Financial Times
By Stephanie Kirchgaessner
August 12, 2010

The US Department of Justice is scrutinising payments by leading pharmaceuticals companies for hospitality, consultants, licensing agreements and charitable donations in markets around the world as part of a wide-ranging corruption probe.

GlaxoSmithKline, Pfizer, Bristol-Myers Squibb and Eli Lilly, among others, have disclosed being contacted by the DoJ and Securities and Exchange Commission in connection with the investigation. Merck, the US drugs group, announced last week that it had also been contacted and was co-operating with investigators.

An industry attorney familiar with the probe said that the DoJ was looking at whether pharma companies had ignored a “systematic risk” inherent in the global drugs business and ignored obligations under local and US anti-bribery law.

The highly regulated nature of the business, combined with the fact that healthcare officials in many non-US markets were government funded, made the industry a natural target for such a probe, the person added.

The investigation is at a relatively early stage but is considered a priority for the DoJ.

While hospitality – including meals and all expenses-paid travel for conferences – has long been considered a potential risk for pharma groups, the DoJ’s probe is looking at all aspects of companies’ dealings in non-US markets, people familiar with the matter say. That includes the recruitment of physicians for clinical trials. In some markets, the same physicians may serve on regulatory boards that approve or deny drugs.

The DoJ declined to comment. But last November, Lanny Breuer, head of the DoJ’s criminal division, announced that investigators would be focusing on international corruption in the pharmaceuticals industry for “years”.

Mr Breuer warned a conference of pharmaceutical industry lawyers that prosecutors were gearing up for an investigation of international corruption in the sector. The drugs companies took notice.

That threat has now become a reality. Merck, AstraZeneca, Eli Lilly, Baxter, SciClone, and Bristol-Myers Squibb have in recent months received inquiries from the DoJ and the Securities and Exchange Commission in connection with an industry-wide bribery ­investigation.

GlaxoSmithKline, the UK drugmaker, told the Financial Times on Thursday that it too had received “inquiries” from US authorities, but that it disclosed the issue “reactively” only to selected reporters in April.

Pfizer, the world’s largest pharmaceutical group, said in February that it had voluntarily provided the DoJ and SEC with information concerning potentially improper payments outside the US and was exploring resolution of the matter.

There is perhaps no industry that is as vulnerable to violations of US anti-bribery laws as the pharmaceutical industry. In markets round the world, the companies deal, sometimes thousands of times in a single day, with doctors, clinicians, hospital operators and regulators who are considered under US law to be government officials, because they are employed by state-owned facilities.

Under the Foreign Corrupt Practices Act, the US anti-bribery law, companies may not offer items of value to foreign government officials for profit. One industry lawyer involved in the matter said global pharmaceutical companies operating in countries with state-run medical institutions deal with government officials at every turn of their business: whether it is seeking the go-ahead for a manufacturing site; obtaining drug licences; conducting clinical trials; importing drugs; selling and marketing drugs to physicians; or getting a product on to a hospital’s approved list.

“What most companies will find is that all of these areas are risky and, if they don’t train and educate their people, they are going to find themselves with issues. For example, if you have hired customs brokers, how do you know they aren’t bribing officials?” the attorney said.

According to the law firm Arnold & Porter, the DoJ is particularly interested in corrupt payments that may have influenced the reliability or integrity of data in clinical trials performed outside the US. A recent report by the Department of Health and Human Services found 80 per cent of marketing applications for drugs approved by the Food and Drug Administration in the US had relied on at least one foreign trial.

“Companies may find themselves facing critical legal issues if approval of products rested on the results of studies the DoJ deems corrupt,” Arnold & Porter said in an advisory letter to clients last month.

A person familiar with the investigation confirmed that clinical trials were one of several areas the DoJ was examining.

Alexandra Wrage, the president of Trace, a non-profit organisation that helps companies establish anti-corruption practices, said that alleged wrong­doing at pharmaceutical companies could often centre on inappropriately lavish hospitality, such as wining and dining doctors from state-run hospitals at conferences in Bali or Monaco.

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