Jazz Subsidiary Orphan Medical, Inc. Pleads Guilty to Illegally Marketing Prescription Medication Xyrem, also known as "GHB," and Pays $17.2 Million in Penalties and Victim Compensation

Jazz and Orphan to Pay an Additional $2.8 Million through a Civil Settlement Agreement with the United States

BROOKLYN, NY – Jazz Pharmaceuticals, Inc. (“Jazz”) has agreed to pay $20 million in penalties and victim compensation to resolve parallel criminal and civil investigations conducted by the United States Attorney’s Office for the Eastern District of New York relating to the illegal marketing practices of its wholly-owned subsidiary Orphan Medical, Inc. (Orphan). As part of this resolution, Orphan pleaded guilty this morning to felony misbranding, in violation of the Food, Drug, and Cosmetic Act (21 U.S.C. §§ 331(a) and 333(a)(2)) in connection with its illegal promotion of the prescription medication Xyrem, also known as gamma-hydroxybutyrate or “GHB,” for unapproved uses. GHB is a powerful and fast-acting central nervous system depressant that has been subject to abuse as a recreational drug and is classified by the Department of Health and Human Services (HHS) as a “date rape” drug. The guilty plea proceeding was held before United States District Judge Eric N. Vitaliano.

The criminal misbranding scheme induced physicians throughout the country to write prescriptions for Xyrem that were not reimbursable by private health insurers or public insurance programs like Medicare and Medicaid, and caused millions of dollars of losses to these insurers. Pursuant to a non-prosecution agreement with the United States, Jazz has agreed to guarantee Orphan’s obligation to pay criminal restitution to public and private insurers of approximately $12.2 million and a criminal fine of $5 million, and to provide ongoing cooperation to the government in connection with its investigation and prosecution of the underlying illegal marketing scheme. Pursuant to the civil settlement agreement, Jazz and Orphan have agreed to resolve the government’s civil False Claims Act claims by paying $3.75 million, plus interest. A portion of the restitution ordered in the criminal case is also accounted for as a part of the civil settlement, resulting in a total payment by Jazz and Orphan of $20 million.

Jazz has also agreed to implement the terms of a corporate integrity agreement required by the Office of Inspector General for HHS, and has taken other proactive and remedial measures, including implementing a Code of Conduct prohibiting promotion for unapproved or “off-label”use, requiring compliance training for promotional speakers and sales representatives, and replacing the former Orphan regional sales managers who were responsible for overseeing the conduct of sales representatives in their respective territories.

The government’s investigation was commenced after a former sales representative for Orphan filed a suit in the Eastern District of New York on behalf of the United States. Under the federal False Claims Act, a private individual is allowed to file a whistleblower suit to bring the United States information about wrongdoing. If the United States is successful in resolving or litigating the whistleblower’s claims, the whistleblower may share in part of the recovery.

Federal law makes it a felony for a drug manufacturer to introduce a drug into interstate commerce for an unapproved or “off-label” medical use not sanctioned by the U.S. Food and Drug Administration (FDA). Xyrem was approved for only two medical uses – the first use, approved in July 2002, was for the treatment of cataplexy, a condition characterized by weak or paralyzed muscles associated with the sleep disorder known as narcolepsy. The second use, approved in November 2005, was for the treatment of excessive daytime sleepiness (EDS) in narcolepsy patients. As set forth in the drug’s “black box” warning label, the most serious warning placed in the labeling of a prescription medication, Xyrem is capable of inducing sleep very quickly and causing serious side effects, including difficulty breathing while asleep, confusion, abnormal thinking, depression, nausea, vomiting, and sleepwalking. Abuse of the drug can cause dependence and craving, as well as seizures, coma, and even death. The warning label also indicated that the drug’s safety and efficacy were not established in children and that there was only limited experience with the drug in elderly patients.

In pleading guilty, Orphan admitted that, through sales representatives ¹and at least one medical professional, it engaged in a scheme to expand the market for Xyrem by promoting the drug to physicians for “off-label” medical uses, including fatigue, insomnia, chronic pain, EDS (before EDS became an approved indication), weight loss, depression, bipolar disorders, and movement disorders such as Parkinson’s Disease. Specifically, Orphan sales representatives in the Eastern District of New York and across the United States, with the knowledge and approval of Orphan sales managers throughout the country, frequently made sales calls on physicians who did not specialize in narcolepsy in order to promote Xyrem for the treatment of conditions not related to an approved use, and also distributed written materials concerning “off-label” uses that did not adhere to FDA guidance designed to prevent their improper use by drug manufacturers in promoting their products.

Orphan also admitted that it relied on a psychiatrist ²to give talks around the country, including Great Neck, New York, promoting Xyrem to physicians for “off-label” uses and paid him tens of thousands of dollars for such promotional speaking engagements. With the approval of Orphan sales personnel, the psychiatrist allegedly made misleading statements about Xyrem in the course of promoting the drug for “off-label” use, including minimizing the dangers of a Xyrem overdose, suggesting that the drug was customary and safe to use on children and the elderly, and suggesting that the drug’s active ingredient, “GHB,” was not really a “date rape” drug. The psychiatrist, again with the approval of Orphan sales personnel, also advised physicians how to conceal “off-label” Xyrem prescriptions in order to ensure reimbursement from insurers for unapproved uses that, the government alleges, were not medically accepted and generally not reimbursed. The prescriptions were filled by a central pharmacy, and the medication was then shipped to patients in the Eastern District of New York and throughout the United States.

“The illegal marketing of prescription medications for unauthorized medical uses is a serious crime that poses significant public health risks,” stated United States Attorney Roslynn R. Mauskopf. “Drug manufacturers have a legal obligation to market their products only for medical uses that have been approved by the Food and Drug Administration as safe and effective. This case is especially troubling not only because it involves a drug containing GHB, a dangerous substance recognized by HHS as having a long history of abuse, but also because Orphan teamed up with a medical professional and employed deceptive marketing tactics in order to advance its illicit marketing scheme.” Ms. Mauskopf added that the investigation is continuing.

“It is vital to public health and safety that pharmaceutical companies are deterred from improperly marketing their drugs to doctors and patients to treat illnesses that these drugs are not approved to treat,” said Assistant Attorney General Peter D. Keisler. “Today’s settlement sends a clear message to the pharmaceutical industry that the Justice Department will not tolerate these deceptive and illegal marketing practices.”

“The illegal conduct charged today put profits ahead of public health,” stated U.S. Food and Drug Administration, Office of Criminal Investigations, Special Agent-in-Charge Kim A. Rice. “The FDA will continue to seek the type of criminal resolutions and stiff sanctions involved in this agreement when pharmaceutical companies seriously undermine the drug approval process by dangerously promoting drugs for unapproved uses.”

“Tainted, counterfeit, or illicit drugs are not the only ones that pose substantial health risks for consumers,” stated FBI Assistant Director-in-Charge, New York Field Office, Mark J. Mershon. “Pharmaceuticals manufactured under strict standards can still injure or kill if used for unapproved purposes. Here, the risk was not from willful abuse by users; it was from a concerted campaign by the manufacturer to push a drug for off-label uses. This posed a serious health risk and constitutes a serious crime.”

“The HHS Office of Inspector General, Office of Investigations, assesses all aspects of fraud against the Medicaid and Medicare programs when committing its investigative resources,” said Gary Heuer, Special Agent-in-Charge of the New York Regional Office. “This off-label promotion of Xyrem resulted in hundreds of thousands of dollars of illicit Medicaid payments and also adversely impacted Medicare Part D. Orphan Medical’s very aggressive and creatively designed marketing scheme was the culprit. Given the unique nature of this case, the multi-agency cooperative effort significantly contributed to the successful investigative and prosecutorial outcome.”

As a result of Jazz’s acceptance of responsibility, its cooperation in the government’s investigation, and its willingness to make restitution and take significant remedial action, Jazz will not be prosecuted for the unlawful practices of Orphan employees, provided Jazz fully complies with the terms of its agreement with the government. However, if Jazz violates any of the terms of the non-prosecution agreement, or commits any other crimes, it is subject to prosecution, including prosecution for the conduct described in the criminal charges filed by the government.

The criminal and civil cases are being prosecuted by Assistant United States Attorneys Geoffrey Kaiser and Paul Kaufman, with audit assistance by Emily Rosenthal. The Corporate Integrity Agreement was negotiated by Senior Counsel Mary Riordan in the Office of Counsel to the Inspector General for the Department of Health and Human Services.

 

 

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¹ On March 9, 2007, a former Orphan sales manager pleaded guilty to felony misbranding in connection with the “off-label” marketing scheme described above.

² The psychiatrist was previously charged in this district with assisting Orphan to promote Xyrem for “off-label” indications, in violation of the criminal misbranding provisions of the Food, Drug, and Cosmetic Act.

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