $425 Million

More from Archive

More from Pink Sheet