Novartis today agreed to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act by making illegal payments to health care providers in China. In doing so, the company becomes the latest drug maker to get punished for paying bribes in order to boost sales in a foreign country.
The settlement also comes just one month after South Korean authorities raided Novartis (NVS) offices in search of evidence the company bribed local doctors.
In China, Novartis employees at two different Chinese subsidiaries gave money, gifts, vacations, and entertainment, among other things, to health care professionals between 2009 and 2011, according to an administrative order filed by the US Securities and Exchange Commission.
The SEC has been eyeing the pharmaceutical industry for the past several years amid concerns that drug makers are paying bribes to unduly influence medical practice overseas. The issue gained particular notice two years ago when Chinese authorities fined GlaxoSmithKline (GSK) nearly $500 million as the result of a bribery scandal.
As for Novartis, its Sandoz unit — which makes and sells generics drugs — arranged for 20 Chinese health care professionals to attend a medical conference in Chicago in 2009. But while in the United States, the company took them on a sightseeing trip to Niagara Falls, paid for their spouses to travel to the United States, provided $150 in “walking around” money, and covered charges at strip clubs.
The same unit also paid health care professionals to analyze patient study data to better understand the use of a particular Novartis drug. However, senior sales and marketing managers were involved in the design and execution of the studies, according to the SEC. And the agency said the effort was a ruse — the studies were used to reward providers who prescribed the drug, but did not yield any medical data.
The agency also noted that the drug maker improperly recorded numerous payments as legitimate expenses for travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies.
At the same time, the SEC said that Novartis failed to “devise and maintain a sufficient system of internal accounting controls and lacked an effective anticorruption compliance program to detect and prevent these schemes. As a result, the improper payments were not accurately reflected in Novartis’s books and records.”
A Novartis spokesman sent us a note to say the issues raised by the SEC “largely pre-date many of the compliance-related measures introduced by Novartis across its global organization in recent years. We believe these measures, which we review and update on an ongoing basis, address the issues raised by the SEC and reflect a broader initiative by Novartis to align and enhance our compliance standards globally.”
Recently, SciClone Pharmaceuticals agreed to pay $12.8 million to settle an SEC investigation into potential violations. Last year, Bristol-Myers Squibb paid $14 million for paying bribes in China. In 2012, Eli Lilly agreed paid more than $29 million to settle charges of bribing foreign government officials to win business in several countries. And in 2011, Johnson & Johnson paid $70 million to resolve FCPA violations.