Live

Watch CBSN Live

DOJ Subpoena May Rattle Old Skeletons in Merck's Closet

Merck's (MRK) disclosure yesterday that it received a subpoena from the Department of Justice into the marketing of two hepatitis C drugs and a cancer drug isn't, as far as Merck has said, related to an earlier inquiry into potential violations of the Foreign Corrupt Practices Act. But both involve the same drug: PegIntron.

The three drugs targeted by the subpoena can all be used to fight types of cancer: Temodar (brain cancer), PegIntron (hep C and melanoma) and Intron A (leukemia, certain other cancers and hep C, among others). PegIntron was only approved for melanoma in April 2011 under the brand name Sylatron.

A Merck spokesperson told BNET only that the company was cooperating with the subpoenas and that there were no updates regarding the ongoing FCPA inquiry, which is looking at kickbacks paid to foreign officials across many drug companies. Merck last mentioned the FCPA probe on page 130 of its 10-K annual report.

But the new disclosure, in Merck's quarterly 10-Q filing, is written in such a way that it does not exclude an evolution of the DOJ's FCPA "inquiry" into a subpoena. The new disclosure says:

The DOJ has issued a subpoena requesting information related to the Company's marketing and selling activities with respect to Temodar, PegIntron and Intron A, from January 1, 2004 to the present, in a federal health care investigation under criminal statutes. The Company is cooperating with the DOJ's investigation.
PegIntron's troubled history
"A federal health care investigation under criminal statutes" could be anything, except that the word "criminal" is in there. Often, companies settle violations such as unapproved "off-label" marketing in the civil courts. While FCPA probes can also be settled civilly, a quick scan of the FCPA Blog shows that its major impact is in the criminal conviction of executives caught paying bribes in foreign countries.

In 2010, Merck's Schering-Plough unit was accused of offering Vietnamese doctors a kickback of 10 to 30 percent of PegIntron's price, according to Vietnam's English-language press. One doctor at a medical school was rumored, according to the local press, to also be a marketing director at Schering. In March 2010, the prime minister demanded penalties be imposed on Schering for paying monthly commissions of $26,300 to doctors who prescribed PegIntron.

PegIntron has also been the subject of a couple of product recalls in foreign markets. In January, the alcohol prep pads packaged with PegIntron and Intron in Europe, Asia, Latin America and Canada, were recalled due to contamination. Last September, PegIntron packs were recalled in Hong Kong due to a sealing defect in the injectible device.

The puzzle here, of course, is that none of these events may be linked. And then there's the previous settlement, of $435 million, that Schering paid to the DOJ over its marketing of Pegintron in 2006.

That settlement covered Schering's marketing of the drug for off-label purposes, but the litigation it spawned was eventually moved to New Jersey's federal courts and remains alive today. Among the allegations in the case is that Schering used a "rack 'em and stack 'em" sales tactic in which one bag of the injection-infusion drug could be shared by three patients, allowing doctors to bill Medicare for three treatments when in fact only one had been bought and used. The case is currently on appeal after a successful motion to dismiss from Merck.

It might be that the feds have become interested, again, in recouping any money allegedly lost prior to the 2006 settlement.

Related:

Image by Flickr user IK's World Trip, CC.