A Whistle-Blower Rocks an Industry

Doug Durand's risky documentation of fraud at drugmaker TAP is prompting wider probes

In his 20 years as a pharmaceutical salesman, Douglas Durand thought he had seen it all. Then, in 1995, he signed on as vice-president for sales at TAP Pharmaceutical Products Inc. in Lake Forest, Ill. Several months later, in disbelief, he listened to a conference call among his sales staff: They were openly discussing how to bribe urologists. Worried about a competing drug coming to market, they wanted to give a 2% "administration fee" up front to any doctor who agreed to prescribe TAP's new prostate cancer drug, Lupron. When one of Durand's regional managers fretted about getting caught, another quipped: "How do you think Doug would look in stripes?" Durand didn't say a word. "That conversation scared the heck out of me," he recalls. "I felt very vulnerable."

Durand didn't end up in stripes. Far from it. To protect his good name and, as he puts it, to "cover his rear," Durand began gathering the inside dope on TAP and feeding it to one of the country's leading federal prosecutors. It was the first step in what would become a six-year quest to expose massive fraud at the company. Durand's 200 pages of information were so damning that TAP pleaded guilty to conspiring with doctors to cheat the government. And last October, after negotiating a settlement for two years, federal prosecutors announced a record $875 million fine against the company. For his efforts, Durand won an unprecedented award of $77 million, or 14% of the settlement, as allowed under the federal whistle-blower statute.

It wasn't just the 2% kickback scheme that got TAP in trouble. For years, TAP sales reps had encouraged doctors to charge government medical programs full price for Lupron they received at a discount or gratis. Doing so helped TAP establish Lupron as the prostrate treatment of choice, bringing in annual sales of $800 million, about a quarter of the company's revenues.

The government calculates that TAP bilked federal and state medical programs out of $145 million throughout the 1990s. To get some sense of just how big TAP's fine is, consider that it's nearly nine times what Merrill Lynch & Co. (MER ) agreed to pay in May after the New York Attorney General accused its analysts of issuing misleading investment research. The only penalty that comes close is the $750 million that hospital chain HCA Inc. (HCA ) paid two years ago to settle criminal and civil charges of Medicare-billing fraud.

So far, four doctors have pleaded guilty to accepting free samples of Lupron, billing Medicare for them, and pocketing the cash; they await sentencing. Six TAP executives and one urologist face trial for conspiracy to pay kickbacks and defraud Medicaid programs. None was available to comment. At the time of the settlement, TAP said: "Whatever may have happened in the past, we are determined that TAP today and tomorrow will live up to high standards of integrity and business ethics." It has since created an ethics-compliance program, and it declines to comment further. The two companies that formed TAP 25 years ago, Japan's Takeda Chemical Industries Ltd. and Abbott Laboratories, issued similar statements in October and now decline to comment on the settlement.

Durand's successful suit comes as Justice Dept. officials, the Federal Trade Commission, and state attorneys general have all launched an assault against what they believe to be sales abuses by the world's largest pharmaceutical companies. Indeed, such accusations have forced the industry to try to reform itself. The Pharmaceutical Research & Manufacturers of America recently issued voluntary guidelines banning aggressive sales tactics. "Every company is taking a long, hard look at how it does business," says Glenna M. Crooks, president of health-care consultant Strategic Health Policy International Inc. in Washington, D.C., and a longtime friend of Durand's.

It's only recently that Durand, 50, has felt comfortable talking about his experiences as a whistle-blower. A plain-spoken man, Durand was one of eight children and was raised in a blue-collar neighborhood in Pawtucket, R.I. He and his wife Elizabeth, who were high school sweethearts, clipped grocery coupons even when Durand was pulling in $100,000 a year. He worked for two decades at Merck & Co. (MRK ), which vets every marketing campaign with its legal and regulatory teams.

His last position there was senior regional director. "We always took the high road under Doug--including considering pulling a drug off the market when the Food & Drug Administration questioned it," says a former co-worker.

Not so at TAP. The company had a numbers-driven culture; top reps could earn $50,000 annual bonuses. They lavishly courted doctors with discounts, gifts, and trips. On his first day, Durand was stunned to learn that the company had no in-house counsel. At TAP, "legal counsel was considered a sales-prevention department," he says.

At first, Durand shrugged off such red flags. TAP had lured him with a salary of $140,000, a promise of a $50,000 bonus, and a big assignment. At that point, TAP was a niche player. Then-President Yasu Hasegawa wanted Durand to go after the mass market with treatments for prostate cancer and ulcers. "The job seemed like a great idea at the time," he says.

But Durand soon realized that Hasegawa wasn't really interested in change. When Durand talked about trying to earn the trust of doctors, reps rolled their eyes. At TAP's 1995 launch of ulcer drug Prevacid in Palm Springs, Calif., the main attraction was a party featuring "Tummy," a giant stomach that belched fire. "There was no science, no discussion of the drug," he says.

Just how little science would be used to promote the drug, Durand quickly learned. In Long Beach, Calif., he visited a urologist who had received a big-screen TV from a TAP rep. Turns out TAP had offered every urologist in the country (there are 10,000) a TV, as well as computers, fax machines, and golf vacations. Durand says his angry demands for information about other giveaways were ignored.

TVs weren't the most troubling freebie. Durand discovered that reps could not account for half of their Lupron samples, even though federal law requires it and losing track of even a single dose could have resulted in a fine of up to $1 million. Durand tried fixing the problem the TAP way: He offered an extra year's salary to those who kept accurate records. It worked. But senior management soon killed the bonus offer, and the reps stopped following the rules. "Most of what I did there was resisted, undermined," Durand says. Hasegawa, who has returned to Takeda's headquarters in Tokyo, declined to comment. At the same time, Durand says, "some of the doctors were so cocky. They'd brag, `Oh there's my Lupron boat, my Lupron summer house,"' referring to the fact that they had taken kickbacks or freebies and used them to buy some extravagance.

Durand grew increasingly concerned. Colleagues told him he didn't understand TAP's culture. He was excluded from top marketing and sales meetings. Then came the crack about how he would look in stripes. Durand's stomach knotted in fear that he would become the company scapegoat. Yet he felt trapped: If he left within a year, he wouldn't be able to collect his bonus. He also doubted that anyone would hire him if he bolted so hastily.

In desperation, he called Crooks, who had been a colleague at Merck. They met at a secluded bar near the Philadelphia airport. Appalled at his tale, she told him to "get out as quick as you can." Her advice cracked Durand's tough exterior. "After keeping all this inside for months, I finally broke down and told my wife," says Durand. She had stayed behind in Pittsburgh to see their youngest daughter through her final year of high school.

Elizabeth Durand was terrified. She urged her husband to call the companies that had offered him jobs before he joined TAP, but the positions had been filled. Financial concerns weren't what scared her most, though. "I knew he wouldn't take the easy way out and just leave," she says. "He'd try to make things right."

Soon after, Durand began to secretly document TAP's abuses. For two months, he sneaked papers home to copy, staying up for hours to type explanatory notes. On Crooks's advice, Durand mailed his binder to Elizabeth K. Ainslie, a Philadelphia attorney with close ties to James Sheehan, an assistant U.S. attorney specializing in medical fraud. Ainslie was impressed with his material. "Many think they're whistle-blowers, but most are just disgruntled employees," she says.

Ainslie urged Durand to sue TAP under the federal whistle-blower program, which allows an insider to file a civil complaint alleging fraud against the government. Typically, the informant then meets with government attorneys; if they decide to proceed, the investigation is conducted in secret. Companies learn of it as the government issues subpoenas, but executives aren't supposed to know who blew the whistle. Usually, the company will negotiate a settlement to avoid a trial, as TAP did. If not, insiders can testify secretly against their employers.

It wasn't easy for Durand to decide to file a suit. "I didn't even know about the law when I first approached Ainslie," he says. "I wanted to leave a trail showing I was on the side of the government, not working to cover up fraud. The idea of suing as a whistle-blower intimidated me. Nobody likes a whistle-blower. I thought it could end my career." Indeed, whistle-blowers live for years as double agents with no guarantee that their personal risk will result in a trial, let alone a victory. "I asked myself all the time, is it worth taking Liz and the kids through this?" says Durand. "In the end, I always found myself believing that it was the right thing to do."

After filing the suit, Durand left TAP for Astra Merck in February, 1996, but wasn't supposed to tell his new employers about the case. For the next four years, the government conducted its own investigation into Durand's allegations, which included grilling him about the documents he had collected. It was an overwhelming experience at first. "I was put in a conference room in Philadelphia with all kinds of different federal agents," he says. "I didn't calm down until the end, when everyone started greeting my attorney as an old friend. It was then I knew that I was in good hands." Because the government often asked Durand to testify on just a day's notice, he had to scramble to make excuses to take off. He almost blew his cover early on when he ran into a group of Astra Merck executives in the Chicago airport; they thought he was vacationing in Orlando. "It was wrenching, terrible," recalls Durand. "I never knew if someone would discover me as a whistle-blower. And the government was always cryptic--inching along."

Nor is Durand's ordeal over. He still has to testify in the trials of the six TAP execs, five of whom used to work for him. Durand doesn't worry too much about TAP, though he does "feel sorry" for those indicted. His wife doesn't: "Doug banged his head against the wall, and nobody would listen," she says. "They knew what they were doing."

Durand's suit may well be the first of several that challenge potentially fraudulent practices in the drug industry. Schering-Plough Corp. (SGP ), Merck-Medco Managed Care LLC (MRK ), the pharmacy-benefit management unit of Merck, and others have received subpoenas from the U.S. Attorney in Philadelphia. That investigation may focus on whether drugmakers gave discounts or kickbacks on certain drugs to companies such as Merck-Medco while charging higher prices to the government. All those involved say they are cooperating with the inquiry. And Merck-Medco says its actions were legal. "Thanks to Durand and other whistle-blowers, there's a revolution coming in how drug companies set pricing, " says James Moorman, president of public interest group Taxpayers Against Fraud in Washington.

At the same time, state attorneys general are going after drugmakers that may be promoting unapproved uses of their products. Pfizer Inc., for example, has disclosed that a number of state AGs, as well as the U.S. Attorney in Boston, are looking into its marketing of the popular epilepsy drug Neurontin. Those inquiries appear to follow allegations by a whistle-blower. Pfizer (PFE ) says it is cooperating with the authorities and points out that the inquiries concern Warner-Lambert Co., which it acquired in 2000. And the Federal Trade Commission is conducting a study of the questionable legal maneuvers drugmakers often use to delay competition from generic rivals.

Durand is more than happy to have left the industry behind. After collecting his $77 million--and paying $28 million in taxes--he retired to West Florida to be near his parents. They still like to shop at Wal-Mart, so he takes them there every week. And Durand and his wife continue to clip grocery coupons from the Sunday newspaper. But he did buy a new Lexus, a small reward for a reluctant millionaire.

By Charles Haddad, with Amy Barrett, in Philadelphia

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