Did The FTC Harass And Threaten This Drugmaker?
7 CommentsBy Ed Silverman // May 27th, 2010 // 1:06 pm
Here’s a sensational accusation for you. Paul Bisaro, the ceo of Watson Pharmaceuticals, filed papers in federal court the other day accusing the Federal Trade Commission of abusing its power in attempting to stop pay-for-delay deals, which the agency argues are anti-competitive and, therefore, harm consumers (see background).
Bisaro claims the FTC harassed his company and used confidential FDA info in an effort to force Watson to strike a deal with Apotex, another generic drugmaker, to sell a version of Cephalon’s Provigil, a sleep-disorder drug. The FTC is challenging a 2005 deal between Cephalon and several generic drugmakers that were paid $300 million by arguing the payments bought market exclusivity.
His charge follows a subpoena sought last year by the FTC to compel Bisaro to respond to questions in connection with an investigation into that deal. The FTC says Bisaro refused to testify. Bisaro, however, claims the FTC is making “an improper attempt to broker a new business deal” between Watson and Apotex that would “improve” the market, rather than any legitimate pursuit of the FTC’s statutory mission of policing anticompetitive deals (you can read the documents here, here and here).
The filing, which was first reported by MM&M, goes on to claim that Markus Meier, assistant director of the FTC Bureau of Competition’s Health Care Division, “not only suggested that Watson should pursue a business deal with another generic pharmaceutical manufacturer, he expressly warned Watson’s counsel that Watson’s failure to pursue the FTC’s suggested course would likely cause the FTC ‘Front Office’ to initiate an investigation. There can be no dispute that prosecuting the subpoena is retribution for Watson failing to pursue the FTC’s desired business strategy would constitute an abuse of process…The FTC’s pursuit of the subpoena demonstrates that its conduct is nothing short of harassment.” Watson is now pressing the court to be allowed to seek info on the FTC’s contact with the FDA and Apotex.
Anne PME
I seem to recall that they were operating under a CIA until around 2007.
Some Apotex medicines are on FDA import alert. Maybe Watson does not want to be involved with Apotex because of the increased scrutiny and out of consideration for their customers?
It is kind of interesting to see a federal agency try to play match maker.
Anne PME
Correction: I seem to recall that Watson was operating under a CIA until approx 2007.
Condor
Okay — this is very interesting — and a nice find, Ed!
Mind if I do a little legal due diligence here? I may just go read the entire file (available on PACER/ECF), and report back on the FTC’s answer(s).
My (thus far ininformed) hunch is that we are watching a case of a cry-baby CEO — angry that his own personal “corporate welfare” payment-streams were being curtailed — and so throwing what amounts to a tantrum.
A very expensive tantrum, too — because his shareholders are (no doubt) footing the $900 per hour legal bills being racked up for this hissy-fit.
It seems that Watson’s CEO has forgotten what it feels like to face a regulator. . . that actually regulates, forcefully.
Will report back on what I find, but this sure smells — “the fish rots from the head,” right? — and I don’t think it is the FTC’s head.
नमस्ते
Condor
That took only a minute — as Ed has linked the most important documents, above.
This case is ACTUALLY about a CEO refusing to comply with a duly-issed subpoena from the FTC. Watson’s CEO, personally, is the main defendant in an action to enforce the subpoena. It is his refusal to submit to the FTC’s clearly constitutional authority to ask him questions (and under oath, too!) that led to this moment.
Here is the relevant section of the Federal Trade Commission Act, which is directly applicable to Watson CEO Paul Bisaro:
§ 49. Documentary evidence; depositions; witnesses (Sec. 9)
. . .the Commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any person, partnership, or corporation being investigated or proceeded against; and the Commission shall have power to require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation. . . .
. . .in case of contumacy or refusal to obey a subpoena issued to any person, partnership, or corporation issue an order requiring such person, partnership, or corporation to appear before the Commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof.
Upon the application of the Attorney General of the United States, at the request of the Commission, the district courts of the United States shall have jurisdiction to issue writs of mandamus commanding any person, partnership, or corporation to comply with the provisions of this subchapter or any order of the Commission. . . .
So — Mr. Bisaro faces jail if he does not testify about what he knows. If he knows nothing he is in the clear — but we might ask why he should remain as CEO. If he knows about violations of Watson’s CIA, he will have to answer about them — that is within the plain power of the FTC’s charter.
He runs a regulated business. That business made $1.2 billion in gross profits, in the last 12 months, on $3 billion in sales (that’s a pretty high-margin business!). . .
He just hates it when the regulators actually. . . um, regulate — rather than let him operate his own personal candy store, with federal reimbursement of his wares.
By the way, he made 3 million in cash last year (tons more, in equity and incentives) — while refusing to comply with an FTC subpoena.
नमस्ते
Condor
So sorry to run on, here — but this is really astonishing hubris, out of Watson’s lawyers.
FTC has every right to suggest that alternative business arrangements be made, when a violation of Section 5 of the FTC Act is being investigated.
If Watson’s pricing was reasonably believed unfair, or collusive, in violation of Robinson-Patman, by the FTC — it had every right to suggest “alternate structures” that would cure the perceived violation. Viz:
§ 45. Unfair methods of competition unlawful; prevention by Commission
(Sec. 5)
(b). . .Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in or affecting commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. . . . The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission. . . .
Again, it seems that this toy king was offended when a real regulator showed up at his door. Some (unsolicited) advice: Grow up, Mr. Bisaro.
And stop asking your shareholders to front your legal expenses here. You are doing them no good — by refusing FTC’s lawful authority.
नमस्ते
Anne PME
It’s not only shareholders, Watson’s D & O carrier may also have exposure. So, the stockholders may wind up paying the legal fees and increased liability fees. Maybe someone should remind Mr. Bisaro that generics are sold on price and competition is fierce. I guess one way of keeping costs down to pay for increased legal and liabiltiy fees would be to outsource, but Watson has already done this.
Another way would be to divert legal expenses and other resources (like the time and attention of top executives) away from those expensive patent attorneys and their silly ANDA and NDA filings, but long-term, this may not be the best strategy for a pharmacuetical company.
Condor
Cogent points, all, Anne –
It may well be that Mr. Bisaro’s legal fees are presently being “fronted” by the D&O carrier. [Which amounts, as you point out, are ultimately passed on to the shareholders, in increased insurance premiums, over time.]
I say so, because I suspect he is arguing that the FTC’s contempt proceeding amounts to an “accusation” against him — by a governmental entity, while acting in his CEO capacity.
Unless he is ultimately found guilty of gross negligence, affirmative misconduct or breach of loyalty, the D&O policy likely covers his legal defense costs — in fighting the FTC. So he has exactly zero incentive to quit this whining. Thanks for making all of that clear(er) for me.
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