Evaluation of the Worldwide Enforcement Environment for ... · GSK China reported to spark investigations in U.S. and U.K. Negative publicity, loss of business − Bloomberg report,

Evaluation of the Worldwide Enforcement Environment for Pharma and Medical Devices

Michael K. LoucksPartner, Health Care Enforcement and LitigationSkadden, Arps, Slate, Meagher & Flom LLP & Affiliates

Thomas G. Gunning

Senior Vice President and General CounselMerck Serono

May 7, 2014 8th Pharmaceutical Compliance Congress and Best Practice Forum

2

Thomas Gunning, Esq. Merck Serono

Global Enforcement -

Pharma Congress (Dubai) / May 2014

Michael K. Loucks, a nationally recognized health care fraud prosecutor, joined the firm as a litigation partner in the Boston office in July 2010. With 25 years in public service, Mr. Loucks most recently served as acting U.S. attorney and first assistant U.S. attorney for the District of Massachusetts, where

he led major criminal and civil investigations, as well as many of the most high-profile health care fraud prosecutions of the past two decades.

Since joining Skadden, Mr. Loucks’

practice has focused on representing companies in government criminal investigations, in False Claims

Act and other civil litigation, in regulatory matters with the Food and Drug Administration and the Office of Inspector General, and in Foreign Corrupt Practices Act investigations. He has represented, among others, U.S. and international pharmaceutical and biotech companies; medical device companies; health maintenance organizations; physician-owned hospitals; an ambulance provider; a seafood processing plant; a publishing company; a genetic testing laboratory and its owners; and a United States senator. He has done work on

matters in Brazil, the Ukraine, Serbia and Germany, in addition to his work

in the United States. His government investigation work has involved off-label promotion and anti-kickback issues; alleged violations of the Clean Air Act; and FCPA issues. He and his Boston team have successfully achieved the termination, without either prosecution, the pursuit of a civil action, or the execution of a settlement agreement, of numerous government investigations. Mr. Loucks and

his team also have assisted in due diligence reviews in mergers and acquisitions involving nursing homes, pharmaceutical benefit managers and retail pharmacies, and hospitals.

Thomas Gunning is Senior Vice President and General Counsel of Merck Serono where he is responsible for managing the organization’s legal affairs. He is also a member of the Pharmaceutical Executive Committee.

Mr. Gunning spent the first 15 years of his legal career at the Boston office of Nixon Peabody LLP. At Nixon Peabody LLP, he was a partner in the Corporate Law Department and served as co-chair of its Emerging Business Group. He has represented start-up and established companies in the biotech, medical device, software, internet / e-commerce and alternative energy industries.

Michael Loucks, Esq. Skadden, Arps, Slate, Meagher & Flom LLP

General Observations About Worldwide Enforcement Environment

Countries all over the world are adopting anti-bribery laws and requiring effective compliance: U.S., Germany, U.K., Russia, Brazil and China all have new laws or guidance on what is expected

Pharma and medical device companies continue to be a target of enforcement worldwide

−

Likely to continue given global difficulties in paying for health care

Every case anywhere in the world is a big case with potentially serious and far reaching implications for your company

−

Increasing global cooperation

−

FCPA enforcement –

U.S. challenging bribery all over the world and an ex-U.S. case can be prosecuted twice –

one locally and then again in the U.S. under FCPA

Prevention through global compliance programs designed to prevent improper activities is key

−

“Paper”

programs not implemented can be enforcement targets

−

When prevention fails, a good program remains “cost of entry”

to presenting any credible defense

33 Global Enforcement -

Pharma

Congress (Dubai) / May 2014

A Changing World Dynamic on Corruption Enforcement?“The United Kingdom’s Bribery Act 2010 provides in clear terms that it is a crime for any individual or company with a UK presence to bribe a public official.”−

David Green, Director of the Serious Fraud Office (http://www.sfo.gov.uk/media/225554/enforcement_of_the_uks_bribery_act_facilitation_payments_061212.pdf)

“[T]he second circuit inspection will focus on CPC and governmentintegrity building as well as anti-corrupt endeavors, particularly on exposing issues and maximizing deterrence, so as to leave no issues unexposed and no corruption unpunished.”−

Attributed to Wang Quishan, CPC Politburo Standing Committee (China), secretary General of the CPC Central Commission for Discipline Inspection on the Website of Supervision Ministry of the CPC Central Disciplinary Commission, October 23, 2013

“The director in charge of preventing and fighting corruption in the office of the Ombudsman has encouraged Rawandans to report corruption in the public tender process, by making use of the new whistleblower legislation.”−

Reported on November 28, 2013 in Thomson Reuters Accelus



http://www.sfo.gov.uk/media/225554/enforcement_of_the_uks_bribery_act_facilitation_payments_061212.pdf



World-wide corruption prosecutions, 1999-2012, Source: World Bank Report

Country Cases % People EntitiesCanada 2 .51 0 2

Costa Rica 1 .25 0 1

Denmark 2 .51 0 2

Germany 1 .25 0 1

Italy 11 2.78 7 4

Japan 2 .51 2 0

Kazakhstan 1 .25 0 0

Lesotho 2 .51 2 0

Netherlands 8 2.03 0 8

Nigeria 7 1.77 0 7

Norway 3 .76 1 2

Switzerland 15 3.8 1 13

United Kingdom 19 4.81 6 13

United States 275 69.62 87 187

World Bank 4 1.01 0 4

Total 395 100 140 252Global Enforcement -


World Bank Corruption Study Conclusions•

Study published early 2014, covering 1999-July 2012

•

$6.9 billion in recoveries with a trend towards larger and larger penalties: $6 billion recovered by country other than the country where the bribery took place

About $556 million recovered by country whose officials were bribed

•

There has been an increase in the past decade in the number of cases and the number of countries pursuing cases

•

“Settlements are predominantly found in countries that are major financial centers (where the type of large companies likely to supply the bribe money are located)”

(p. 50)

•

There has been increased coordination among countries in investigations, often with staggered recoveries and separate actions involving the same course of allegedly corrupt conduct

Settlements reached with Siemens in Italy, 2006, Germany and U.S., 2008, World Bank, 2009, Nigeria, 2010 and Greece, 2012

•

There is an increasingly reduced role played by the courts in these settlementsGlobal Enforcement -


In July 2013 the Chinese government announced they had uncovered evidence that GSK’s sales personnel in China rewarded doctors, hospitals, government officials and foundations with cash and other benefits in exchange for prescribing medications

Four of GSK’s high level China executives (all PRC nationals) detained; CFO ( a British national) told not to leave China, although he later was permitted to leave; Senior China executive returned to China to “help” with investigation and was barred from leaving(http://www.reuters.com/assets/print?aid=USBRE96H0XQ20130719)

Owners of third party agent, ChinaWhys, who worked for GSK were detained and later “confessed” on state TV(http://uk.reuters.com/article/2013/07/31/uk-china-investigators-insight-idUKBRE96U0BO20130731)

U.S. DOJ and UK Serious Fraud Office also open investigations(https://www.traceinternational2.org/compendium/view.asp?id=195)

Probe expanded to other companies (including Sanofi, Novartis, Lilly, and Sinopharm) and to include competition law claims for a number of other companies regarding pricing of product(http://www.reuters.com/article/2013/09/18/us-china-pharma-sales-analysis-idUSBRE98H07620130918)

Investigations ongoing



A Highlight of Changing Environment – GSK China

Plus Continued Long Reach of the U.S. DOJ

Prosecution of Wilbros International Inc., subsidiary of US-Co Willbros Group Inc., and four executives for bribery of Nigerian officials, May 3, 2013−

Three executives were sentenced to jail, three pled guilty and have been sentenced: year and a day; 15 months; 15 months

−

Penalty on US-Co: $22,000,000

Wilbros joint venture partner, German-Co Bilfinger SE, based in Mannheim, Germany, charged on December 11, 2013, agreed to pleadguilty−

Penalty on German-Co: $32,000,000

−

Agreed to “implement rigorous internal controls, continue cooperating fully

with the department, and retain an independent corporate compliance monitor for at least 18 months.”

−

“At another point in the conspiracy, when Willbros employees encountered difficulty obtaining enough money to make their share of the bribe payments, Bilfinger loaned them $1 million, with the express purpose of paying bribes to the Nigerian officials.”(http://www.justice.gov/opa/pr/2013/December/13-crm-1297.html)



Focus on FCPA/Anti-Bribery/Anti-Corruption Enforcement in Pharma Sector



November 2009: DOJ announced new initiative targeting pharma companies under the FCPA

Industry-specific risks exist, and have increased−

Highly competitive push into new markets, including developing countries

−

Government controls multiple aspects of health care in most foreign markets, including trials, approvals and purchases

−

“Public Officials”

control access to market

International Prosecution Partners of U.S. and U.K. in Just the Past YearAnnounced U.S. Partners in 2013

Mexico law enforcement

Panama law enforcement

Indonesia law enforcement

Colombian law enforcement

Philippines law enforcement and Bureau of Immigration

Switzerland Office of the Attorney General

Guernsey Financial Intelligence Service and Guernsey Police

Australian Federal Police

United Kingdom’s Serious Fraud Office

U.K. Serious Fraud Office Partners

Council of Europe (http://www.coe.int/)

Eurojust (http://www.eurojust.europa.eu/)

OLAF (http://ec.europa.eu/dgs/olaf/)

European Judicial Network (http://www.ejn-

crimjust.europa.eu/)

U.S. Department of Justice (http://www.justice.gov/)

In 2011-2012, SFO reported assisting 30 countries and making referrals to 45 countries



http://www.coe.int/

http://www.coe.int/

http://www.eurojust.europa.eu/

http://ec.europa.eu/dgs/olaf/

http://www.ejn-crimjust.europa.eu/

http://www.ejn-crimjust.europa.eu/

http://www.justice.gov/

Current Enforcement Hot Spots

Corruption and Bribery Anywhere and Everywhere

Improper Promotional Messages

−

Remains hot spot in the U.S.

−

Growing issue outside of the U.S.

Growing Focus on Research, Medical and Clinical Trials (Not JustSales/Marketing)

Growing Focus on GMP, Quality and Safety Regulatory Compliance



Trends in Enforcement Tactics

Reliance on Whistleblowers, here, there and everywhere

Document and email review – subpoenas and “dawn raids”

Targeting individuals with criminal charges and plea/cooperationagreements

Requests for ex-country assistance

Wiretaps, round-ups

Politically charged efforts in countries with perhaps “lower” commitment to individual rights and rule of law, and no/limited separation of law enforcement, judiciary and politicians



Trends in Enforcement OutcomesFinancial penalties

Exclusion – Government programs, tenders

Prosecution of managers / line employees

Prosecution of executives: getting stepped up?

Spill-over investigations / prosecutions in an inter-connected world

−

GSK China reported to spark investigations in U.S. and U.K.

Negative publicity, loss of business

−

Bloomberg report, October 23, 2013: GSK’s “third-quarter sales of pharmaceuticals and vaccines in China fell 61 percent after an anti-corruption probe began there in July.”

(http://www.bloomberg.com/news/2013-10-23/glaxo-s-china-sales-plunge-61-after-corruption-probe.html)



Prosecution of Individuals in Industry



Stryker Biotech President and Three Sales Managers

(2012)• Charged with wire fraud, conspiracy, and distribution of a misbranded device; President also charged with making misrepresentations to FDA• After several days of trial of the sales managers, the government dropped all charges against them• Government later dropped charges against President (previously severed from trial due to “reliance on advice of counsel”

defense)

InterMune CEO

(2011)• Criminal trial on drug misbranding and wire fraud for false statements in press release on results of Phase 3 Trial• Found guilty of wire fraud; acquitted on misbranding; DOJ argued

for jail time and $1MM fine• In 2011, sentenced to three years’

probation, six months of home confinement and fined $20K • Felony conviction confirmed on appeal to the Supreme Court; five-year exclusion imposed

Pfizer District Sales Manager

(2009)• Found guilty of obstructing justice when it was proven that he altered documents during a DOJ investigation of Pfizer• Sentenced to six months home confinement

KV Pharma CEO/Chairman of the Board

(2010)• Pleaded guilty to two misdemeanor counts of misbranding in violation of the FDCA• Sentenced to one month in prison and paid $1.9MM in fines and forfeitures

In-House Counsel at GSK

(2010)• Charged with making false statements to FDA about an off-label investigation and obstruction of justice• Trial court dismissed charges after the government presented its

case

Prosecution of CEOs, General Counsel and Other Corporate Officers in Other Industries Too

On January 6, 2014, the U.S. DOJ charged two former CEOs and the General Counsel of a British Virgin Islands-headquartered oil and gas company in connection with bribes paid in Columbia. (http://www.justice.gov/opa/pr/2014/January/14-crm-007.html)

−

General Counsel had pled guilty on November 8, 2013; charges and

his guilty plea were unsealed with the arrests of the two former CEOs

−

Countries of Columbia and the Philippines had cooperated in the investigation

On April 5, 2013, charges were unsealed against four former executives of the U.S. subsidiary of German-Co Lufthansa Technik AG, Bizjet(http://www.justice.gov/opa/pr/2013/April/13-crm-388.html)

−

Charges filed against former president and CEO, former vice president of sales and marketing, former sales manager, and former vice president of finance

−

Two officers had pled guilty on January 5, 2012 in proceedings kept secret until April 2013



Hypothetical: Every Case is a Big CaseFacts−

Alleged bribery of physician at a state hospital in country in Asia

Investigation Tactics−

Dawn raid at company−

Doctor arrested and imprisoned without lawyer−

Sales representative arrested and imprisoned without lawyer –

criminal charges of bribery filed against company, physician and sales team

Possible Penalties in Country −

Maximum criminal penalty in country against company –

500,000 Euro plus disgorgement of profit

The Potential Big Implications of the Small Case−

Attracts attention of U.S. prosecutors under FCPA or U.K. prosecutors under U.K. Bribery Act−

Spills over into investigations in other countries or other brands in same country−

Parent company Directors/Compliance Officer order compliance reviews in other countries/business areas−

GM prosecuted as “Responsible Officer”−

Parent company of local affiliate charged locally−

Prosecutor of home country parent company prosecutes parent company and parent Directors for failure to supervise local affiliate

−

Civil claims by payors and patients



Hypothetical Case: Application of Rule of LawFacts:−

Health system requiring reporting of patient conditions to government agency

Investigation Tactic:−

Dawn raid of corporate headquarters

−

Threats of charges against top two officers and key employee in charge of program

−

Head of local regulator on scene during search giving interviews

to television reporters

System of Law:−

Does not require government to disclose basis for investigation or sources of evidence

−

No right to see the judicially approved raid papers

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No right to question government witnesses or government officials

−

Successful government prosecution could kill the company



What Can We Do To Protect Our Clients?

Implement Effective Compliance Programs

−

Effective means it works to prevent

improper acts

−

Effective means an outsider will view it as such

Prepare for Investigations in Every Country

−

Qualify counsel for company

−

Qualify criminal defense counsel for individuals

−

Dawn raid protocol

−

Avoid “Day One”

fatal mistakes

Treat Every Case as a Big Case

Don’t Assume that the Rule of Law Will Be Applied No Matter the Location



Appendix



Prosecution for Failure to Implement PoliciesSubsidiary of Archer Daniels Midland Company pled guilty on December 20, 2013, fined $17,000,000 regarding payment of bribes to Ukrainian officials to obtain VAT refunds−

“ADM …

failed to implement sufficient policies and procedures to prevent the bribe payments”

−

ADM executed a non-prosecution agreement “in connection with the company’s failure to implement an adequate system of internal financial controls”

(http://www.justice.gov/opa/pr/2013/December/13-crm-1356.html)

Non-prosecution agreement filed with Ralph Lauren Corporation on April 22, 2013 for bribery of customs officials in Argentina by Argentine subsidiary−

“According to the agreement, the manager of RLC’s subsidiary in Argentina bribed customs officials … over the span of five years. …

During these five years, RLC did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to its subsidiary in Argentina.”

(http://www.justice.gov/opa/pr/2013/April/13-crm-456.html)



United Kingdom Serious Fraud Office: “Corruption Indicators”abnormal cash payments

pressure exerted for payments to be made urgently or ahead of schedule

payments being made through a third party country - for example, goods or services supplied to country 'A' but payment is being made, usually to a shell company in country 'B'

an abnormally high commission percentage being paid to a particular agency. This may be split into two accounts for the same agent, often in different jurisdictions

private meetings with public contractors or companies hoping to tender for contracts

lavish gifts being received

an individual who never takes time off even if ill, or holidays, or insists on dealing with specific contractors himself or herself

making unexpected or illogical decisions accepting projects or contracts

the unusually smooth process of cases where an individual does not have the expected level of knowledge or expertise

abuse of the decision process or delegated powers in specific cases

agreeing contracts not favourable to the organisation either because of the terms or the time period

unexplained preference for certain contractors during tendering period

avoidance of independent checks on the tendering or contracting processes

raising barriers around specific roles or departments which are key in the tendering or contracting processes

bypassing normal tendering or contracting procedures

invoices being agreed in excess of the contract without reasonable cause

missing documents or records regarding meetings or decisions

company procedures or guidelines not being followed

the payment of, or making funds available for, high value expenses or school fees (or similar) on behalf of others.(http://www.sfo.gov.uk/bribery--corruption/corruption-indicators.aspx)



22

Focus on FCPA/Anti-Bribery/Anti-Corruption Enforcement in Pharma Sector

Recent FCPA Investigations of Pharma Companies(based on public filings)

Company DOJ SECAstraZeneca x xBristol-Myers Squibb x

Eli Lilly x xGlaxoSmithKline x xMerck x xPfizer x xSciClone x xTalecris x x

• Investigations involve both U.S. and ex-U.S. companies• UK Anti-Bribery Act has similar scope –

perhaps more expansive than FCPA



Clinical Development Activities: Select Investigations



Company AllegationsNovartis (2014)

•

Japan is seeking criminal charges against company and employees for misleading advertising regarding research conducted by Japanese universities –

some of the research appears to have been fabricated to exaggerate the benefits of the study drug Diovan

Abbott Labs (2012)

•

Suppressed and “restated”

negative data regarding Depakote to imply positive results

UCB Inc.(2011)

•

Focused efforts on obtaining research grants and sponsoring scientific publications regarding Keppra, but ceased clinical development of new indications once studies did not produce statistically significant results

•

MSLs recruited and paid physicians to participate in studies regarding the off-label use of Keppra, and company failed to present negative results of earlier studies

Synthes/Norian(2010)

•

Conducted unauthorized clinical trials of medical devices in surgeries to treat a painful spine condition, and marketed experimental devices under the guise of clinical investigation

•

Company and executives prosecuted, first-forced divestiture of a medical device company (Norian)

InterMune(2006)

•

Press release “cherry-picked”

data from a clinical trial testing the efficacy of Actimmune for the treatment of an unapproved use

•

FDA had rejected the trial because it failed to reach statistical significance for its endpoints

•

CEO convicted of wire fraud

Warner-Lambert/

Parke-Davis (2004)

•

Conducted clinical trials testing efficacy of anti-epileptic drug Neurontin for pain treatment

•

Encouraged physicians to conduct trials for unapproved uses •

Never sought FDA approval for new uses, but sales reps asserted that clinical trials for new uses were “ongoing”

or “planned”

cGMP and Manufacturing Activities: Government Investigations



Consenting Party (year)

Monetary Fines Additional Provisions

Shamrock Medical Solutions Group

(2013)

•

$10K for each violation of the law or decree and an additional $5K for each day Shamrock violates the law or decree•

Two times the retail value of any drug distributed from the affected facilities

•

Must notify FDA prior to resuming operations•

Must retain an independent expert to inspect operations and certify that necessary corrections have been made

Kabco Pharmaceuticals (2013)

•

$15K for each violation of the law or decree and an additional $15K for each day Kabco violates the law or decree•


•

Must retain an expert to inspect its facilities and certify to FDA that Kabco is in compliance with applicable regulations•

Must report to FDA in writing the actions it has taken to correct deviations

Dakota Laboratories(2013)

•

$7,500 for each day Dakota violates the law or decree•


•


Must retain an expert to inspect the facilities and certify to FDA that the facilities are in compliance with applicable regulations and deviations have been corrected

Ben Venue Laboratories (2013)

•

$20K for each violation of the law or decree and an additional $20K for each day Ben Venue violates the law or decree

•



Venus Pharmaceuticals (2012)

•

$10K for each violation of the law or decree and an additional $10K for each day Venus violates the law or decree•


•


cGMP and Manufacturing Activities: Government Investigations



Consenting Party (year)

Monetary Fines Additional Provisions

Ranbaxy

(2012)•

$15K for each day Ranbaxy violates the law or decree, and $15K for each violation•

Two times the retail value of any drug distributed from the affected facilities• $3MM for each untrue statement

•

Required to relinquish 180-day exclusivity for three products (and potentially more)•

Prohibited from manufacturing or distributing from the affected facilities•

FDA stopped reviewing marketing applications

Hill Dermaceuticals (2011)

•

$15K for each day Hill violates the law or decree, and $15K for each violation•


•

Prohibited from manufacturing or distributing from the affected facilities•

FDA stopped reviewing marketing applications

McNeil (2011)

•

$15K for each day McNeil violates the law or decree, and $15K for each violation•


•

Prohibited from manufacturing or distributing from the affected facilities• McNeil must adhere to a strict workplan

Genzyme (2010)

• Forfeiture of $175MM in unlawful profits •

$15K in liquidated damages per drug affected by any incomplete step in the work plan, $15K per day per audit observation that is not corrected within 30 days, and $15K per day for each day drugs are manufactured at Allston facility •

18.5% of product revenue, if certain conditions are not met

•

Genzyme must adhere to a strict time table/work plan• Genzyme is subject to periodic inspections

GSK (2005)

• $650MM penal bond•

GSK must reimburse FDA for costs associated with the Consent Decree

•

GSK had 14 days to destroy or bring the affected drugs into compliance•

GSK was required to obtain an expert to train staff and monitor

Evaluation of the Worldwide Enforcement Environment for ... · GSK China reported to spark investigations in U.S. and U.K. Negative publicity, loss of business − Bloomberg report,

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