Gilead To Pay $97M To Settle Kickback Debacle Over Letairis Drug

Gilead has agreed to pay $97 million to settle claims that it violated the False Claims Act by using a charitable foundation to pay illegal kickbacks disguised as copayments for thousands of Medicare patients taking its pulmonary arterial hypertension drug, Letairis, the US Justice Department said.

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The US government alleged that Gilead (GILD) used the foundation as a conduit to pay the co-payment obligations of thousands of Medicare patients to induce them to buy Letairis, according to the findings. From 2007 through 2010, Gilead made payments to the foundation, which, in turn, used those funds to pay co-payment of patients taking Letairis.

In addition, the government claimed that Gilead routinely obtained data from the foundation detailing how much the foundation had spent for patients taking Letairis. It then used this information to decide how much to pay the foundation. Furthermore, it also alleged that, to generate revenue from Medicare and induce purchases of Letairis, Gilead referred Medicare patients to the foundation, which resulted in claims to Medicare to cover the cost of Letairis.

“Like its competitors, Actelion and United Therapeutics, Gilead used data from CVC that it knew it should not have, and effectively set up a proprietary fund within CVC to cover the co-pays of just its own drug,” said US Attorney Andrew E. Lelling for the District of Massachusetts. “Such conduct not only violates the anti-kickback statute, it also undermines the Medicare program’s co-pay structure, which Congress created as a safeguard against inflated drug prices. During the period covered by today’s settlement, Gilead raised the price of Letairis by over seven times the rate of overall inflation in the United States.”

When a Medicare patient obtains a prescription drug covered by Medicare, the beneficiary may be required to make a partial payment in the form of a copayment, coinsurance, or a deductible (collectively copays). Congress included copay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs.

Under the anti-kickback statute, a pharmaceutical company is prohibited from offering or paying, directly or indirectly, any remuneration — which includes money or any other thing of value — to induce Medicare patients to purchase the company’s drugs. This prohibition also applies to the payment of patients’ copay obligations.

Shares in Gilead have declined about 2.9% year-to-date with the $80.35 average price target indicating 27% upside potential lies ahead in the coming 12 months.

Needham analyst Alan Carr earlier this month reiterated a Hold rating on the stock, citing concerns over revenue growth.

“Challenges include competitive environments in HIV, HCV, autoimmune disease, oncology, and cell therapy,” Carr wrote in a note to investors.

The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus is based on 10 Buys versus 10 Holds and 2 Sells. (See Gilead stock analysis on TipRanks).