Pink Sheet Daily
August 15, 2013
Executive SummaryA Novartis sales representative in China has gone on record about fees given to doctors in exchange for prescriptions of a Novartis cancer therapy. Meanwhile, China’s State Administration for Industry and Commerce (SAIC) has started a 3-month long enforcement campaign with a focus on pharmaceutical marketing and medical service.
Barely six months into working as a sales rep for Novartis AG in charge of marketing Sandostatin LAR Depot (octreotide acetate), a saleswoman with a pseudonym of “Li Li” was calling a quit.
The reason, according to Li’s account reported by China’s 21st Century Business Herald, is that she was instructed by her supervisor to give physicians RMB 50,000 ($8,100) in exchange for 50 prescriptions of the cancer therapy, preferably the 30mg dosage. Li was also told to complete the task within 2-3 months.
Li marketed the therapy – indicated for acromegaly and patients with metastatic carcinoid tumors – to major hospitals in Beijing, where the demand for the cancer drug is the largest. Li’s territory included Beijing Union Hospital, People’s Liberation Army 307 Hospital and Military Police General Hospital.
The money was also used to help nurture relationships with oncologists and key physicians in preparation for the launch of Novartis’ Afinitor (everolimus), Li said. China FDA approved Afinitor for kidney cancer in February.
“In the past one month or so, I’ve tried approaching some doctors about the plan, they all accepted it. But to me, it means that I will give money to them. I don’t feel comfortable about it, and decided to quit,” Li said in the report.
Two weeks after submitting her resignation and not hearing from Novartis, Li requested labor dispute arbitration and submitted a 34-page document to Beijing Chaoyang District Labor Arbitration Commission.
In response, Novartis said that the company has initiated an internal investigation. “Upon learning of the matter by the employee, we initiated an internal investigation through our Business Practices Office,” the Swiss firm said in a statement.
“Novartis takes allegations of misconduct seriously and will take appropriate actions depending on the findings once the investigation is concluded.”
Li has made a claim to request RMB 5 million ($810,000) in compensation from Novartis, according to the company.
Pressured To Perform
In her account, Li blamed the bribery on the huge pressure placed on sales reps by Novartis to grow sales month after month.
IMS Health data show Novartis was ranked 11th among all pharma companies in China and seventh among multinational companies in 2012 second quarter hospital sales.
Novartis has been busy launching new products such as Galvus (vildagliptin)for type 2 diabetes in China; it also received approval for VEGF-A inhibitor Lucentis (ranibizumab) to treat wet age-related macular degeneration.
To support new launches, Novartis has been hiring a new sales force to penetrate the Chinese market. According to a dedicated recruitment website, the company is hiring sales reps from Beijing and Shanghai, as well as tier-2 cities such as Tianjin and Chongqing and 22 provinces including Inner Mongolia, Xinjiang and Helongjiang.
With 25% growth in the first quarter and 23% in the first half of 2013, China was cited by Novartis as a standout among all emerging markets where the company has a presence.
The growth is likely to slow down but still sizeable, CEO Joe Jimenez said during the company July 17 earnings call. “So, I'm confident that as long as the markets in China continue to grow like they're growing we're going to continue to see growth. Maybe not 25% every quarter, but my expectation is we'll be ahead of market.”
Manufactured by Novartis’ generics subsidiary Sandoz , Sandostatin LAR Depot is a microsphere formulation of octreotide acetate injection. The long-acting formulation requires once-monthly use. With a price tag of roughly RMB 13,000, compared to immediate-release Sandostatin’s RMB 600, Sandostatin LAR Depot is harder to market in China, and an aggressive 20% monthly sales growth target made it impossible to reach by using regular sales method, Li told local media.
The best course for any company is full disclosure. When it discovers potentially illegal behavior, it should come clean with all its stakeholders. Once disclosure is made, no one can attempt to extort money for keeping a secret. – Richard Cassin, FCPA Blog Founder
While regular sales practices require physician visits and information provision about products, non-regular methods involves kickbacks to doctors, Li said.
Paying fees to physicians has become a particularly thorny issue. French maker Sanofi is battling a charge that it paid RMB 1.69 million to 503 local doctors in the name of Phase IV clinical study research fees.
There have been several counts of internal personnel leaking to reporters about wrongdoings inside pharmaceutical companies, including the highly publicized GlaxoSmithKline PLC case. GSK’s trouble began in January when a tipster sent an email to GSK’s board alleging its China sales team bribed doctors in return for writing prescriptions. The company responded in June saying no evidence was found after a 4-month internal investigation.
One month later, GSK had to acknowledge that some of its executives might have violated laws and apologized for it.
Whistleblowing Or Blackmailing?
The Novartis case is particularly interesting as the line of whistleblowing and blackmailing can be blurred, legal experts say.
“There's sometimes a fine line between whistleblowing and extortion or blackmail,” Richard Cassin, an attorney and founder of anti-corruption compliance portal FCPA Blog told PharmAsia News in a written response. “Whether the [line] is crossed or not depends [on] all the facts and circumstances.”
The initial handling of the matter by Novartis is also puzzling, Cassin said. “If the employer doesn't have clean hands, it may not be in a position to complain too loudly about a demand for payment from a 'whistleblower.’”
Novartis refused to comment whether the company has asked for involvement by police or other authorities.
Facing a potential blackmail demand, companies can choose to deal with the employee or report to authorities, Cassin said.
“The best course for any company is full disclosure. When it discovers potentially illegal behavior, it should come clean with all its stakeholders. Once disclosure is made, no one can attempt to extort money for keeping a secret.”
SAIC Crackdown
On August 14, China’s enforcement agency on commercial practice, the State Administration for Industry and Commerce (SAIC), initiated a crackdown on commercial bribery, with a particular focus on drug sales, distribution and medical services.
According to SAIC’s Rule No. 54 on prohibiting enterprises from abusing market-dominating positions, SAIC personnel are authorized to confiscate illegal revenues and levy a fine that ranges 1%-10% of annual revenues.
In its latest notice to local SAIC branches, SAIC put its focus on bribery in drug marketing, distribution and medical services because the behaviors directly contribute to price inflation and impact people’s interests.
Clamping down on corruption during the bidding process is another focus for the three-month campaign, starting Aug.15 until the end of November. The agency requires increased scrutiny and supervision over provincial tenders.
In one recent case, 73 hospitals in Zhangzhou, Fujian province were found to have taken kickbacks from drug sellers. Physicians returned RMB 20.5 million ($3.35 million) in bribes.
To that end, SAIC said the campaign will focus on both the bribery recipients and givers.
“We have to combine tackling both the source and the process, punishing both the bribery giving and taking behavior, and handling certain large and key cases, to frighten potential violators and create a fair and competitive market environment,” SAIC said.
Executive SummaryA Novartis sales representative in China has gone on record about fees given to doctors in exchange for prescriptions of a Novartis cancer therapy. Meanwhile, China’s State Administration for Industry and Commerce (SAIC) has started a 3-month long enforcement campaign with a focus on pharmaceutical marketing and medical service.
Barely six months into working as a sales rep for Novartis AG in charge of marketing Sandostatin LAR Depot (octreotide acetate), a saleswoman with a pseudonym of “Li Li” was calling a quit.
The reason, according to Li’s account reported by China’s 21st Century Business Herald, is that she was instructed by her supervisor to give physicians RMB 50,000 ($8,100) in exchange for 50 prescriptions of the cancer therapy, preferably the 30mg dosage. Li was also told to complete the task within 2-3 months.
Li marketed the therapy – indicated for acromegaly and patients with metastatic carcinoid tumors – to major hospitals in Beijing, where the demand for the cancer drug is the largest. Li’s territory included Beijing Union Hospital, People’s Liberation Army 307 Hospital and Military Police General Hospital.
The money was also used to help nurture relationships with oncologists and key physicians in preparation for the launch of Novartis’ Afinitor (everolimus), Li said. China FDA approved Afinitor for kidney cancer in February.
“In the past one month or so, I’ve tried approaching some doctors about the plan, they all accepted it. But to me, it means that I will give money to them. I don’t feel comfortable about it, and decided to quit,” Li said in the report.
Two weeks after submitting her resignation and not hearing from Novartis, Li requested labor dispute arbitration and submitted a 34-page document to Beijing Chaoyang District Labor Arbitration Commission.
In response, Novartis said that the company has initiated an internal investigation. “Upon learning of the matter by the employee, we initiated an internal investigation through our Business Practices Office,” the Swiss firm said in a statement.
“Novartis takes allegations of misconduct seriously and will take appropriate actions depending on the findings once the investigation is concluded.”
Li has made a claim to request RMB 5 million ($810,000) in compensation from Novartis, according to the company.
Pressured To Perform
In her account, Li blamed the bribery on the huge pressure placed on sales reps by Novartis to grow sales month after month.
IMS Health data show Novartis was ranked 11th among all pharma companies in China and seventh among multinational companies in 2012 second quarter hospital sales.
Novartis has been busy launching new products such as Galvus (vildagliptin)for type 2 diabetes in China; it also received approval for VEGF-A inhibitor Lucentis (ranibizumab) to treat wet age-related macular degeneration.
To support new launches, Novartis has been hiring a new sales force to penetrate the Chinese market. According to a dedicated recruitment website, the company is hiring sales reps from Beijing and Shanghai, as well as tier-2 cities such as Tianjin and Chongqing and 22 provinces including Inner Mongolia, Xinjiang and Helongjiang.
With 25% growth in the first quarter and 23% in the first half of 2013, China was cited by Novartis as a standout among all emerging markets where the company has a presence.
The growth is likely to slow down but still sizeable, CEO Joe Jimenez said during the company July 17 earnings call. “So, I'm confident that as long as the markets in China continue to grow like they're growing we're going to continue to see growth. Maybe not 25% every quarter, but my expectation is we'll be ahead of market.”
Manufactured by Novartis’ generics subsidiary Sandoz , Sandostatin LAR Depot is a microsphere formulation of octreotide acetate injection. The long-acting formulation requires once-monthly use. With a price tag of roughly RMB 13,000, compared to immediate-release Sandostatin’s RMB 600, Sandostatin LAR Depot is harder to market in China, and an aggressive 20% monthly sales growth target made it impossible to reach by using regular sales method, Li told local media.
The best course for any company is full disclosure. When it discovers potentially illegal behavior, it should come clean with all its stakeholders. Once disclosure is made, no one can attempt to extort money for keeping a secret. – Richard Cassin, FCPA Blog Founder
While regular sales practices require physician visits and information provision about products, non-regular methods involves kickbacks to doctors, Li said.
Paying fees to physicians has become a particularly thorny issue. French maker Sanofi is battling a charge that it paid RMB 1.69 million to 503 local doctors in the name of Phase IV clinical study research fees.
There have been several counts of internal personnel leaking to reporters about wrongdoings inside pharmaceutical companies, including the highly publicized GlaxoSmithKline PLC case. GSK’s trouble began in January when a tipster sent an email to GSK’s board alleging its China sales team bribed doctors in return for writing prescriptions. The company responded in June saying no evidence was found after a 4-month internal investigation.
One month later, GSK had to acknowledge that some of its executives might have violated laws and apologized for it.
Whistleblowing Or Blackmailing?
The Novartis case is particularly interesting as the line of whistleblowing and blackmailing can be blurred, legal experts say.
“There's sometimes a fine line between whistleblowing and extortion or blackmail,” Richard Cassin, an attorney and founder of anti-corruption compliance portal FCPA Blog told PharmAsia News in a written response. “Whether the [line] is crossed or not depends [on] all the facts and circumstances.”
The initial handling of the matter by Novartis is also puzzling, Cassin said. “If the employer doesn't have clean hands, it may not be in a position to complain too loudly about a demand for payment from a 'whistleblower.’”
Novartis refused to comment whether the company has asked for involvement by police or other authorities.
Facing a potential blackmail demand, companies can choose to deal with the employee or report to authorities, Cassin said.
“The best course for any company is full disclosure. When it discovers potentially illegal behavior, it should come clean with all its stakeholders. Once disclosure is made, no one can attempt to extort money for keeping a secret.”
SAIC Crackdown
On August 14, China’s enforcement agency on commercial practice, the State Administration for Industry and Commerce (SAIC), initiated a crackdown on commercial bribery, with a particular focus on drug sales, distribution and medical services.
According to SAIC’s Rule No. 54 on prohibiting enterprises from abusing market-dominating positions, SAIC personnel are authorized to confiscate illegal revenues and levy a fine that ranges 1%-10% of annual revenues.
In its latest notice to local SAIC branches, SAIC put its focus on bribery in drug marketing, distribution and medical services because the behaviors directly contribute to price inflation and impact people’s interests.
Clamping down on corruption during the bidding process is another focus for the three-month campaign, starting Aug.15 until the end of November. The agency requires increased scrutiny and supervision over provincial tenders.
In one recent case, 73 hospitals in Zhangzhou, Fujian province were found to have taken kickbacks from drug sellers. Physicians returned RMB 20.5 million ($3.35 million) in bribes.
To that end, SAIC said the campaign will focus on both the bribery recipients and givers.
“We have to combine tackling both the source and the process, punishing both the bribery giving and taking behavior, and handling certain large and key cases, to frighten potential violators and create a fair and competitive market environment,” SAIC said.