Novartis Must Face Whistleblower Claims of Paying Kickbacks for MS Drug Promotion

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A U.S. appeals court on Friday revived a whistleblower lawsuit against Swiss pharmaceutical company Novartis, accusing the company of paying illegal kickbacks to doctors to promote its multiple sclerosis drug, Gilenya. The 2nd U.S. Circuit Court of Appeals in Manhattan ruled 3-0 that Steven Camburn, a former Novartis sales representative, can proceed with his claims that Novartis violated the federal False Claims Act through fraudulent “sham” speaker events designed to increase Gilenya sales.

Camburn alleges that Novartis paid doctors substantial sums of money and treated them to dinners at upscale restaurants to speak at events that were presented as educational but were actually social gatherings. These events allegedly led to fraudulent claims being submitted to government health insurance programs, including Medicare, Medicaid, and TRICARE, for Gilenya prescriptions influenced by kickbacks.

Circuit Judge Myrna Perez stated that Camburn’s allegations—including the holding of speaker events with minimal attendance, excessive payments for canceled events, and selecting doctors who would promote prescriptions—created a “strong inference” of Novartis’ intent to induce fraud. The court aligned with other federal appeals courts, agreeing that when compensation has the purpose of inducing the purchase of federally reimbursable healthcare products, it violates the federal Anti-Kickback Statute.

The decision reversed a September 2022 dismissal by U.S. District Judge Kimba Wood and sent the case back to her court for further proceedings. Camburn’s lawyer, James Miller, expressed confidence in addressing the core allegations in court.

Camburn filed the lawsuit in May 2013, shortly after Gilenya was approved for federal use. The drug’s sales have since declined due to competition from generics, dropping from $3.22 billion in 2019 to $925 million in 2023, with only $443 million in sales in the first nine months of 2024.

In 2020, Novartis agreed to pay over $729 million to settle U.S. government charges for similar kickback violations. The case is identified as US ex rel Camburn v. Novartis Pharmaceuticals Corp, 2nd U.S. Circuit Court of Appeals, No. 22-2708.

Vanguard Reaches Agreement with FDIC on Bank Stake Control

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The U.S. Federal Deposit Insurance Corporation (FDIC) has reached an agreement with Vanguard to implement stricter rules regarding the firm’s ability to take large stakes in U.S. financial institutions. This deal, made public on Friday, strengthens the FDIC’s ability to monitor Vanguard’s investment activities, ensuring that the firm’s passive investment strategy in FDIC-supervised banks does not lead to undue influence over the banks’ operations.

The agreement is designed to prevent the largest asset management firms, such as Vanguard and BlackRock, from affecting the decision-making processes of major U.S. banks, even when they acquire significant stakes through passive investment funds. In a statement, Jonathan McKernan, an FDIC director, highlighted academic concerns regarding the risks of concentrated ownership and the concentration of power among institutional investors.

Under the terms of the agreement, Vanguard is prohibited from engaging in activities that could influence the management or policies of FDIC-regulated banks or their subsidiaries. Vanguard confirmed that this prohibition aligns with its existing practices, as the firm is built around passive investing and has long pledged to maintain a non-interfering approach.

To ensure compliance, Vanguard will be monitored by the FDIC, particularly regarding any informal interactions it might have with the management of FDIC-regulated banks. The deal with Vanguard does not mention a similar arrangement with BlackRock, and BlackRock has not yet responded to requests for comment.

 

OpenAI Plans Transition to Public Benefit Corporation: What It Means

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OpenAI announced on Friday that it plans to transition its for-profit arm into a Delaware public benefit corporation (PBC), aiming to raise capital while staying competitive in the fast-paced and costly AI race against companies like Google. This shift aims to create a more investor-friendly structure while maintaining OpenAI’s commitment to supporting charitable initiatives.

What is a Public Benefit Corporation (PBC)?

A PBC is a for-profit entity that is legally obligated to pursue one or more public benefits, such as social or environmental goals, alongside its financial objectives. Delaware introduced PBCs in 2013, and as of December 2023, 19 publicly traded PBCs exist.

OpenAI’s current structure is described as a for-profit entity controlled by a non-profit organization, with capped profits for investors and employees. Under the new structure, the non-profit will own shares in the for-profit arm, which will continue to fund the non-profit’s charitable mission, focusing on areas like healthcare, education, and science.

Key Differences Between PBCs and Other Corporate Structures

While both PBCs and traditional corporations are for-profit, PBCs must legally pursue public benefits. Unlike non-profits, which reinvest profits into their mission and are tax-exempt, PBCs are not eligible for special tax exemptions. However, PBCs must report on their progress towards their goals, with shareholders holding significant sway over the company’s alignment with its mission.

Limitations of PBCs

Choosing the PBC structure doesn’t guarantee that a company will prioritize its social mission over profit. While the law requires the board to balance profit-making with its mission, the law does not enforce the mission’s prioritization. Critics argue that publicly traded PBCs may be more vulnerable to takeovers since their public benefit goals could be seen as conflicting with profit-maximizing interests.

Other Companies with the PBC Structure

Rivals such as Anthropic and Elon Musk’s xAI have adopted the PBC structure, as well as other companies like Allbirds, Kickstarter, Patagonia, and Warby Parker. These companies blend social or environmental goals with their business models to appeal to socially-conscious consumers and investors.