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Press Release

Lehigh Valley Technologies, Inc. to Pay $4 Million to Resolve False Claims Act Liability for Scheme to Avoid FDA New Drug Application Fee

For Immediate Release
U.S. Attorney's Office, Eastern District of Pennsylvania

PHILADELPHIA, PA – United States Attorney William M. McSwain announced today that Lehigh Valley Technologies, Inc. (“LVT”) agreed to a $4 million settlement of allegations under the False Claims Act that it designed a scheme to avoid paying fees associated with new drug applications to the United States Food and Drug Administration (“FDA”).  LVT is a pharmaceutical company engaged in the development and commercialization of certain human drug products that is located in Allentown, Pennsylvania.

The FDA regulates the approval of new drugs.  A company seeking such approval must submit and receive FDA approval of a new drug application (“NDA”) before the drug may be marketed or sold in the United States.  The NDA application is the vehicle through which drug sponsors formally propose that the FDA approve a new drug for sale and marketing.

Congress created the Prescription Drug User Fee Act (“PDUFA”) in 1992 that authorizes and requires  the FDA to collect a “prescription drug user fee” or “application fee” from companies that submit an NDA.  PDUFA gives the FDA a revenue source to fund the new drug approval process.

Under 21 U.S.C. § 379h(d)(1)(C), the FDA will grant a waiver of the fee to a small business applicant submitting its first application.  In making that determination, the FDA must consider “any affiliate of the applicant,” including large businesses or businesses that have already received the fee waiver.  One significant purpose of the fee waiver is to incentivize and level the playing field for small businesses that submit an NDA.  Limiting the waiver to first-time applicants allows a new, small business to enter the industry without the significant costs to entry that the NDA fee would otherwise impose.

Here, LVT had previously received a fee waiver in 2010 for its Oxycodone Hydrochloride NDA. Because it received that fee waiver, LVT was ineligible to receive another such fee waiver.  LVT subsequently desired to submit two NDAs relating to potassium chloride for oral solution.  Had LVT submitted the NDAs in its own name, the FDA would have required it to pay fees totaling over $2 million.

Knowing that it was ineligible, LVT allegedly developed a scheme with two companies to avoid the fees.  Under the terms of the agreements, LVT paid the companies to submit NDAs for potassium chloride for oral solution in their own name.  LVT’s payment to the companies was contingent upon the FDA granting waivers from the prescription drug user fee.  LVT prepared and controlled all of the submissions that the companies made to the FDA relating to the NDA approval.  Neither LVT nor the companies disclosed to the government the agreements despite the government’s request for such information.  Not knowing of the agreements, the FDA granted fee waivers and approved both NDAs.

“As alleged, the sole purpose of the arrangement was for those companies to serve as a front and allow LVT to avoid the FDA fees that the FDA otherwise would have required it to pay,” said U.S. Attorney William M. McSwain.  “The arrangement was illegal.  Like we did today, we will hold companies accountable that scheme to avoid the fees that enable the FDA to carry out its vitally important drug approval process.”

“The FDA laws and accompanying regulations for funding drug approvals are designed, in part, to encourage companies, even small businesses, to create new drugs,” said Mark S. McCormack, Special Agent in Charge, FDA Office of Criminal Investigations’ Metro Washington Field Office.  “When companies attempt to game the system to avoid paying these critical fees, we will bring them to justice.”

This case was investigated by FDA’s Office of Criminal Investigations.  For the U.S. Attorney’s Office, the investigation and settlement were handled by Civil Chief Gregory B. David, Auditor Denis Cooke, and former extern Bianca A. Valcarce.

Updated February 22, 2019

False Claims Act