Feds Raid Reckitt Benckiser Offices; Criminal Probe Underway

Reckitt Benckiser’s offices in Richmond, Va., were raided by a team of IRS and Office of Inspector General (OIG) agents on December  3rd.  The raid comes only a few weeks after the New York Times published an article on November 16 about the incongruity of Reckitt Benckiser’s wonder drug, Suboxone—positioned as both a helpful medication that treats addiction and a potential street drug that fuels dependency.  For the U.K. consumer goods giant, last week’s raid isn’t just more bad news – it’s the worst kind of news any company can get. 

Background

  • Suboxone                           

Suboxone is made up mostly of buprenorphine (byoo-pruh-NOR-feen), an opioid substitute used to treat people addicted to heroin and other painkillers.  The ingredient attaches itself to the brain’s opioid receptors, but because it does not fit perfectly, it is slower to act and longer lasting, leveling off the extreme rushes and crashes of regular opioids.  Addicts have described themselves as ‘normalized’ by the drug, developing a tolerance to its euphoric effects, their cravings satiated.

Buprenorphine, which was first shipped to the United States Narcotic Farm and the government’s Addiction Research Center in Lexington, KY, in the mid-1970s, had a loyal following of government scientists who, over the next few decades, promoted a public-private partnership between the British company and U.S. government. The federal drug abuse institute also financed two initial trials at its clinical research sites— trials which were instrumental in getting FDA approval.

However, with growing concerns of abuse stemming from other countries’ experiences with the drug, the FDA was adamant about including an ‘abuse deterrent’ in the form of naloxone, known to cause somewhat painful withdrawal symptoms.  The result: Suboxone was born, consisting of four parts buprenorphine and one part naloxone.  The FDA approved Suboxone in late 2002, and its pure buprenorphine counterpart, Subutex, in late 2009.  In addition, the FDA gave Reckitt Benckiser a seven-year monopoly based on the company’s assertion that it could never recoup its development costs.

Reckitt currently has a market value of $56.7 billion with 21 percent of its operating profits coming from Suboxone.  In the U.S., Suboxone generated sales of $1.55 billion last year.

 

  • Recent Troubles

Over the years, Reckitt’s marketing of Suboxone became more formalized.  The company’s sales force grew to 200, and former employees have disclosed that Reckitt compensated 400 to 500 doctors for being advocates of the drug.  The company also lobbied legislators and paid $100,000 in dues to the American Society of Addiction Medicine.

In 2009, Reckitt’s exclusive right to sell buprenorphine expired, so it tried to turn the tables by using the drug’s disadvantages to actively discourage doctors from prescribing Subutex.  Regardless of those efforts, Subutex prescriptions increased more than 10 times in its first year of being sold.  As a result, the company began promoting a new formulation of Suboxone—the filmstrip—to impede the black market and pediatric abuse the tablet version of the drug supposedly caused.

After FDA concerns delayed its release, the filmstrip—an individually wrapped film with a traceable bar code that is patent protected until 2023—was eventually approved in 2010.  Reckitt re-directed its sales force to dissuade the use of the tablet form, using what some former employees called, “feared-based messaging” and “selling against our own medication,” the NY Times article revealed.  In addition, Reckitt’s pharmaceutical reps earned bonuses only for Suboxone film, and risked being fired if they did not meet targets, an employment-related lawsuit asserted.  The company also offered discounts for the film while raising the price of its tablets, and used rebates to convince public insurers, such as Medicaid, to favor the film version of the drug.

Claiming a “moral obligation” in September 2012, Reckitt announced it was withdrawing Suboxone tablets from the market over a six-month period and petitioned the FDA to likewise block generic tablets because of “increasing concerns with pediatric exposure.”  The FDA didn’t buy Reckitt’s rationale and approved the generic version of Suboxone in early 2013.

Currently, the company is fighting antitrust lawsuits by drug wholesalers and insurers who contend that Reckitt “schemed” to obstruct generic competition and dominate the market by overcharging them and the healthcare system overall.  In July, the company’s stock took a nosedive when CVS Caremark said it was dropping the film from its preferred drug list in favor of the tablets.   To make matters worse for Reckitt, there’s a new kid in town—the brand Zubsolv, which claims to have higher bioavailability and a smaller tablet size with a menthol flavor – and Reckitt’s alleged efforts to obstruct generic competition may be behind an investigation by the Federal Trade Commission about possible anti-competitive business practices by the company.

All these developments have taken its toll on the company.  Reckitt recently reported that in the third quarter net revenues from Suboxone declined 14 percent over last year, attributing the loss to the discontinuation of its tablets.  As a result, the company is seriously considering selling its pharmaceutical unit, since the Suboxone filmstrip is now its only pharmaceutical product.

Observations

Lawsuits, loss of exclusivity and sales, problems with the FDA and even government investigations are “par for the course” for any company in the pharmaceutical business.  What is not “business as usual” is the specter of armed federal agents and local law enforcement arriving in the early morning hours, with search warrant in hand, and removing countless boxes of files, as was reported on a local news broadcast on WWBT NBC 12.

In a statement issued by Reckitt, a company spokesperson confirmed “that federal officers from the U.S. government presented a search warrant at the offices of Reckitt Benckiser Pharmaceuticals, Inc. in Richmond, Virginia, USA on Tuesday morning.  RB is cooperating fully with the investigation, but the officials did not disclose the purpose of the warrant.”

The search warrant, which company officials say was issued from the U.S. Attorney’s Office for the District of Western Virginia, is a stunning development.  When the Government decides to investigate a company, the normal practice is to issue a lengthy subpoena identifying the records it wants the company to produce.  With the assistance of outside counsel, the company produces the records on a rolling basis and, at some point, there is a negotiated settlement involving civil and sometimes criminal charges.

On the other hand, a search warrant is normally issued and executed only when the prospective charges are quite serious and, more importantly, when the Government strongly suspects that records may be destroyed and simply can’t trust the company to comply with the subpoena.  Although we can’t speculate on the criminal charges the Government may be contemplating, we can be fairly certain that Reckitt and at least a few of its executives are facing some tough times ahead.

About José P Sierra

José Sierra is a partner at Laredo & Smith, LLP, in Boston, which provides respected advice and creative representation in business litigation, white collar criminal defense, government investigations, corporate compliance, and business and employment law. Prior to joining the Firm, Mr. Sierra was a principal at Fish & Richardson. Previously, Mr. Sierra was senior vice president, chief compliance and ethics officer for Sepracor Inc., and Kos Pharmaceuticals, and was legal director at Schering-Plough Corporation, and an assistant U.S. attorney in the Newark, NJ U.S. Attorney's Office.

Mr. Sierra's practice focuses on white collar criminal defense, government investigations and corporate compliance. Contact him at 617-443-1100 or via email.

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