By Dan Levine and Marisa Taylor

(Reuters) – A week before Eli Lilly disclosed to regulators that the U.S. Justice Department was investigating its New Jersey factory, the drugmaker told employees that its own inquiry, led by an outside law firm, found no evidence of wrongdoing there, according to a company memo reviewed by Reuters.

On April 8, a group of employees filed an anonymous complaint internally alleging that an executive at its Branchburg, New Jersey, factory had altered documents required by the U.S. Food and Drug Administration.

As Reuters reported last month, Lilly tapped the Washington D.C. law firm Covington & Burling LLP to investigate the alleged alterations, which the employees said were meant to downplay serious quality control problems at the plant producing the drugmaker’s COVID-19 antibody treatment.

In a memo to Branchburg employees on May 20, Nellie Clark, head of the plant, summed up the outside lawyers’ findings: “In the end and very importantly, allegations that Lilly made false statements to the FDA were not substantiated.”

A week after the memo was released to employees, Reuters reported that the Justice Department had launched a criminal investigation focused on the Branchburg plant. That same day, May 27, Lilly reported to the U.S. Securities and Exchange Commission that it had received a subpoena from the department seeking documents related to the factory.

The company reported that it was cooperating with the Justice Department probe and that an outside law firm was also “investigating these allegations thoroughly.”

It was not clear which inquiry – the company’s or the government’s – was launched first and to what extent the subjects coincide. However, as Reuters reported last month, based on three sources familiar with the matter, the Justice Department’s investigation into Lilly includes a review of alleged manufacturing irregularities and records-tampering.

Lilly spokesperson Kathryn Beiser and a Justice Department spokesperson declined to comment. Clark did not respond to a request for comment. A Covington spokesperson did not respond to a request for comment nor to a request for a copy of the firm’s report.

The Covington inquiry is significant because Lilly’s handling of any employee allegations is likely to be considered by U.S. prosecutors as they weigh whether there are grounds to pursue criminal charges, seek civil action, or decline to bring a case at all, several legal experts said.

Government prosecutors often consider whether a corporation made a genuine effort to investigate and address potentially illegal activities once learning of them.

If the Justice Department concludes that an internal investigation was thorough, it can result in a non-prosecution agreement with few, if any, penalties, the experts said. However, a company-led investigation that appears to have been poorly handled could lead to harsher outcomes.

“Whenever a company hires outside counsel to conduct an inquiry, it’s taken extremely seriously by the Justice Department,” said Paul Pelletier, a former long-time federal prosecutor who used to oversee criminal investigations of corporations.

Covington has handled dozens of cases for Lilly over the past 20 years, according to the Westlaw database of legal cases and press releases, including intellectual property matters, personal injury lawsuits and class actions.

The firm also has several lawyers whose reputations would carry weight with the Justice Department and the FDA, including former Attorney General Eric Holder, legal experts said. Gerald Masoudi, the Covington partner who handled the recent inquiry for Lilly, once served as the FDA’s chief counsel. Masoudi did not respond to requests for comment.

ANSWERING DIFFERENT QUESTIONS

The company-backed investigation was based on interviews with more than 100 people, the May 20 memo to Lilly employees said. However, the memo did not respond to all concerns employees raised in their April complaint, which Reuters reviewed.

The memo denies the company made false statements to the FDA. In their complaint, employees said they were broadly concerned that quality control documents the FDA requires companies to maintain had been rewritten or fabricated. The employees did not specify whether these materials had been shown to the FDA.

The company memo said Lilly couldn’t substantiate allegations that employees faced retaliation for refusing to make false statements. It did not address employees’ specific complaints that they faced retaliation for other reasons, other than to say it encouraged employees to “speak up.”

The Branchburg factory first came under FDA scrutiny in late 2019, when agency inspectors began to document numerous quality control problems. By March, 2020, the FDA had deemed the manufacturing issues as “Official Action Indicated,” its most serious category of violation.

Lilly has pledged to address the problems, and said none of them affected drugs in the market. The FDA, which has taken no public action, did not respond to requests for comment.

In March 2021, Reuters reported that a former Lilly human resources officer, Amrit Mula, had identified internally some of the same violations later documented by the FDA. Mula was forced out of the company in early 2019 after Lilly executives sought to downplay her findings, according to a letter demanding compensation for damages that her attorneys sent to the company.

Lilly has denied retaliating against any employees, and no lawsuit has been filed on behalf of Mula.

In October 2020, the Trump administration ordered $375 million worth of Lilly’s COVID-19 antibody therapy bamlanivimab, which is manufactured at the Branchburg plant.

A U.S. Senator, New Jersey Democrat Bob Menendez, called allegations of manufacturing irregularities and records tampering at the Branchburg plant “troubling.” Menendez has sponsored a bill calling for a non-partisan, independent COVID-19 Commission to examine the U.S. pandemic response, including government contracts with companies.

“These reports have raised serious questions that require answers,” Menendez said of Reuters coverage. “I expect that this Administration will coordinate across agencies to get to the bottom of this and that Eli Lilly will fully cooperate with any ongoing investigation.”

(Dan Levine reported from San Francisco and Marisa Taylor from Washington D.C. Editing by Michele Gershberg and Julie Marquis)

---