Indictment: Ex-CEO ignored red flags as opioid crisis raged
Former Rochester Drug Co-Operative CEO Laurence Doud III stands outside US. District Court in Manhattan, Tuesday, April 23, 2019, in New York, after he was indicted on what federal prosecutors say are the first-ever criminal charges against a drug company executive stemming from the opioid crisis. (AP Photo/Kathy Willens)
The pharmaceutical industry executive hit Tuesday with criminal charges stemming from the opioid crisis doesn't have his name on a museum wing, and his company isn't within earshot of Apple or anyone else on the Fortune 500. Even his $1.5 million paycheck was a paltry sum compared to his peers.
Laurence Doud III, the retired CEO of the Rochester Drug Co-Operative, operated in the fringes of the drug business, obliterating red flags to turn his small New York firm into a supplier of last resort for independent pharmacies whose dubious practices got them cut off by other distributors, an indictment unsealed Tuesday alleges.
Apparently in pursuit of bigger profits for the company and fatter bonuses for himself, Doud encouraged his sales force to sign up new customers with no questions asked, picking up competitors' rejects as he boasted that his company was "the knight in shining armor" for independent pharmacies, the indictment said.
When Rochester's largest customer went from buying 70,000 units of oxycodone per month in October 2012 to more than 200,000 units per month a year later, Doud had its back — overruling his own compliance officers and ordering that the pills keep flowing because it was a "big account," the indictment said.
Doud, 75, surrendered to authorities in New York City and is awaiting arraignment on two counts of conspiracy related to drug trafficking. His lawyer said he would fight the charges. Doud, who retired in 2017, alleged in a lawsuit last year that Rochester Drug Co-Operative tried using him as a scapegoat for its legal and regulatory troubles.
If convicted, Doud faces a mandatory minimum sentence of 10 years in prison, U.S. Attorney Geoffrey Berman said.
Rochester Drug Co-Operative and another former executive were also charged. The company entered into a deferred prosecution agreement, and former compliance chief William Pietruszewski reached a cooperation agreement.
"This prosecution is the first of its kind: Executives of a pharmaceutical distributor and the distributor itself have been charged with drug trafficking — trafficking the same drugs that are fueling the opioid epidemic that is ravaging this country," Berman said at a news conference announcing the charges.
Doud's criminal charges added a new twist to efforts to hold companies and people responsible for the opioid crisis. Other companies and executives have faced lawsuits from a growing list of state and local governments looking to hold them accountable for an epidemic that led to more than 70,000 deaths in 2017.
Last month, New York sued a number of industry players, including the billionaire family behind the company that created OxyContin. The Sacklers have given tens of millions of dollars to cultural institutions, but museums in London and New York have taken their name down as controversy grew over their company, Purdue Pharma.
The state lawsuit also named Rochester as a defendant, along with its Fortune 500 competitors Cardinal Health, AmerisourceBergen and McKesson — which gave its CEO an $18.1 million compensation package in 2017.
According to the indictment unsealed Tuesday, Doud and other top Rochester executives "made the deliberate decision" not to investigate, monitor or alert federal regulators about pharmacy customers they knew were providing opioids to people who wanted them for non-medical uses.
From 2012 to 2016, Rochester's sales of oxycodone tablets skyrocketed from 4.7 million to 42.2 million — an increase of about 800% — and its fentanyl sales soared from approximately 63,000 dosages in 2012 to more than 1.3 million in 2016 — an increase of about 2,000%. During the same period, the company's internal compliance office flagged 8,300 orders but reported just four to the U.S. Drug Enforcement Administration.
An internal alert system flagged about 7,800 orders that exceeded a monthly purchase threshold, but the company still filled most of them without contacting the pharmacy or reporting the activity to the DEA, according to court papers filed with Doud's indictment. Instead, the company raised purchase limits for certain high-volume customers so they could continue purchasing without triggering another alert.
At the same time, Doud's compensation — fueled by performance-related bonuses — increased by over 125%, to more than $1.5 million in 2016, Berman said.
Under Doud's leadership, Rochester was one of the nation's 10 largest distributors of pharmaceutical products, with over 1,300 pharmacy customers — the vast majority of them small, independent shops — and over $1 billion in revenue per year.
The Rochester, New York-based company will pay a $20 million fine to resolve a civil complaint and consented to three years of independent compliance monitoring as part of its agreement with prosecutors. If even one red flag is detected, such as a pharmacy handling lots of cash pill transactions or catering to lots of out-of-state customers, Rochester Drug Co-Operative must cease sales and investigate.
"We made mistakes," company spokesman Jeff Eller said in a statement. "RDC understands that these mistakes, directed by former management, have serious consequences. We accept responsibility for those mistakes. We can do better, we are doing better, and we will do better."
__
This story has been corrected to show that prosecutors say Doud is the first drug industry executive to face drug-trafficking charges, not the first to be criminally charged for helping to fuel the opioid crisis.
__
Follow Sisak at twitter.com/mikesisak