July 21, 2011 - Freedomain Radio - Stefan Molyneux
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| This is a pretty instructive article from Bloomberg Businessweek, July 14th, 2011. | |
| Howard Solomon's career may meet a sad end. | |
| The Forrest Laboratory's CEO, who built his company's fortune on the antidepressants Celexa and Lexapro, faces exile from the healthcare industry. | |
| In June, under the gilded ceiling of the Gotham Hall Grand Ballroom in Midtown Manhattan, Howard Solomon was on it, before hundreds of gala-goers for his contribution, to the prevention of suicide among young people, Solomon is the chairman and chief executive officer of Forest Laboratories, FRX, and the event was a fundraiser for the Jed Foundation, which works with college students to promote mental health and prevent suicide. | |
| When his son Andrew took the podium, he called Solomon an appropriate honoree, because his tenure in the pharmaceutical industry has led to drugs that save untold thousands of lives. | |
| One of the lives he has saved over and over again is mine. | |
| Andrew continued before summoning his father with a simple, Dad. | |
| The 83-year-old with large glasses and receding hair resembles a kinder version of Mr. | |
| Burns from The Simpsons and is a familiar figure at galas and fundraisers, whether as a trustee at New York Presbyterian Hospital or a board member of the Metropolitan Opera and the New York City Ballet. | |
| His philanthropy and social standing are built on the wealth and reputation he has amassed in more than 30 years as chief of Forrest Laboratories, a company whose success, in turn, has largely been built on one drug, the antidepressant Celexa. | |
| But Forrest's aggressive marketing of Celexa and flouting of regulations has put Solomon on a far less comfortable kind of stage, one at the center of a debate over the accountability of the pharmaceutical industry and its leadership and the limits of government power. | |
| On April 12th, Solomon learned that the Office of Inspector General, or OIG, which handles the US Health and Human Services Department's efforts to fight waste and fraud in government health programs, is considering, quote, excluding him. | |
| Technically, this means exclusion from doing business with federal health programs, such as Medicare, Medicaid, and the Veterans Affairs Department. | |
| Functionally, it means a ban from the entire healthcare industry. | |
| Personally, it is a censure, the equivalent of an official shaming. | |
| And for American business, it seems to presage an increased government effort to hold executives accountable, making corporate misbehavior personal for leaders who may have seen monetary punishment as a mere line item for shareholders to bear. | |
| The OIG has not announced the decision, at least publicly, but the potential move is already disrupting the company. | |
| Forrest is facing a proxy battle and lawsuit from Carl Icahn, the corporate raider and activist shareholder. | |
| Companies he controls have built a stake of about 7% in Forrest, nominated four new members for its nine-member board, and are suing the drugmaker in the Delaware Court of Chancery for details on why the government is seeking to bar Solomon. | |
| Exclusion is common enough. | |
| The Health and Human Services Department punishes about 3,000 people a year this way, often because of criminal convictions. | |
| Solomon stands out because the Justice Department has never charged him with wrongdoing, nor has he ever admitted to wrongdoing, not even in Forrest's $313 million settlement last year, on charges related to the marketing of antidepressants and the distribution of an unapproved drug, the thyroid medication Levathroid. | |
| If the government decides to exclude Solomon, Forrest would be forced to get rid of him, or lose its business with the government. | |
| Despite the risks, an April 13th company press release disclosing the notice struck a defiant tone, quoting board member William J. Candy III, saying,"'Mr. | |
| Solomon has always set a tone of the highest integrity from the top. | |
| We believe the potential HHSOIG action may well be beyond its legal authority.'" Solomon submitted his response last month according to Leslie Bogdano, a company spokeswoman, who declined to comment further on the matter. | |
| Now he must wait for a decision from the OIG, and the drug industry is left to ask, why Howard Solomon? | |
| He's been in business for longer than I've been alive, says David Anselm, a 35-year-old pharmaceutical industry analyst at Piper Jaffray in New York. | |
| If you want to make an example out of someone, a long-time respected industry veteran, if that kind of person is not immune, what does that say for everyone else? | |
| Solomon has headed Forest Labs since 1977, and under his watch, annual sales have grown from 5.1 million to 4.2 billion in the year ended March 31, 2011. | |
| But in many ways, this story begins in 1994, when Howard's son Andrew first struggled with depression. | |
| Andrew would go on to write about the illness in The Noonday Demon, which won the National Book Award in 2001. | |
| The younger Solomon writes of a father who helped bathe and feed him during the worst of his bouts, his mother died several years earlier, and dedicates the book to the man who gave me life not once, but twice. | |
| Howard Solomon declined to comment for this article and rarely grants interviews, but he did speak with Business Week in May 2002. | |
| I didn't understand what Andrew was suffering, that he was really ill, he said then. | |
| I told him, cheer up. | |
| Hang in there, it will pass. | |
| Andrew made me understand. | |
| The experience inspired Solomon to seek better treatments for his son's illness, eventually leading him to citalopram, an antidepressant already sold in Europe. | |
| Forrest introduced Celetopram under the brand name Celexa in the US in September 1998. | |
| Celexa, one of a class of antidepressants called Selective Serotonin Reuptake Inhibitors or SSRIs, was an instant hit and transformed Forrest. | |
| Company profits grew almost tenfold from 1998 to 2002, with Celexa accounting for 69% of sales that year. | |
| Forrest even skirted the patent expiration cliff, winning approval in 2002, for Lexapro, a version of Selexa that Forrest said was a more potent SSRI than its parent. | |
| Lexapro made up 55% of Forrest's sales last fiscal year. | |
| Solomon's reward has been huge. | |
| He made $8.86 million last fiscal year and more than $8 million in fiscal 2010, in addition to exercising share options worth $21.8 million that year, according to company filings. | |
| Forrest's troubles began in 2001, when Joseph Piacentilli, a non-practicing physician in New Jersey, filed an action alleging that Forrest was providing kickbacks to doctors who prescribed Celexa. | |
| In 2003, Christopher Gobble, a salesman who had been fired in 2002 by Forrest Pharmaceuticals, a subsidiary, filed a whistleblower suit in federal court in Boston, alleging that the company was illegally pushing doctors to prescribe its antidepressants. | |
| To children. He claimed that he had been given a list of pediatric specialists to target, and, as in the earlier case, the doctors writing many prescriptions were given kickbacks. | |
| The Justice Department intervened in the cases and filed its own claims in February 2009, adding Forrest to a growing list of pharmaceutical companies under fire for off-label marketing. | |
| Selling drugs for uses not approved by the US Food and Drug Administration That year, Pfizer agreed to pay $2.3 billion for having illegally promoted a painkiller and three other drugs. | |
| And Eli Lilly reached a $1.4 billion settlement in a case related to the marketing of its antipsychotic drug, Zyprexa. | |
| In September 2010, more than seven years after Gobble filed his suit, Forrest Pharmaceuticals pleaded guilty to three criminal charges and settled civil claims filed by the Justice Department. | |
| Forrest admitted it obstructed the FDA by concealing information, distributed an unapproved thyroid drug, and illegally promoted Celexa for use by children and adolescents. | |
| While Forrest applied to the FDA for pediatric use of Celexa and was eventually denied, the company admitted it had marketed the drug to doctors by hiring speakers to tout its benefits for young patients. | |
| Forrest also admitted it had suppressed the negative results of research in Europe that found Celexa was no more effective in treating depressed children and adolescents than a sugar pill. | |
| Fourteen young patients in that study attempted suicide or contemplated suicide, compared with five in the placebo group. | |
| Court records show. | |
| The criminal and civil settlements added up to a little more than one-fifth of the total sales of Selexa in 2003, the year Gobble originally filed suit. | |
| Forrest's promotion of Selexa in the pediatric market coincided with growing concern over a link between the use of SSRIs and suicidal thoughts in young people. | |
| The FDA in 2005 required drug makers to add the strictest so-called black box warning on SSRIs that explained the increased risk for children and adolescents. | |
| In 2007, the FDA extended the label warning to people 18 to 24 years old. | |
| The September 2010 settlement is where the story would usually end. | |
| Drug company admits wrongdoing, pays fine, goes back to business. | |
| But on October 20th, the Inspector General's office released a memorandum titled Guidance for Implementing Permissive Exclusion Authority, a coincidence of timing that has taken on significance in hindsight. | |
| The OIG regularly excludes doctors and other healthcare professionals convicted of misdemeanors or felonies committed against Medicare, Medicaid or other federal health programs, among other mandatory exclusions under the Social Security Act. | |
| The October rules give greater detail about the government's permissive exclusion authority, including, crucially, the ability to exclude an executive who hasn't pleaded guilty to anything. | |
| The move to use exclusion more aggressively may reflect a sense among regulators that despite success in winning billions of dollars in settlements from drug makers over off-label marketing, companies may consider such loss as merely a cost of doing business. | |
| In the wake of the Pfizer and Lilly settlements, to take two examples, neither CEO lost his job. | |
| In March, Lewis Morris, Chief Counsel to the Inspector General, testified to Congress that, quote,"...we are concerned that the providers that engage in healthcare fraud may consider civil penalties and criminal fines caused to doing business," and said that the government is forced to allow major pharmaceutical makers that have been convicted of crimes and have paid millions in fines to continue to participate in healthcare programs because of the potential patient harm that could result from an exclusion of an entire company. | |
| One solution, he told lawmakers, The OIG declined to comment for this article, and as a matter of policy, never comments on pending legal matters, according to spokesman Donald White. | |
| The concept that a chief executive should take responsibility when bad things happen at a company, no matter what their roles in the misconduct, has precedent. | |
| Under the Sarbanes-Oxley Act, the Securities and Exchange Commission can claw back compensation from executives of companies that restate their financials, even if those executives haven't been charged with or accused of personal wrongdoing, according to Edmund T. Baxter Jr., an Orlando-based partner at the law firm Foley& Lardner. | |
| Some of these companies are making so much money from these sales that there's no amount of punishment that we can heap on the corporation because it's not personal, says Patrick Burns, a spokesman for Taxpayers Against Fraud, a non-profit advocacy group that supports the use of the False Claims Act under which Goble filed his suit. | |
| Burns' argument echoes public outrage that banks and their CEOs have faced few legal repercussions for the financial crisis their risk-taking helped create. | |
| If you make Forrest pay $313 million, then who pays that? | |
| Asks Burns. The answer is the stockholders. | |
| But the people who design these frauds, who ignored these frauds after repeated warnings, as is the case here, they get increased end-of-year bonuses, better stock options, and they get to parachute out. | |
| Industry defenders, on the other hand, note that pressure on drug companies has been increasing. | |
| The government's case against Forrest grew out of Gobble's whistleblower suit, which is a QUI-TAM action under the False Claims Act. | |
| QUI-TAM actions allow individuals to sue a company or person on behalf of US taxpayers and share in any settlement or judgment. | |
| Gobble received about $10 million as part of the Forrest case. | |
| The federal government won more than $11 billion from 2000 to 2010. | |
| In Que Tam healthcare suits, it has joined, including the Pfizer and Lilly agreements. | |
| According to Brain T. O'Connor, a lawyer at Ropes& Gray in Boston, such payouts, along with the incentive to settle rather than spend on litigation, stacked the odds in favor of the government, creating a perception of an epidemic of fraud that may not exist. | |
| Long before Forrest's settlement with the government, Solomon used his annual letter to shareholders to rail against mischaracterizations of the pharmaceutical industry and the overreach of lawyers. | |
| Even as he celebrated the extraordinary success of Selexa in 1999, Solomon complained that the pharmaceutical makers were, pray to marauding strike-sued attorneys who involve us in totally baseless and highly expensive litigation. | |
| He wrote that such abuse of the legal system leads to higher health care costs, and that Forrest's policy was to resist settling these cases. | |
| In a letter to shareholders last year, Solomon continued to defend his company and industry. | |
| The pharmaceutical industry has achieved miraculous victories that benefit all of us, Solomon wrote. | |
| Nevertheless, pharmaceutical companies seem especially vulnerable to extravagant claims based at best on grossly exaggerated and often untotally fabricated events. | |
| As for the possible exclusion, Solomon discussed it in a letter in response to ICANN's attacks. | |
| High River, the ICANN fund leading the proxy battle over Forrest's board, sued Forrest on June 28, seeking more details on the potential exclusion, calling the company's disclosures about the affair opaque, inaccurate, and seemingly designed to reveal the least possible information. | |
| Forrest said the claims are without merit. | |
| Mr. Icahn is also critical of the company's decision to support my challenge to the potential exclusion action, Solomon wrote in a letter addressed to all Forest employees and disclosed in a company filing. | |
| I have not been accused of any wrongdoing by the government, and the HHSOIG's notice of its intention to consider excluding me is an unprecedented action, based solely on my role as the director and officer of the company, and not on any individual conduct. | |
| I remain committed to challenging this potential action through the legal process. | |
| Regulators, however, may again find themselves frustrated. | |
| The company's shares, Solomon pointed out, have outperformed the Standard& Poor's 500 stock index over the past year, three years, and five years. | |
| More to the point, since the company disclosed the potential exclusion, the stock has gained 15%. | |
| Alright, sorry for reading that whole thing. | |
| I know that was pretty dry. And I also know that it's a business article, but what's really instructive is what's missing here. | |
| Nothing about the kids, of course. | |
| I mean, other than there were a few kids who contemplated or attempted suicide in the European study. | |
| But the fact that the pills simply don't work, I mean, that's fraud right there. | |
| I mean, you say that these pills are going to help with depression and they don't do any better or sometimes even worse than sugar pills. | |
| Well, that's fraud, and that should be massive class action lawsuits from everybody involved, but you can't do that. | |
| You can't do that, fundamentally, because people are so terrified at the idea that there's something else going on with depressed or anxious kids than some magical brain chemistry problem, Actually, I have to look in the mirror. | |
| Why was this guy, why was his son depressed? | |
| Well, because his dad's got this kind of ethics where he's continuing to market and sell a drug that he didn't even invent, that he didn't even create. | |
| Where he's been found, at least to some degree, guilty of fraudulent marketing, of bribing doctors, and he's continuing to sell something that has been proven ineffective. | |
| I mean, that's complete fraud. I mean, and it's harming children. | |
| It's harming children. So, of course, I mean, that's why the son is oppressed, because this is the, you know, filthy money cave that he was raised in. | |
| This just disgusting, vile hellscape. | |
| Blood-soaked gold. So, of course, the son's going to be depressed. | |
| And, of course, the father is going to say, well, it's an illness. | |
| We need medication for you. Because otherwise, the father has to look in the mirror and say, geez, what am I doing that's making my kids so depressed? | |
| What kind of environment are they in? | |
| What kind of moral landscape? | |
| Are they staggering through in this family? | |
| I mean, people won't take on SSRIs because then what is the alternative for society? | |
| If society recognizes that these SSRIs, it's all my opinion, but there's some pretty significant science to back this up, that they're all bullshit. | |
| A responsibility abandoning sugar pills If we take those out of the landscape, if we take the myth of mental illness out of the landscape, if we take these hellacious medications out of the landscape, what are we left with? | |
| We can't blame the devil for our bad children or our sad children. | |
| We can't blame brain chemistry for our children. | |
| We can't blame mental illness for our children's badness and sadness. | |
| So then what are we going to have to do as a society? | |
| Well, we're going to have to look in the mirror and figure out what we're doing as a society that's making children so sad and so bad, so to speak. | |
| And so people aren't going to do that. | |
| They're just not going to do that. Society is so desperate for ways to excuse the way it treats its children that, I mean, they'd have to come up with something else. | |
| And I don't know what else they'd come up with. | |
| Once you don't have the devil and bad chemistry, what do you have left? | |
| So it's interesting that none of that is talked about in the article. |
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