Galena Not Named Target of Federal Criminal Probe Into Painkiller Use

Updated from 11:52 am EST.

Galena Biopharma
(GALE) isn't the target of a federal criminal investigation that has already led to the arrests of two Alabama doctors, charged with allegedly running a fraudulent pill mill and taking kickbacks to prescribe painkillers.

A criminal probe into Galena was first disclosed in the company's 10-K annual report filed Thursday with the Securities and Exchange Commission. According to Galena, the investigation is focused on Abstral, a rapidly dissolving tablet containing the powerful narcotic painkiller fentanyl.

On Friday at 1:57 pm EST, Galena issued a statement correcting its 10-K. The company said the word "not" was omitted erroneously from its disclosure about the federal criminal investigation into painkiller sales.

The U.S. Food and Drug Administration and the U.S. Attorney's Office in New Jersey are, however investigating Galena for the way it marketed and promoted Abstral, the company said.

Galena began selling Abstral tablets in 2013, but divested the painkiller business in November.

Dr. John Patrick Couch and Dr. Xiulu Ruan, operators of a pain management practice in Mobile, Ala., were among the highest prescribers of Abstral, according to Galena.

In an indictment unsealed last May, federal prosecutors in Mobile allege the two pain doctors wrote 277,982 prescriptions for controlled narcotic painkillers between January 2011 and May 2015. Couch and Ruan also allegedly received kickbacks from medical firms in exchange for writing prescriptions, according to the indictment.

In November, Couch and Ruan pleaded not guilty to 19 criminal counts of drug and fraud charges. The trial in federal court is expected to start later this year.

"We have received a trial subpoena for documents in connection with that investigation and we have been in contact with the U.S. Attorney's Office for the Southern District of Alabama, which is handling the criminal trial, and are cooperating in the production of documents. We are not a target or subject of that investigation," Galena says in its newly corrected statement.

In February, a former sales employee of Insys Therapeutics (INSY) pleaded guilty to violating the federal anti-kickback statute in the same criminal case involving Couch and Ruan, according to Insys. Couch and Ruan were also among the highest prescribers of Insys' fentanyl spray product, Subsys.

In early January, Galena raised $22 million through the sale of stock and warrants to investors. In the SEC document related to the January stock offering, Galena said it did not "believe" it was a target or subject of the federal painkiller fraud investigation in Alabama.

Separately, the SEC is still investigating Galena for hiring outside firms in 2014 to promote its stock while insiders made millions of dollars selling company shares. That scheme cost Galena CEO Mark Ahn his job. In February, Galena and its directors agreed to pay $15 million to settle a class-action shareholder lawsuit related to the stock promotion.

 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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