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PAR/QUAD FINED OVER $400,000 FOR ILLEGAL GRATUITIES PAID BY FORMER EXECS TO FDA REVIEWERS: FIRST LEVYING OF CORPORATE FINES IN GENERIC SCANDAL

Executive Summary

Par Pharmaceutical and its subsidiary Quad were fined a total of $400,400 at a January 11 sentencing hearing in Baltimore federal court by Judge John Hargrove. In imposing the penalties, Hargrove pointed to the need to rebuild public faith in generic drugs, which he said had been "shaken" by the scandal, and to assure other generic drug firms "that [Par and Quad] receive no advantage from and are sufficiently penalized for their criminal actions." Quad Pharmaceuticals was fined $250,000, Quad's parent company Par was fined $150,000 and each firm was charged a $200 special assessment. Par and its subsidiary are the only corporate entities to be named to date in the indictments resulting from the federal investigation into generic industry wrongdoing. The Par and Quad executives responsible for the illegal gratuities paid to FDA employees have already received sentences. On Sept. 13, the former president and CEO of Quad, Dilip Shah, was fined $250,000 and given an 18 month suspended prison sentence, 60 days of work release and a year of community service after pleading guilty to paying a total of $32,000 in illegal gratuities to FDA Office of Generic Drugs reviewers Charles Chang, David Brancato, and Walter Kletch ("The Pink Sheet" Sept. 18, 1989 p. 2). In October, former Par Senior VP Ashok Patel received a $150,000 fine, a year's suspended sentence and a year of community service after pleading guilty in April 1989 to paying $3,500 to Chang and Brancato ("The Pink Sheet" Oct. 23, 1989, p. 4). First Assistant U.S. Attorney Gary Jordan told the court at the Par/Quad sentencing that his investigation has failed to establish any criminal involvement of any officials at either company other than Shah and Patel. Nevertheless, Jordan argued, stiff penalties should be administered to the two corporate entities for three reasons. First, Jordan asserted that the unlawful payments were "not isolated, aberrant acts" but part of a pattern of dishonest activity by the companies' executives designed to benefit the corporations. Second, Jordan said, "we want to encourage high ethical standards in the generic drug industry...you can lead a horse to water, and you can't necessarily make him drink, but you can increase the chance that he will." Finally, he maintained, "we want to show other corporate representatives of those companies who have not engaged in this criminal conduct, who have not cheated, that these companies [Par and Quad] are being punished and are not receiving any competitive advantage as a result of criminal behavior." Jordan requested fines of $300,000 for Quad and $200,000 for Par. Quad merited the higher of the two fines, he said, because, "the conduct of the Quad representative [Shah] is the more egregious in length of time and the amount of money paid, than that of Par." In a statement on the sentencing, Par said: "While we do not welcome this sentence, we accept it as one means to demonstrate our disdain for the behavior involved and our sincere regret that it occurred." In addition, the company pledged to conduct its business "in accordance with the highest standards of integrity." Par said that it has "established safeguards to ensure that incidents such as occurred in these matters will never be repeated" as well as an "ethics program" for its employees.

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