Prosecutors raid Novartis South Korea in kickbacks probe

Novartis ($NVS) is facing another regulatory pickle in Asia. After a Japanese data scandal forced the company's unit there into temporary suspension last year, South Korean prosecutors have targeted the company's Seoul-based unit with a kickbacks investigation.

The Seoul Western District Prosecutor's Office raided Novartis' offices there on Monday, confiscating documents and account books, The Korea Herald reports. At issue are "rebates" paid to local doctors--in the form of cash and other incentives--that might be construed as illegal kickbacks designed to juice sales.

Prosecutors are examining details of the rebates, an official involved in the case told the Herald. "[I]t is too early to confirm any charges against the company, as the investigation is still ongoing," the official said.

Domestic drugmakers have come under fire for using rebates to boost their sales amid generic competition, the newspaper notes, but multinational pharma has generally steered clear of the practice. But that could be changing as foreign companies step up their marketing activities amid new drug rivalries and increasing competition for emerging markets sales.

A Novartis spokesperson from the company's headquarters in Basel, Switzerland, told FiercePharmaAsia by email that "the offices of Novartis in Korea were visited by local authorities in relation to an investigation. The investigation is ongoing and we cannot comment further at this time."

Novartis pharma chief David Epstein

The Korean probe follows trouble for Novartis in Japan, where prosecutors delved into clinical trial processes and study data, as well as side-effects reporting. Academic researchers retracted studies showing positive results for Novartis' blood pressure drug Diovan in stroke patients, and the company later faced false advertising charges for using that suspect data in its promotional materials. Meanwhile, Novartis sales reps were caught running errands in a leukemia drug trial, throwing that research into doubt. Novartis pharma chief David Epstein has repeatedly apologized for the scandals, and the company cleaned house at the Japan unit, bringing in new managers and putting employees through remedial training.

And last spring, the Japanese government suspended Novartis' operations in the country, putting the company's business there on hold for 15 days as punishment for failing to properly report drug side effects. It was the first time Japan has cracked down on side effects reporting in that way. More recently, Japanese authorities were said to be preparing to censure Novartis a second time for lax side-effects reporting.

Meanwhile, drugmakers have been under scrutiny in a variety of countries for alleged kickbacks and bribes, as U.S. officials step up enforcement under the Foreign Corrupt Practices Act and local prosecutors conduct their own crackdowns. Most notably, GlaxoSmithKline ($GSK) shelled out $489 million to settle bribery charges in China in 2013 after a long, painful investigation.

Several other multinational drugmakers faced Chinese investigations as well, but no charges or fines resulted from those probes. But U.S. watchdogs have cracked down on Chinese bribery allegations; for instance, Bristol-Myers Squibb ($BMY) agreed to pay $14.7 million last year to settle Securities and Exchange Commission charges that its Chinese joint venture shelled out cash and other gifts as incentives to increase scripts for its drugs. To get back on the right track, BMS fired 90 workers and disciplined 90 more.

Meanwhile, a range of drugmakers have settled claims--or are under investigation for--FCPA violations, including Pfizer ($PFE), Johnson & Johnson ($JNJ), Teva Pharmaceutical Industries ($TEVA) and AstraZeneca ($AZN).

Novartis CEO Joe Jimenez has acknowledged the company's reputation has been tainted by the events in Japan but insists it can regain its former stature by continuing to bring innovative drugs to the country. In an interview shortly after the suspension, Jimenez told Nikkei in that way, "we can return to that same high level of reputation with the Novartis name."

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