Department of Justice
Office of Public Affairs

March 28, 2012

Mississippi Pharmaceutical Firm & CEO to Pay $2.8 Million to Resolve Allegations of Illegal Marketing of Unapproved Drugs

 BEAUMONT, Texas – Mississippi-based pharmaceutical manufacturer Cypress Pharmaceutical Inc., its subsidiary Hawthorn Pharmaceuticals Inc. and its CEO, Max Draughn have agreed to pay $2.8 million to resolve civil allegations under the False Claims Act, announced U.S. Attorney John M. Bales today. 
                The government alleged that between 2003 and 2009, Cypress, Hawthorn and Draughn were responsible for marketing three pharmaceutical products that were not approved as safe and effective by the Food and Drug Administration (FDA).  The products were Hylira, a gel used for the treatment of dry skin, Zaclir, an acne treatment and Zacare, another acne treatment. 

                The government alleged that although the drugs lacked the “safe and effective” designation, Hawthorn’s sale representatives promoted the products to physicians and state Medicaid officials using that designation. This caused TRICARE, the military’s health care program, and state Medicaid programs to improperly pay for the three products. The government also alleged that Cypress, Hawthorn and Draughn caused the submission to the Centers for Medicare and Medicaid Services (CMS) of false quarterly reports that misrepresented these products’ regulatory status and failed to advise CMS that the drugs did not qualify as outpatient drugs that were covered for payment.

                Medicaid is partially funded by the federal government.  The federal portion of today’s settlement, including payments due to the TRICARE program, is $1,615,783.  The state Medicaid share of the settlement is $1,184,217. 

                The settlement resolves a False Claims Act lawsuit filed in the Eastern District of Texas by Robert Heiden, a former district sales manager for Hawthorn.  The whistleblower, or qui tam, provisions of the False Claims Act permit the relator to obtain a portion of the proceeds obtained by the federal government.  As part of today’s resolution, Heiden will receive more than $300,000. 

“The marketing and promotion of unapproved new drugs undermines the FDA’s important role in protecting the American public,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division.  “This civil settlement demonstrates our continued commitment to protecting the integrity of the FDA’s regulatory process and ensuring that taxpayer dollars are spent appropriately.”   

                “Today’s settlement strips the defendants of money they should not have been paid and helps reimburse state and federal health care programs,” said John M. Bales, U.S. Attorney for the Eastern District of Texas. 

                “This settlement sends a strong message to those who seek to put the health of American patients at risk by marketing and promoting drugs which have not been approved by the FDA,” said Ilisa Bernstein, Acting Director of the Office of Compliance in FDA’s Center for Drug Evaluation and Research. 

                This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover nearly $6.7 billion since January 2009 in cases involving fraud against federal health care programs.  The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $9 billion.

                The claims settled by this agreement are allegations only; there has been no determination of liability.
This case was handled by Assistant U.S. Attorney Kevin McClendon in the Eastern District of Texas and Department of Justice Trial Attorney Brian McCabe.

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