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Gary Giampetruzzi: Is Small Pharma next for DOJ enforcement?

For decades, U.S. prosecutors have touted their big victories over big pharma for violations of U.S. laws prohibiting bribery in the U.S. (the federal Anti-Kickback Statute) and abroad (the FCPA). 

After paying tens of billions of dollars in fines and penalties, it appears that big pharma may have received the message and responded by taking compliance seriously and investing in the resources needed to identify and address risk areas. As noted recently by the Deputy Chief of the Boston U.S. Attorney’s Office’s Health Fraud Unit, Amanda Strachan, big “[p]harma has made some big, positive changes. . . ”

At the same time, a former prosecutor out of the Boston U.S. Attorney’s Office, which has thrived on prosecutions of domestic kickbacks said the “pattern that we saw more and more the last couple years was a small startup company doing everything they can to increase their revenues to make themselves an attractive acquisition target, but not paying enough attention to compliance problems.”

With big pharma supposedly shaping up, it appears that U.S. prosecutors may be shifting their focus to their smaller life sciences brethren, however one would define “smaller” (among some of us in industry compliance circles, we simply refer to them as the “smalls,” with no parameters given — we just know). For any of those so-called small life sciences companies that may not have been paying attention to and learning from the mistakes of their larger counterparts, the time to do so may now be upon them.

But will the prosecutors really go beyond words and target the smalls?

The fact that smaller companies, startups in particular whose main focus may be to remain attractive to potential buyers, are on the radars of prosecutors is no secret. Recently, while commenting on the increase in the number of startups over the past 15 to 20 years, the Chief of the Boston U.S. Attorney’s Office’s Health Fraud Unit, Nathaniel Yeager, said “one of the areas [prosecutors] have concern about is the impact . . . on compliance with federal regulations.” 

It nonetheless remains to be seen whether prosecutors will go after smaller companies with less revenues, and therefore lesser recoveries to be had, and, perhaps most importantly, less headlines potential.

Taking the prosecutors at face value, the smalls, including start-ups, and any other companies that have yet to invest in or prioritize compliance but that hope to remain attractive to potential buyers would be wise to think seriously about compliance now. 

The 2017 OIG Guide (pdf) recommends that companies conduct diligence on their targets.  A similar expectation is noted in the SEC and DOJ FCPA Resource Guide and in ISO 37001. All reflect longtime prevailing standards. 

So larger transaction partners should be conducting retrospective due diligence on their smaller counterparts in order to demonstrate their own commitment to compliance, and to make sure they receive that for which they had bargained. Those companies will devalue or even screen out the smalls that fail to take compliance seriously.

Will the smalls go beyond what are sometimes their own words, and take any needed actions? The good news is that now, more than ever, government guidance and compliance program best practices can be leveraged to help companies of all sizes address their risks and meet expectations of not just regulators and prosecutors, but also possible business transaction partners, which may be their end game. The question cannot be answered now, but the future should reveal whether actions are taken.


Gary Giampetruzzi, pictured above, is global vice-chair of the Investigations and White Collar Defense and Life Sciences Departments and a partner in the Litigation Department of Paul Hastings in New York. Prior to joining Paul Hastings, he most recently served as Vice President, Assistant General Counsel and Head of Government Investigations at Pfizer Inc. He can be contacted here.

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