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WASHINGTON, D.C. -- The University of Minnesota will pay the United States $32 million to settle a lawsuit alleging that for more than two decades, the University illegally profited by selling an unlicensed drug, failed to report to the National Institutes of Health (NIH) income from selling the drug, improperly tested the drug on patients without their informed consent, and inflated billings on 29 federal grants, the Department of Justice announced today.

The unlawful sales of an unlicensed, experimental drug, called antilymphocite globulin (ALG), generated more than $85 million for the University between 1969 and 1992. ALG was intended to help patients accept transplants by suppressing immune reactions to new organs. Over the course of nearly two years of litigation, U.S. District Court Judge Richard H. Kyle in U.S. District Court in St. Paul, Minn., issued a number of decisions establishing that the University would be required to forfeit profits earned on the illegal drug sales and pay the United States for mischarging federally funded grants.

"I am pleased that this has been resolved," said Assistant Attorney General Frank Hunger of the Civil Division. "NIH and the University of Minnesota can devote themselves fully to their important research missions."

The settlement is the largest amount ever recovered by the United States in a case involving NIH grants. In addition, the case makes clear that courts have the authority under the Federal Food Drug and Cosmetic Act (FDCA) and the Public Health Service Act (PHSA) to order drug manufacturers to give up illegal profit earned by selling a drug to the general public before it is proven to be safe and effective.

Sale of experimental drugs like ALG for any price without permission of the Food and Drug Administration (FDA) is illegal. The court noted that "the government is seeking to vindicate public rights when it attempts to disgorge illegal profits that the University allegedly illegally earned from selling ALG in violation of the FDCA. In so doing, the government is acting as the steward of a program intended to protect the public health. The potential harm to the public in consuming drugs which have not been approved or certified in accordance with the law is self-evident."

The University's ALG program built a manufacturing operation that sold the drug to more than 200 institutions internationally earning more than $80 million. Because ALG's study and production was partially funded with NIH grant money, the University was required to, but did not, report its ALG income to NIH so that NIH could adjust the grant amount according to the University's other income sources. The University used the drug without first obtaining the required written informed consent assuring that patients were aware that the drug was experimental and posed certain risks. NIH grant recipients and researchers conducting clinical drug trials must assure that patients receiving an investigational drug receive information about the drug itself, its experimental nature, alternative products and the risks of using it, and consent to using the drug.

The settlement also resolves disputes concerning the University's inflated billings to 29 federal grants. Judge Kyle found the University charged salaries and supplies to federal grants for employees who did not work, and for supplies that were not used, on these grants. To accomplish this scheme, the University's Department of Surgery kept a second set of books to record the mischarging. To resolve these violations, the court ordered the University to pay $2.6 million plus interest of about $2.1 million, which is included in today's settlement.

The conduct underlying the lawsuit was first revealed when the FDA conducted an inspection of the University's ALG program in 1992. As a result, the ALG program was shut down, and the FDA issued a lengthy report detailing the problems that it discovered. In 1993, and again in 1995, the University issued public reports on the problems in its ALG program and with its NIH grants.

On December 19, 1996, the United States intervened in a complaint filed on February 21, 1995, by James Zissler, Ph.D., a professor of microbiology at the University. Zissler filed a qui tam case under the False Claims Act, which allows a private person, called a relator, to file a case on behalf of the United States. The United States then has the option of either intervening in the action, or allowing the relator to proceed on his own. The government will pay Zissler $1.5 million under the False Claims Act. Although the district court initially threw out the False Claims Act counts on the grounds that the University, as a state entity, was not subject to suit under the False Claims Act, the Eighth Circuit Court of Appeals reinstated those counts.

As part of the settlement, the University will ask the Court of Appeals to dismiss another appeal. In 1995, NIH took administrative action to improve grants management systems at the University. The University challenged NIH's action in court days before the United States intervened in this case, although it took some steps to comply with the corrective actions required by NIH. The district court dismissed the University's challenge, reaffirming NIH's right to take administrative measures to protect its grant funds.

The United States intervened in the matter after an investigation by the Office of Inspector General for the Department of Health and Human Services and the Federal Bureau of Investigation. The case was handled by the Civil Division in Washington D.C., with assistance from FDA and NIH.



For more information, contact Chris Watney, Department of Justice, (202) 616-2765 or Campbell Gardett, Department of Health and Human Services, (202) 690-6343.