Off-Label Imbroglio Latest Concern for Drugmakers

Genentech becomes the latest company, and the biggest biotech thus far, hit with a subpoena.
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Genentech

(DNA)

has joined a growing list of drug companies that are in the crosshairs of federal prosecutors cracking down on the off-label marketing of prescription drugs.

Shares of Genentech fell $2.86, or 5%, to $51.13 Tuesday after disclosing Monday night the receipt of a subpoena from the U.S. attorney for the Eastern District of Pennsylvania related to the promotion of Rituxan, the company's treatment for non-Hodgkin's lymphoma. Rituxan sales totaled $1.5 billion in 2003.

Genentech is the largest biotech firm to date to receive a subpoena from government prosecutors over drug marketing practices, but the company is not alone.

Cephalon

(CEPH)

,

Forest Laboratories

(FRX)

,

Wyeth

(WYE)

,

Johnson & Johnson,

(JNJ) - Get Report

,

Eli Lilly

(LLY) - Get Report

and

Bristol-Myers Squibb

(BMY) - Get Report

have all received similar subpoenas from federal and state prosecutors. And in May,

Pfizer

(PFE) - Get Report

agreed to pay $430 million to settle federal allegations of illegal marketing of its epilepsy drug Neurontin.

Health care regulatory expert Ira Loss of Washington Analysis says that given Genentech's strong reputation, it would be a stretch to believe that the Genentech case could come anywhere close to what happened to Pfizer with Neurontin. In that case, Pfizer settled criminal and civil charges that alleged the drugmaker actually paid doctors to prescribe Neurontin off-label for diseases in which clinical studies showed it to have no benefit.

"I don't believe the government has any real leads on Genentech," said Loss. "U.S. attorneys are wasting a lot of time and energy chasing shadows because, ultimately, doctors are free to do whatever they want with these drugs."

That may be so, but "we're seeing more and more of these investigations, which now appear to involve large-cap biotech firms," said Eric Schmidt, biotech analyst at SG Cowen. "This is not an issue that's going away."

At the same time, Schmidt downplayed the near-term impact on Genentech because these investigations tend to take a long time to play out, and there's no clear evidence that the company has done anything wrong. "I think this is something that investors will forget about for six to 12 months," he added.

Schmidt also pointed out that Genentech has never run afoul of the Food and Drug Administration's drug marketing watchdogs when it comes to its marketing of Rituxan. In 1999, though, the biotech firm paid a $50 million fine for marketing human growth hormone for an unapproved use.

In any case, it's not clear to Schmidt what federal prosecutors know, if anything, that should lead investors to believe the company is set to run into significant problems.

While the FDA approves drugs for a specific disease, doctors are free to prescribe them any way they like. FDA rules prohibit drug companies from specifically marketing drugs for such off-label uses, but interpretation of these regulations is not always clear. For instance, a drug company sales representative can provide a doctor with peer-reviewed medical studies that conclude a drug is safe and effective for an unapproved use, but the sales rep can't pitch doctors on prescribing the drug for this off-label use.

"To say there is considerable gray area in the FDA's off-label drug marketing rules is an understatement," said Peter Barton Hutt, a health care attorney and partner at Covington & Burling.

It's not unusual for doctors to use drugs off label to treat cancer, given the life-threatening nature of the disease.

Celgene

(CELG) - Get Report

, for instance, markets a drug called Thalomid as a treatment for leprosy, but since 1998 almost 100% of the drug's sales are for multiple myeloma, another form of blood cancer. Celgene has only recently taken steps to actually get Thalomid approved by the FDA for the treatment of multiple myeloma.

Genentech has FDA approval for Rituxan to treat the "low grade" form of non-Hodgkin's lymphoma, but a majority of sales are for the treatment of "intermediate" or "high grade" forms of the blood cancer. This off-label use of Rituxan, however, is based on a significant amount of published medical data from large clinical trials; Genentech is expected to seek FDA approval for a broader Rituxan label.

"While it would be difficult to predict the outcome of such a possible case, off-label use is common and, in our view, medically necessary; moreover, we believe that the dissemination of information relating to legitimate clinical trial results is covered under the first amendment if properly handled by a drug company," William Blair biotech analyst Winton Gibbons wrote in a research report. Gibbons has an outperform rating on Genentech and his firm doesn't do banking for the company.

Attorney Hutt believes that although federal prosecutors will continue to examine the marketing practices of drug companies, he doesn't see these separate investigations leading to the enactment of newer, stricter laws.

"Companies are aware of what's going on, and are taking steps to make sure they comply with the rules," he says.

In its press release, Genentech said it was cooperating with the U.S. attorney's subpoena, although the company did not disclose the specific information or documents requested.

As originally published, this story contained an error. Please see

Corrections and Clarifications.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

adam.feuerstein@thestreet.com.