On Tuesday, August 2, 2016, pharmaceutical and biotech company Shire PLC filed a Form 8-K announcing a possible resolution to an ongoing FCA investigation into the sales and marketing tactics of Shire’s “Dermagraft” skin product. The episode illustrates how the FCA can have significant consequences for mergers and acquisitions, imposing residual obligations years after an acquisition, and again underscores the utility of dedicated FCA due diligence.
Shire acquired the Dermagraft business line in 2011, only to sell it three years later in 2014 for a $650 million loss recognized later that year. “Following the disposal of the Dermagraft business in January 2014, Shire retained certain legal liabilities including any liability that may arise from th[e] investigation.” Prior company filings suggest that the U.S. Department of Justice (DOJ) has been investigating the Dermagraft business line since as early as 2012. Tuesday’s announcement confirms that the settlement will resolve all of the DOJ’s claims under the FCA that may have been exposed during the investigation.
The company specifically stated that it “has reached an agreement on a proposal for a civil settlement in the amount of $350 million plus interest . . . .” Comparatively, an employment lawsuit filed against Shire in 2013 alleged that, initially, the DOJ “was seeking approximately $1.5 billion in connection with th[e] investigation.” If true, the proposed settlement amount represents a steep discount to the liability originally sought by the agency—perhaps a proverbial nod to the company’s ongoing assistance in the years-long investigation: “Over the last several years, Shire has been cooperating fully with these investigations. As part of its efforts to cooperate, Shire has engaged in discussions with the DOJ about a possible resolution.” The settlement remains subject to further negotiation and final approvals. States with Medicaid-related claims may also elect to opt out of the deal—leaving the company exposed to any corresponding liability not covered by the final settlement.
