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AMERICAN THERAPEUTICS INC. FINED $1 MIL. FOR FOUR COUNTS OF BRIBERY AND FRAUD; U.S. ATTORNEY SAYS ATI WILL BE "FAR FROM THE LAST" GENERIC FIRM CHARGED

Executive Summary

American Therapeutics Inc. received a $1 mil. fine after pleading guilty to four counts of paying illegal gratuities, obstruction, falsification of data and failure to meet good manufacturing practices (GMPs) at a sentencing in Baltimore federal court Oct. 18. Judge John Hargrove ordered the maximum $500,000 fine for all four counts. However, two of the four fines were imposed concurrently, making the actual fine $1 mil. instead of $2 mil. American Therapeutics is the first generic drug company to receive a criminal sentence for fraud and obstruction of the government's investigation into the generic industry. U.S. Attorney Breckinridge Willcox predicted that American Therapeutics will be "far from the last" company to be charged with criminal wrongdoing as the government's investigation shifts from the payment of illegal gratuities to FDA officials to other areas of criminal activity. In an Oct. 18 press release, Willcox stated that the American Therapeutics' case "reveals a depressing and sinister picture of the generic drug industry." He predicted that "the picture will get even darker. As heinous as the conduct of American Therapeutics and its former chief executive officer is, and as deserving and appropriate the $1 million fine levied today, the conduct of ATI was altogether commonplace -- and in many ways even benign when compared to some of its competitors." In July, American Therapeutics' former CEO and President Raju Vegesna was sentenced to two years of incarceration and a $50,000 fine in connection with payments of over $60,000 made to former FDA Generic Drug Division officials Charles Chang, David Brancato, Jan Sturm and Walter Kletch. A government memorandum submitted to the judge for Vegesna's sentencing states that the former CEO's "criminal conduct was the most extensive and egregious" of all parties involved in the generics scandal ("The Pink Sheet" July 30, p. 11). However, Vegesna, who was scheduled to begin his sentence on Sept. 26, is currently in India. The former ATI exec was granted permission to return to India prior to his incarceration by Judge Hargrove after Vegesna placed a deed in escrow that effectively transferred his large home on Long Island to the U.S. government and also posted his family's stock holdings in American Therapeutics. Once in India, Vegesna was granted a one-month extension before incarceration after claiming he had contracted infectious hepatitis. Reportedly, Vegesna will be extradited if he does not return by Oct. 26, unless he requests and receives another extension due to ill health. The Oct. 18 sentencing was originally scheduled solely to assess penalties for American Therapeutics' involvement in the payment of illegal gratuities to FDA officials. The three additional charges were contained in an Oct. 4 criminal information filing by Willcox. American Therapeutics elected to waive its right to a trial for the additional charges. According to a company release, "the charges arose as the result of an agreement in principle reached by ATI and the government over 10 months ago." In the first count of the Oct. 4 information, American Therapeutics admitted to violating current good manufacturing practices in its manufacture of erythromycin delayed release capsules 250 mg. The company "manufactured this drug product on non-validated, off-site equipment and intentionally failed to prepare and maintain accurate batch production and control records for this drug product," the information states. U.S. Assistant Director of Consumer Litigation Lawrence McDade indicated at the sentencing that the company's action was "not an isolated incident," as it had "repeatedly falsified" documents. The company admitted in the second count that its ANDA for sulindac tablets knowingly included "production batch records that falsely described the personnel and manufacturing equipment used and falsely identified the dates of certain in-processing testing." The ANDA was filed August 4, 1987. The third count charged American Therapeutics with "corruptly [endeavoring] to influence, obstruct and impede the proper administration of the law" during an October 1988 inspection by FDA investigators. The company concealed from the investigators "various crumbled and discolored reserve samples of the drug product clorazepate dipotassium which American Therapeutics, Inc. was required to maintain" and replaced these samples "with tablets that had been manufactured by the defendant at a different time and which bore different lot numbers and expiration dates," according to the information. American Therapeutics' Attorney Ty Cobb said at the sentencing that the company was not going to attempt to justify its actions, but wanted, instead, to "express contrition and remorse." Cobb pointed out that the drugs named in the information were never put out on the market. He called the $1 mil. agreement a "crippling, hopefully not fatal blow" to American Therapeutics.
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