Feds Hit Pfizer with a $2.3 Billion Fine


The Obama Administration, determined to show a tough stance against drugmakers, levies the largest drug-marketing penalty ever

Pfizer (PFE) will pay a record $2.3 billion fine and plead guilty to one felony count to settle federal criminal and civil charges that it illegally promoted its Bextra painkiller and other drugs. The fine had been first reported back in January, but Justice Dept. officials disclosed details of the settlement on Sept. 2 in a splashy news conference that served as a pointed warning to other drug companies that it plans to come down hard on the industry for fraudulent marketing.

Government attorneys noted this is actually the fourth settlement with Pfizer or one of its subsidiaries since 2002 over illegal marketing, but the fines for those cases totaled only $513 million. Those previous actions, though, factored into the severe penalties levied this time around. "This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a pharmaceutical company puts profits ahead of patient health," said Assistant Attorney General Tony West.

President Obama has been battling perceptions that he has been too soft on drug companies ever since the White House acknowledged this summer that it promised to block congressional efforts to allow Medicare to negotiate lower drug prices in return for a pharmaceutical industry promise of $80 billion in savings on drug sales to senior citizens. The fact that Health & Human Services (HHS) Secretary Kathleen Sibelius headed Wednesday's news conference was widely seen in Washington as a very public Presidential stamp of approval on the Pfizer deal. HHS "will continue to seek opportunities to work with its government partners to prosecute fraud wherever we can find it," she said.

Lavish Blandishments

The settlement stems from a four-year investigation instigated by six whistleblowers, who between them will receive $102 million from the federal fines. The complaint charged that Pfizer sent doctors on all-expense-paid trips to resorts, gave out free massages, and paid kickbacks to doctors, all to get them to prescribe its drugs for off-label uses. Although it is legal for physicians to write such prescriptions, and a common practice, companies are barred from actually promoting their drugs for purposes other than those that have won Food & Drug Administration approval.

Bextra, which was removed from the market in 2005 over safety concerns, was one of four drugs covered by the charges. Pfizer was also accused of fraudulently marketing the anti-psychotic drug Geodon, the antibiotic Zyvox, and the epilepsy treatment Lyrica.

The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the U.S., while Pharmacia, acquired by Pfizer in 2003, will pay an additional $105 million. Pfizer will also pay $1 billion to resolve civil claims and agreed to enter a "corporate integrity agreement" with HHS that will monitor future marketing activities.

The agreement resolves all material matters with the Justice Dept. and "gives us a very important opportunity to put final closure" on the fraudulent marketing charges, said Pfizer General Counsel Amy W. Schulman. The company already charged the $2.3 billion fine to its 2008 fourth-quarter earnings and said it would have no additional charges from the case. However, it will write off a further $33 million in charges in the third quarter related to a settlement with 42 states regarding promotional materials for Geodon.

Affordable Fine

"It's an ugly blemish for Pfizer, but at least it's essentially over. And while $2.3 billion ain't chicken feed, it's affordable," said Carol Levenson, research director at Gimme Credit, a corporate-bonds research service. The settlement had little effect on Pfizer's stock price—shares closed 10¢ lower on Wednesday, at 16.28.

The affordability of the fines is a problem regulators face in deterring such activity, say industry critics. If a drug generates billions of dollars each year in sales, fines totaling even $1 billion do not offset the money to be made from off-label marketing. "Time will tell" whether the Pfizer fine will stop other companies from unlawful promotions, said Scott Simmer, an attorney with Blank Rome who represents three of the whistleblowers involved in the settlement. "I do believe these practices are endemic throughout the industry."

Arnst is a senior writer for BusinessWeek based in New York.

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