Regeneron Pharmaceuticals, Inc., executives face a shareholder derivative suit (“Complaint”) alleging that executive officers and directors engaged in an unlawful copay reimbursement scheme for the purpose of subverting Medicare co-pay requirements for Eylea, an injectable macular degeneration drug.
As previously described by Frier Levitt, in 2020, the United States Attorney’s Office for the District of Massachusetts filed a complaint against Regeneron concerning the same alleged conduct. At the time, the government alleged that Regeneron funneled tens of millions of dollars in payments to a third-party foundation, where Regeneron earmarked the money to be used as copayment assistance only for Eylea. Additional allegations included that Regeneron paid the foundation only what it needed to cover expenses for Eylea patients who were Medicare beneficiaries, and that senior management at Regeneron knew the conduct was illegal and took steps to cover up the scheme.
The Complaint at issue is a shareholder derivative suit, which permits a shareholder to bring an action in the name of the corporation against parties allegedly causing harm to the corporation; in this case, the executives tasked with leading the company during the time of the alleged wrongdoing. The Complaint alleges that the defendants breached their fiduciary duties in permitting the scheme to take place, and estimates the damages suffered by shareholders to include: tens of millions in donations to the foundation; $650 million in insider stock sales; legal fees associated with the federal enforcement action; and, loss of reputation, goodwill, and revenue.
The Complaint describes how Xcenda, a healthcare consulting company, recommended to Regeneron that a co-pay assistance foundation be utilized for the purpose of providing patients with financial assistance to cover Eylea’s high co-pay. Nevertheless, the Complaint highlights how Regeneron managers and executives were advised, by both internal stakeholders and Xcenda, that Regeneron: (i) could not permissibly control the operations of the charitable foundations; and (ii) could not permissibly guarantee that assistance would be provided to patients receiving Eylea. However, the Complaint highlights how internal stakeholders calculated donation amounts based on the number of patients using the drug. Additionally, after a marketing and business development team requested that the donation amount to the foundation be significantly increased, internal stakeholders raised concerns about donations and sought to understand the purpose of the increase. However, when questioned about sizable donation requests and the purpose of such a donation by Regeneron’s Manager of Internal Audit, a Regeneron Executive Vice President indicated that he was not “really comfortable providing the documentation” requested by the internal audit employee.
Key Takeaways
Healthcare companies commonly face government enforcement activity, private payor-initiated actions, and qui tam whistleblower suits. As demonstrated by the Complaint set forth above, shareholder derivative suits remain a secondary source of potential exposure for healthcare companies that face government scrutiny. The conduct at issue in the Eylea assistance program has now subjected Regeneron to a variety of claims: a government enforcement action; a suit by Humana alleging Regeneron inflated the cost of Eylea; and now a shareholder derivative suit.
How Frier Levitt Can Help
Nearly every healthcare transaction or innovative care model involves potential federal and state fraud and abuse issues that must be evaluated. Pharmaceutical manufacturers, hubs, distributors, pharmacies, and physicians must be aware that co-pay assistance programs are fraught with regulatory concerns that must be carefully considered prior to the launch of a compliant model. Contact Frier Levitt to discuss your regulatory concerns related to a patient assistance program you intend to develop or one you are interested in participating in.
