January 22, 2012 4:06 pm

Pharma groups brace for costly settlements

Medical companies are braced for a series of costly settlements this year over actions brought by US agencies for alleged bribery and aggressive marketing practices overseas, even as they seek to raise ethical standards and improve self regulation around the globe.

Pfizer is close to a deal with the Department of Justice concerning “potentially improper payments” outside the US, while probes are also under way against drug companies including GlaxoSmithKline, Merck, Baxter, BMS, Eli Lilly, AstraZeneca and Smith & Nephew.

Bribery graphic

Bribery graphic

“There are a number of actions coming,” says Paul Bisaro, head of Watson, the US generic medicines company. “The probes are causing a lot of people to sit up and take notice.”

The actions reflect an increasingly aggressive attitude by countries, led by the US, to tackling corruption. But companies are concerned that they are being sometimes unfairly pursued by multiple investigators, often with little choice but to co-operate and settle out of court.

Last year, J&J paid $70m to US prosecutors and £5m to their British counterparts over kickbacks to the former Iraqi regime and “improper payments” to healthcare employees in Greece, Poland and Romania, which also led to a suspended jail sentence for one former executive.

AstraZeneca, Actavis, Sanofi, Roche and PharmaSwiss are among the companies drawn into a corruption probe opened in Serbia in 2010, intensified by the suicide earlier this month of one of those arrested, the former head of the Institute of Oncology and Radiology.

Figures compiled by Trace International, a US-based non-profit group that tracks foreign corruption, show that the US dominates prosecutions outside its own territory, followed by the UK and Germany. That reflects gradual implementation of anti-corruption measures approved by the UN and the Organisation for Economic Co-operation and Development.

Healthcare probes accounted for 12 per cent of all international enforcements brought from 1977-2011, says Alexandra Wrage, president of Trace International. “Healthcare is definitely a growing sector. It can be riskier than other industries because there is a high volume of often very low dollar transactions, each carrying the risk of a bribe.”

The long tradition of gifts and hospitality in the sector, aimed at doctors, pharmacists, government officials and others, increases the potential for problems. With many of the intermediaries under investigation often working for multiple companies, there is also a high risk that one probe leads to others.

US legislation providing financial incentives to whistleblowers has helped fuel investigations, but many cases cited by pharmaceutical companies in their regulatory listings have followed voluntary disclosures to regulators after executives have themselves identified problems in their own foreign operations.

Ms Wrage stresses that heavily regulated industries, including defence and healthcare, tend to be prominent in corruption cases. This is “not because they are inherently more corrupt, but they typically have more sophisticated compliance teams in place which are more comfortable with disclosure”.

One senior US pharmaceutical executive expresses frustration that companies are often forced to settle, both to bring an end to otherwise long drawn-out cases attracting negative publicity, and because even the threat of challenging corruption cases brings the danger of losing government contracts.

Others point out that the US often “piggy backs” on existing national investigations rather than undertakes its own probes, “double dipping” on top of any national penalties and creating “double jeopardy” by triggering separate prosecutions of the same case in different jurisdictions.

Following multibillion-dollar domestic settlements in recent years, notably in the US, companies have substantially strengthened their own internal codes of conduct, as well as the guidelines of their trade bodies. Many current probes predate such moves, but are moving only slowly towards settlement.

Companies complain that recent enforcement and tough self-regulatory action is unilateral, partial and potentially counterproductive. Marc de Garidel, head of Ipsen, the French drug group, says: “Every company is trying to reinforce its own standards. But there are always two parties when it comes to corruption, with the other side encouraging it.”

Western pharmaceutical companies also risk being left at a disadvantage compared with rivals that are less concerned with corruption. “I don’t think any time soon we’ll see the Chinese government go after its own state-owned entities, and it’s not likely in Russia or India,” says Ms Wrage. “One Chinese businessman told me ‘it’s our competitive advantage’.”

. . .

Self-regulation

The pharmaceutical industry’s global trade association has investigated only a handful of cases of alleged abuse over the past five years, raising questions over its capacity to conduct credible self regulation.

Since the creation of a new code of ethics in 2007, the International Federation of Pharmaceutical Industries and Associations (IFPMA), based in Geneva, has examined just four complaints against member companies and brought no disciplinary action against any.

Separately, the European Federation of Pharmaceutical Industry Associations, a pan-European Union trade body, has recently strengthened its guidelines but relies on national affiliates to detect and enforce action against abuses.

The organisations stress that companies and national trade associations have toughened their codes in recent years and have the primary responsibility for enforcing ethics codes. But critics argue most self-regulatory bodies have no teeth and more aggressive enforcement is required.

Tim Reed, head of Health Action International, a Brussels-based watchdog, says: “Some codes of conduct are good. But it’s in the implementation that they fail. You need an independent body to police them, with penalties imposed by legislation.”

The Association of the British Pharmaceutical Industry has one of the tougher codes of practice, but its regulatory arm relies on “naming and shaming”. It issues regular reprimands to member companies for direct marketing to consumers of medicines, and excessive hospitality offered to doctors. But its penalties are limited to public criticism and suspension of membership, rather than fines.

One of IFPMA’s probes related to activities in the Philippines of Sandoz, the generic drugs arm of Novartis of Switzerland, was withdrawn after the parent company resigned from the trade body. A second against Pfizer in South Africa for questioning the quality of generic medicines was dropped after the country’s own Advertising Standards Authority upheld a complaint without penalty against the company.

Andrew Jenner, director of innovation at IFPMA, said: “We are not the highest court in the land, but fill a gap when there is no local equivalent. More and more national associations are adopting their own codes, and self-regulation is far more robust than 15 or 20 years ago.”

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