Cephalon settles charges for $425 million

In what prosecutors called the largest health-care settlement in federal court here, Cephalon Inc. will pay $425 million to settle criminal and civil charges that it illegally marketed three of its drugs.

The Frazer company is expected to plead guilty in U.S. District Court to one misdemeanor criminal charge, the U.S. Attorney's Office in Philadelphia announced yesterday.

Cephalon, a biopharmaceutical company based in Chester County, previously announced last November an "agreement in principle" with the U.S. attorney and Justice Department over an investigation that began in 2003 of its "off-label" promotion and sales of pain medication Actiq, Provigil for sleep disorders, and Gabitril for epilepsy.

Cephalon said yesterday that it had reached separate agreements with attorneys general in Connecticut and Massachusetts to settle related probes.

The drug manufacturer will pay $6.15 million to Connecticut and $700,000 to Massachusetts.

Law enforcement authorities began seeing misuse of Actiq by people who also abused OxyContin and other narcotic painkillers in 2004. Actiq had the street name "perc-o-pops."

Actiq, a berry-flavored cancer-pain treatment on a stick, is approved to treat bouts of severe cancer pain in patients who can tolerate opiods such as morphine. But Cephalon promoted it to treat migraines and backaches, prosecutors said.

"I can't tell you a specific person who died, or was harmed, by the off-label marketing," acting U.S. Attorney Laurie Magid said at a news briefing. "We know in the case of these drugs, patients were harmed, including death, when there was off-label use."

Cephalon's best-selling drug, Provigil, is approved to treat excessive drowsiness associated with narcolepsy, obstructive sleep apnea, and shift-work sleep disorder.

Analysts have estimated that 80 percent of Provigil prescriptions are for "off-label" treatment of sleepiness and fatigue from illnesses such as depression, Parkinson's disease and multiple sclerosis.

Gabitril, Cephalon's drug to treat epileptic seizures, was promoted to treat disorders including anxiety, insomnia and pain, the government said.

Cephalon's off-label campaigns were successful. Actiq sales jumped from $50.1 million in 2001 to $550.4 million in 2006.

Gabitril revenue rose from $24.6 million in 2001 to $87.3 million in 2004, and Provigil sales from $146.2 million in 2001 to $691.7 million in 2006, the government said.

While doctors are free to prescribe medicines for any condition they believe appropriate, drug manufacturers can promote products in the United States only for FDA-approved uses.

The biggest federal health-care fraud recovery in Philadelphia was a 2004 settlement by Schering-Plough Corp. for $345.5 million for a criminal charge that it overcharged Medicaid for the popular Claritin allergy medicine.

In January 2003, a former Cephalon sales representative in Ohio, Bruce Boise, contacted the FDA about Cephalon's sales practices. Boise wore an undercover wire to a company sales conference to help the government gather evidence, according to his Washington-based attorney, Peter Chatfield.

In November 2003, another Cephalon sales representative, Lucia Paccione, of Philadelphia, filed the first of four qui tam "whistle-blower" lawsuits. The complaints were unsealed yesterday.

In this case, four whistle-blowers will divide about $46.5 million plus accrued interest, prosecutors said.

News of the settlement, known to Wall Street for months, barely budged Cephalon's stock price. Shares closed down $1.31, or 1.64 percent, at $78.57. Cephalon had reserved the $425 million for the federal settlement last year.

January 2003: A company sales representative went to the FDA with allegations about the off-label marketing of the three drugs. He later wore an undercover wire at a sales meeting.

November 2003: First of four qui tam "whistle-blower" civil lawsuits is filed, three filed by former Cephalon sales representatives. The fourth was by a physician aware of the company's off-label marketing practices.

May 2004: Former Pennsylvania Attorney General Gerald Pappert says Actiq, a narcotic lollipop, is showing up in illegal sales in Philadelphia under the street nickname "perc-o-pops." (Pappert is now Cephalon's executive vice president and general counsel.)

June 2004: Former Cephalon quality-assurance auditor David Brennan sues the company, asserting that he was fired after he pressed superiors to comply with stringent regulatory requirements for monitoring Actiq.

Summer 2004: Connecticut's attorney general begins a probe about "off-label" use and "diversion" of Actiq after the 2003 death of a woman who overdosed after buying the drug from a dealer.

September 2004: The U.S. attorney in Philadelphia subpoenas documents about Cephalon's sales and marketing of Actiq and two other products, Provigil for sleep disorders and Gabitril for epilepsy.

March 2007: U.S. Rep. Henry A. Waxman (D., Calif.) requests information from five companies, including Cephalon, about their marketing. The House oversight committee asks about safety and off-label use of Actiq and Fentora, a narcotic pain lozenge.

November 2007: Cephalon reaches an "agreement in principle" with U.S. attorney in Philadelphia to pay $425 million to settle federal and state claims.

Yesterday: Cephalon agrees to plead guilty to criminal misdemeanors and pay $425 million to settle criminal and civil charges for promoting three of its drugs for uses not approved by the FDA.

- Linda Loyd

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Read the Cephalon settlement agreement at http://go.philly.com/cephalon (.pdf).{12514929466633}