When Drug Makers' Profits Outweigh Penalties
Prosecutor Michael Loucks remembers clearly when attorneys for
Pfizer, the world's largest drug company, looked across the table and
promised it wouldn't break the law again.
It was January 2004, and the
lawyers were negotiating in a conference room on the ninth floor of the
federal courthouse in Boston, where Loucks was head of the health-care
fraud unit of the U.S. Attorney's Office. One of Pfizer's units had been
pushing doctors to prescribe an epilepsy drug called Neurontin for uses
the Food and Drug Administration had never approved.
In the agreement
the lawyers eventually hammered out, the Pfizer unit, Warner-Lambert,
pleaded guilty to two felony counts of marketing a drug for unapproved
uses. New York-based Pfizer agreed to pay $430 million in criminal fines
and civil penalties, and the company's lawyers assured Loucks and three
other prosecutors that Pfizer and its units would stop promoting drugs
for unauthorized purposes.
What Loucks, who was acting U.S. attorney
in Boston until November, didn't know until years later was that Pfizer
managers were breaking that pledge not to practice off-label marketing
even before the ink was dry on their plea.
On the morning of Sept. 2, 2009, another Pfizer unit, Pharmacia &
Upjohn, agreed to plead guilty to the same crime. This time, Pfizer
executives had been instructing more than 100 salespeople to promote
Bextra -- a drug approved only for the relief of arthritis and menstrual
discomfort -- for treatment of acute pain of all kinds.
For this new felony, Pfizer paid the largest criminal fine in U.S.
history: $1.19 billion. On the same day, it paid $1 billion to settle
civil cases involving the off-label promotion of Bextra and three other
drugs with the United States and 49 states.
"At the very same time Pfizer was in our office negotiating and
resolving the allegations of criminal conduct in 2004, Pfizer was itself
in its other operations violating those very same laws," Loucks, 54,
says. "They've repeatedly marketed drugs for things they knew they
couldn't demonstrate efficacy for. That's clearly criminal."
The penalties Pfizer paid for promoting Bextra off-label were the latest
chapter in the drug's benighted history. The FDA found Bextra to be so
dangerous that Pfizer took it off the market for all uses in 2005.
Across the United States, pharmaceutical companies have pleaded guilty
to criminal charges or paid penalties in civil cases when the Justice
Department finds that they deceptively marketed drugs for unapproved
uses, putting millions of people at risk of chest infections, heart
attacks, suicidal impulses or death.
It used to be legal for companies to promote drugs in the United States
for any use. Congress banned the practice in 1962, requiring
pharmaceutical companies to first prove their drugs were safe and
effective for specific uses.
If the law is clear, why do drug companies keep breaking it? The answer
lies in economics. Pharmaceutical companies spend about $1 billion to
develop and test a new drug. To recoup their investment, the companies
want doctors to prescribe their drugs as widely as possible.
Since May 2004, Pfizer, Eli Lilly, Bristol-Myers Squibb and four other drug companies have
paid a total of $7 billion in fines and penalties. Six of the companies
admitted in court that they marketed medicines for unapproved uses. In
September 2007, New York-based Bristol-Myers paid $515 million --
without admitting or denying wrongdoing -- to federal and state
governments in a civil lawsuit brought by the Justice Department. The
six other companies pleaded guilty in criminal cases.
In January 2009, Indianapolis-based Lilly, the largest U.S. psychiatric
drugmaker, pleaded guilty and paid $1.42 billion in fines and penalties
to settle charges that it had for at least four years illegally marketed
Zyprexa, a drug approved for the treatment of schizophrenia, as a
remedy for dementia in elderly patients.
In five company-sponsored clinical trials, 31 people out of 1,184
participants died after taking the drug for dementia -- twice the death
rate for those taking a placebo, according to an article in the Journal
of the American Medical Association.
"Marketing departments of many drug companies don't respect any
boundaries of professionalism or the law," says Jerry Avorn, a professor
at Harvard Medical School. "The Pfizer and Lilly cases involved the
illegal promotion of drugs that have been shown to cause substantial
harm and death to patients."
The widespread off-label promotion of drugs is yet another manifestation
of a health-care system that has become dysfunctional.
"It's an unbearable cost to a system that's going broke," Avorn says.
"We can't even afford to pay for effective, safe therapies."
About 15 percent of all U.S. drug sales are for unapproved uses without
adequate evidence the medicines work, according to a study by Randall
Stafford, a medical professor at Stanford University.
As large as the penalties are for drug companies caught breaking the
off-label law, the fines are tiny compared with the firms' annual
The $2.3 billion in fines and penalties Pfizer paid for marketing Bextra
and three other drugs cited in the Sept. 2 plea agreement for off-label
uses amount to just 14 percent of its $16.8 billion in revenue from
selling those medicines from 2001 to 2008.
The total of $2.75 billion Pfizer has paid in off-label penalties since
2004 is a little more than 1 percent of the company's revenue of $245
billion from 2004 to 2008.
Lilly already had a criminal conviction for misbranding a drug when it
broke the law again in promoting schizophrenia drug Zyprexa for
off-label uses beginning in 1999. The medication provided Lilly with $36
billion in revenue from 2000 to 2008. That's more than 25 times as much
as the total penalties Lilly paid in January.
Companies regard the risk of multimillion-dollar penalties as just
another cost of doing business, says Lon Schneider, a professor at the
University of Southern California's Keck School of Medicine in Los
Angeles. In 2006, he led a study for the National Institute of Mental
Health of off-label use of drugs, including Zyprexa.
"There's an unwritten business plan," he says. "They're drivers that
knowingly speed. If stopped, they pay the fine, and then they do it
Paying the doctors
In pushing off-label use of drugs, companies find ready and willing
partners in physicians. Under the fragmented system of U.S. medical
regulation, it's legal for doctors to prescribe FDA-approved drugs for
any use. The FDA has no authority over doctors, only over drug
companies, regarding off-label practices. It's up to the states to
"I think the physician community has to take some ownership
responsibility and do their own due diligence beyond the sales and
marketing person," says Boston's former U.S. Attorney Michael Sullivan.
Doctors generally don't tell people they're prescribing drugs pitched to
them by pharmaceutical salespeople for unapproved treatments, says
Peter Lurie, former deputy medical director of Public Citizen, a
Washington-based public interest group. Most doctors don't keep track of
FDA-approved uses of drugs, he says.
"The great majority of doctors have no idea; they don't even understand
the distinction between on- and off-labeling," he says.
Pfizer's marketing program offered doctors up to $1,000 a day to allow a
Pfizer salesperson to spend time with the physician and his patients,
according to a whistle-blower lawsuit filed by John Kopchinski, who
worked as a salesman at Pfizer from 1992 to 2003.
"By 'pairing up' with a physician, the sales representative was able to
promote over a period of many hours, without the usual problems of
gaining access to prescribing physicians," Kopchinski says. "In essence,
this amounted to Pfizer buying access to physicians."
Pfizer spokesman Chris Loder says the company stopped what it calls
"mentorships" in 2005. He says Pfizer paid doctors $250 a visit. The
goal was clear: Get doctors to prescribe a new drug as widely as
Pfizer's Neurontin is a case in point. The FDA approved the drug as a
supplemental medication to treat epilepsy in 1993. Pfizer took in $2.27
billion from sales of Neurontin in 2002. A full 94 percent -- $2.12
billion -- of that revenue came from off-label use, according to the
prosecutors' 2004 Pfizer sentencing memo.
Since 2004, companies that are now Pfizer divisions have pleaded guilty
to off-label marketing of two drugs. Pfizer continued off-label
promotions for these medications after buying the firms, according to
Pfizer first stepped into an off-label scheme in 1999, when it offered
to buy Warner-Lambert, based in New Jersey. Prosecutors charged that
Warner-Lambert marketed Neurontin off-label between 1995 and 1999.
Warner-Lambert admitted doing so for one year in a May 2004 guilty plea
for which Pfizer paid $430 million in fines and penalties.
When the FDA approved Neurontin in 1993 to be used only along with other
epilepsy drugs, the agency wrote that as a side effect, the drug can
induce depression and suicidal thoughts in patients.
Much of what prosecutors learned about Warner-Lambert's marketing of
Neurontin comes from a former employee, David Franklin, who holds a
Ph.D. in microbiology.
Franklin, 48, whose title at Warner-Lambert was medical liaison, says
his job involved more salesmanship than science. He told doctors that
Neurontin was the best drug for a dozen off-label uses, including pain
relief, bipolar disease and depression.
"Technically, I had responsibility for answering physician questions
about all of Parke-Davis's drugs," Franklin says. "In practice, my real
job was to promote Neurontin for off-label indications heavily -- to the
exclusion of just about everything else."
Franklin says he knew such uses of the drug had no scientific support
for effectiveness and safety.
"I was actually undermining their ability to fulfill the Hippocratic
oath," Franklin says, referring to a physician's pledge to "First, do no
After working for Warner-Lambert for three months, Franklin quit and
filed a whistle-blower lawsuit on behalf of taxpayers to recover money
the government paid for illegally promoted drugs. He stood to collect as
much as 30 percent of any settlement the company made with the
Franklin had to wait four years -- until 2000 -- before the Justice
Department began a criminal investigation. In November 1999, Pfizer made
its public offer to buy Warner-Lambert. In January 2000, a federal
grand jury in Boston issued subpoenas to Warner-Lambert employees to
testify about the marketing of Neurontin.
That March, Warner-Lambert's annual report disclosed that prosecutors
were building a criminal case. Undeterred, Pfizer bought Warner-Lambert
in June for $87 billion -- the third-largest merger in U.S. history.
More sales than Viagra
A year after the acquisition, the FDA discovered that Neurontin was
still being marketed off-label. In a June, 2001 letter to the company,
the agency wrote that Pfizer's promotion of the drug "is misleading and
in violation of the Federal Food, Drug and Cosmetics Act."
Pfizer marketed Neurontin off-label after receiving that letter, agency
records show. For 2001, Pfizer reported revenue of $1.75 billion from
Neurontin sales, making it the company's fourth-largest-selling drug
that year, ahead of impotence pill Viagra, which Neurontin topped for
As Neurontin sales soared to $2.27 billion in 2002, the FDA found that
Pfizer was improperly claiming that the drug was useful for a broader
range of brain disorders than scientific evidence had established.
The agency sent a letter dated July 1, 2002, that said the company's
marketing practices were in violation of FDA rules. It asked Pfizer to
stop using misleading promotions. Pfizer reported $2.7 billion in
revenue from Neurontin in 2003. Overall, the drug has provided Pfizer
with $12 billion in revenue.
Pfizer spokesman Chris Loder says, "Regarding the 2001 and 2002 FDA
letters, we do not believe that they were suggestive of any continuing
For blowing the whistle on his employer, Franklin collected $24.6
million under the False Claims Act.
Prosecutors Loucks and Sullivan got involved in the case after Franklin
filed his suit, relying on information from Franklin and their own
investigation. Before 2004, prosecutions for off-label marketing were
"Until a couple of these cases became public, companies were probably
saying, 'Everybody does it this way,' " Sullivan says.
Loucks had a track record in off-label prosecutions. In 1994, he
negotiated a $61 million settlement with C.R. Bard of New Jersey, which
pleaded guilty to promoting off-label use of a heart catheter that led
to patient deaths.
The off-label campaign
In the January 2004 settlement negotiations with Loucks, Sullivan and
two other prosecutors, Pfizer's lawyers assured the U.S. Attorney's
Office that the company wouldn't market drugs off-label.
"They asserted that the company understood the rules and had taken steps
to assure corporate compliance with the law," Loucks says. "We remember
What Pfizer's lawyers didn't tell the prosecutors was that Pfizer was at
that moment running an off-label marketing promotion using more than
100 salespeople who were pitching Bextra, according to a Pfizer sales
manager who pleaded guilty to misbranding a drug in March 2009.
Pharmacia & Upjohn developed Bextra, which was approved by the FDA
in 2001 for only the treatment of arthritis and menstrual discomfort.
P&U and Pfizer had by then crafted a joint marketing agreement to
sell the drug. In November 2001, Mary Holloway, a Pfizer Northeast
regional manager, began illegally training and directing her sales team
to market Bextra for the relief of acute pain, Holloway admitted in the
On Dec. 4, 2001, Pfizer executives sent Holloway a copy of a nonpublic
FDA letter to the company. The agency had denied Pfizer's application to
market Bextra for acute pain. Clinical trials had shown Bextra could
cause heart damage and death.
Pfizer bought Pharmacia & Upjohn in April 2003. From 2001 through
2003, P&U, first as an independent company and then as a unit of
Pfizer, paid doctors more than $5 million in cash to lure them to
resorts, where salespeople illegally pitched off-label uses for Bextra,
In her guilty plea, Holloway said her team had solicited hospitals to
create protocols to buy Bextra for the unapproved purpose of acute pain
relief. Her representatives didn't mention the increased risk of heart
attacks in their marketing.
They told doctors that side effects were no worse than those of a sugar
pill, Holloway said.
In 2003, Holloway reported her unit's off-label promotions of Bextra up
the corporate ladder at Pfizer, according to a presentencing memo to the
judge written by Robert Ullmann, Holloway's attorney. Top managers
didn't attempt to halt the illegal conduct, the memo said.
By late 2004, Bextra reached blockbuster status, with annual sales of
$1.29 billion. Holloway promoted Bextra until the FDA asked Pfizer in
April 2005 to pull it from the market for all uses.
The agency concluded that the drug increased the risk of heart attacks,
chest infections and strokes in cardiac surgery patients. In June 2009,
Holloway, 47, was sentenced to two years on probation and fined $75,000.
She didn't return phone calls seeking comment.
'We regret . . . '
By 2007, the criminal and civil cases against Pfizer, its employees and
its subsidiaries had begun to mount. The tally of drugs cited by federal
prosecutors for off-label promotion reached six by 2009. In April 2007,
P&U pleaded guilty to a felony charge of offering a $12 million
kickback to a pharmacy benefit manager. Pfizer paid a criminal fine of
$19.7 million. In September 2009, Pfizer agreed to pay $2.2 billion in
fines and penalties. P&U pleaded guilty to a felony charge of
misbranding Bextra with the intent to defraud. After the settlement,
Pfizer general counsel Amy Schulman said the company had learned its
"We regret certain actions we've taken in the past," she said.
"Corporate integrity is an absolute priority for Pfizer."
One reason drug companies keep breaking the law may be because
prosecutors and judges have been unwilling to use the ultimate sanction
-- a felony conviction that would exclude a company from selling its
drugs for reimbursement by state health programs and federal Medicare.
At Pfizer's Pharmacia sentencing in October, U.S. District Court Judge
Douglas Woodlock said companies don't appear to take the law seriously.
"It has become something of a cost of doing business for some of these
corporations, to shed their skin like certain animals and leave the skin
and move on," he said.
As prosecutors continue to uncover patterns of deceit in off-label
marketing, millions of patients across the nation remain in the dark.
Doctors often choose the medications based on dishonest marketing by
drug company salesmen.
Loucks says that putting an end to the criminal off-label schemes will
be difficult. As drugmakers repeatedly plead guilty, they've shown
they're willing to pay hundreds of millions of dollars in fines as a
cost of generating billions in revenue.
The best hope, Loucks says, is that drug companies actually honor the
promises they keep making -- and keep breaking -- to obey the law of the
As much as $100 million for health-care fraud enforcement is tied up in
the stalled reform legislation, according to Loucks.
"It will be increasingly hard for the threat of exclusion to seem
credible and thus serve as a deterrent to bad corporate behavior," he
says, "unless Congress supports health-care fraud prosecutions with more
A version of this story originally appeared in Bloomberg Markets
Magazine. It was awarded a 2010 Society of American Business Editors and
Writers award for enterprise reporting and general excellence.