DOJ Announces Global Settlement with Purdue Pharma, Including Largest Penalty Ever Levied Against Pharmaceutical Manufacturer

On Wednesday, October 21, 2020, the United States Department of Justice (DOJ) announced a global resolution of both civil and criminal investigations into Purdue Pharma LP (Purdue), in addition to a civil resolution based on its civil investigation into individual company shareholders from the Sackler family.

Purdue Criminal Pleas

Purdue has agreed to plead guilty in the United States District Court for the District of New Jersey to a three-count felony information: one count of dual-object conspiracy to defraud the United States and violate the Food, Drug, and Cosmetic Act (FD&C Act) and two counts of conspiracy to violate the Federal Anti-Kickback Statute.

As part of its plea, Purdue will admit that from May 2007 through at least March 2017, the company conspired to defraud the United States by impeding the lawful function of the Drug Enforcement Agency (DEA) by representing to the agency that Purdue maintained an effective anti-diversion program. In reality, however, Purdue continued to market its opioid products to more than 100 health care providers whom the company had good reason to believe were diverting opioids and reporting misleading information to the DEA to boost Purdue’s manufacturing quotas. The misleading information included prescriptions written by doctors that Purdue had good reason to believe were engaged in diversion. The conspiracy also included aiding and abetting violations of the FD&C Act by facilitating the dispensation of its opioid products (including Oxycontin) without a legitimate medical purpose.

Purdue will also admit that between June 2009 and March 2017, it made payments to two doctors through its speaker program to induce those doctors to write more Purdue opioid prescriptions. Similarly, from April 2016 through December 2016, Purdue made payments to Practice Fusion, Inc., an electronic health records company, in exchange for referring, recommending, and arranging for the ordering of Purdue’s extended release opioid products.

The criminal resolution includes the highest penalties ever levied against a pharmaceutical manufacturer: a criminal fine of $3.544 billion and $2 billion in criminal forfeiture. As outlined below, up to $1.775 billion of the criminal forfeiture may be credited based on future actions by Purdue. $225 million will be paid by Purdue on the effective date of the bankruptcy.

Purdue Civil Settlement

The civil settlement with Purdue gives the United States an allowed, unsubordinated, general unsecured bankruptcy claim for $2.8 billion. In this settlement, the government alleged that from 2010 to 2018, Purdue caused false claims to be submitted to federal health care programs, including Medicare, Medicaid, and the Indian Health Service. The government further alleged that Purdue promoted its opioid drugs to health care providers it knew were prescribing opioids for off-label uses that were unsafe, ineffective, and medically unnecessary, and that often led to abuse and diversion.

The DOJ provides an example of one doctor who was known by patients as “the Candyman” and was prescribing “crazy dosing of OxyContin.” Purdue had sales representatives meet with this particular doctor more than 300 times.

The civil settlement also resolves allegations that Purdue engaged in three different kickback schemes to induce prescriptions of its opioids.  In the first kickback scheme, Purdue paid certain doctors under the guise of giving educational talks to other health care professionals and serving as consultants, but in reality, the payments were made to induce the prescriber to prescribe more OxyContin. In the second scheme, Purdue paid kickbacks to Practice Fusion, as mentioned above. In the third scheme, Purdue entered into contracts with certain specialty pharmacies to fill prescriptions for its opioid drugs that other pharmacies had rejected as potentially lacking medical necessity.

Sackler Family Settlements

Under a separate civil settlement, individual members of the Sackler family will pay the United States $225 million based on the alleged conduct of Dr. Richard Sackler, David Sackler, Mortimer D.A. Sackler, Dr. Kathe Sackler, and Jonathan Sackler (the Named Sacklers).

This settlement resolves allegations that, in 2012, the Named Sacklers knew that the legitimate market for Purdue’s opioids had contracted. Even still, they requested that Purdue executives recapture lost sales and increase Purdue’s share of the opioid market. To that end, they approved a new marketing program in 2013 called “Evolve to Excellence,” through which Purdue sales representatives intensified their marketing of OxyContin to extreme, high-volume prescribers who were already writing “25 times as many OxyContin scripts” as their peers, causing health care providers to prescribe opioids for uses that were unsafe, ineffective, and medically unnecessary, and that often led to abuse and diversion.

The settlement also resolves allegations that from approximately 2008 to 2018, at the Named Sacklers’ request, Purdue transferred assets into Sackler family holding companies and trusts that were made to hinder future creditors, and/or were otherwise voidable as fraudulent transfers. This settlement does not impede any debtors’ ability to recover those fraudulent transfers.

What’s Next?

The resolutions with Purdue are subject to approval from the bankruptcy court. Interestingly, one condition of the resolution is that Purdue would cease operations in its current form and would come out of bankruptcy as a public benefit company (PBC) owned by a trust or similar entity designed for the benefit of the American population – functioning entirely in the public interest. The PBC would aim to deliver prescription drugs in a safe manner, as well as donating (or providing significant discounts for) life-saving overdose rescue drugs and medically assisted treatment (MAT) medications. Any proceeds of the trust would be directed toward state and local opioid abatement programs. The DOJ is willing to credit up to $1.775 billion of the $2 billion forfeiture amount, based on the value that will be conferred to state and local governments through the PBC.

Additionally, the resolutions do not include the criminal release of any individuals, including members of the Sackler family, nor are any of Purdue’s executives or employees receiving civil releases. It’s expected that criminal investigations into the Sackler family are continuing.

The resolutions announced by the DOJ do not resolve any claims that individual states may have against either Purdue or members of the Sackler family.

What Does This Mean?

The criminal resolution and significant penalties are indicative that the DOJ is intent on slowing and resolving the opioid crisis. Between the criminal resolution and civil resolutions, it also puts pressure on companies who have sold or distributed opioids (including pharmacies like CVS and Walgreens) and pharmaceutical manufacturers who are still in the game, such as Johnson & Johnson and Teva.

It’s also expected that the way the resolutions are structured, and the way the DOJ specifically noted it does not cover any claims of individual states, states will likely have a difficult time getting any money from Purdue or the Sackler family.