Novartis appears to have a systemic ethics problem. What can it do make amends?

a compass pointing to "ethics"
Even with commitment from execs and the right compliance program, the ethics transformation at Novartis could take years to work through, experts say. (Olivier Le Moal/Shutterstock)

When a company is repeatedly embroiled in scandals or compliance breaches—from on-the-ground sales activities to decisions made at the very top—an isolated infection isn't to blame.

It's a systemic illness. And judging by the long list of allegations and infractions at Novartis, that's what the Swiss drugmaker is facing. But is there a cure?

Some soul-searching and a closer look at the company’s culture could help, said corporate ethics and compliance expert Hui Chen in a recent interview with FiercePharma. And don't just blame everything on a few rogue employees.

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In the $1.2 million payment to President Donald Trump’s ex-lawyer Michael Cohen, Novartis pinned it on then-CEO Joe Jimenez and former general counsel Felix Ehrat, who had stepped down. In the recent Zolgensma data manipulation case, two top AveXis science executives, who have since been fired, were named as the culprits. 

“In these situations, one thing that you really want to ask is ‘what is the company’s culture?’ What you really need to do is to go into the root cause analysis of each of these incidents,” said Chen, who drafted the original corporate compliance guidance at the U.S. Department of Justice (DOJ).

Novartis was recently caught up in a data manipulation crisis around its spinal muscular atrophy gene therapy Zolgensma. The actual falsification happened before Novartis acquired the drug’s developer, AveXis, but the Swiss drugmaker decided not to alert the FDA at the critical juncture of a new drug application review. And that delay has drawn wide criticism.

What's more, that questionable decision-making happened just as CEO Vas Narasimhan had been stressing the importance of “building trust with society” as a company priority in the wake of a long series of other scandals.

A legitimate argument?

How could Novartis—still trying to live down the Cohen scandal—take another, apparently obvious misstep? Chen, who once served as Pfizer’s assistant general counsel, suspected there were two voices at Novartis when it internally confirmed whistleblower allegations about Zolgensma data tampering in early May, just as the gene therapy was under final FDA review.

“One voice says, ‘We need to tell the FDA what we found, because we have confirmed at least to some extent the veracity of this allegation, and it does impact on the approval process,’” she said. “The other voice in the company would say, ‘Okay, if we tell the FDA, it’s surely going to interrupt our approval process. Are we sure the falsification problem is bad enough to warrant us to go down that road?’”

In Chen's view, there's a fair argument for the choice Novartis made to keep the information to itself until early June. By Novartis’ account, it was digging up more details in what it called the “second phase” of its internal investigation. The company said it wanted to determine whether updates to Zolgensma's regulatory filing would indeed be required.

RELATED: Does Novartis' delay in probing data manipulation claims spell trouble?

If Novartis had told the FDA right away, the agency would have had no choice but to put a hold on its Zolgensma review. There’s the obvious business side of the story, that a delayed approval could mean a sales loss. “From a humanitarian perspective, there would also be a valid argument that says there are patients who may benefit from this drug who now get delayed because of a problem that ultimately doesn’t change how this person might be helped,” Chen said.

Because the problem was limited to “only a small portion of” Zolgensma mice testing data that didn't affect the main body of clinical efficacy and safety evidence, the FDA has said it “remains confident that Zolgensma should remain on the market.”

Narasimhan, during a recent investor event in London, indirectly acknowledged there was indeed a struggle in deciding the right direction to take.

“All major biopharmaceutical companies have (…) cases where there is an impact on safety or product quality, there’s very clear guidance on how we need to report. When there’s not (…) it’s our judgment on how best to manage the situation,” he said.

RELATED: Novartis CEO pledges to tell FDA about data integrity problems within 5 days

“What we’ve realized through this situation is that during a filing it’s difficult for us to exercise that judgment without it being later considered maybe not the best judgment. So we’re just taking judgment out of the equation,” the CEO said.

He was referring to a new pledge unveiled at the event: The company will inform the FDA within five business days about any future data integrity issue in a filing. Will that solve future dilemmas with data reporting? Maybe. But taking stopgap measures to address one type of breach doesn’t equal to the root cause analysis Chen suggested could prevent future missteps.

Compliance AND ethics

After all, in the years before Narasimhan took over, Novartis faced a series of accusations and scandals all over the world. Bribery allegations in eastern Europe and South Korea, price-fixing in Italy, data-tampering in Japan—the list goes on. And then there's the ongoing U.S. lawsuit that claims Novartis used fake medical events to deliver kickbacks to doctors—in the form of cash, meals and personal favors—to induce them to prescribe more of the company's drugs.

In 2016, the Swiss drugmaker revamped its entire sales force’s compensation structure. It increased the weight of fixed pay in a sales rep’s total compensation and implemented a “values and behaviors” score to determine whether an employee would be eligible for incentive pay. But that didn’t stop the $1.2 million Cohen payment, nor did it guide Novartis to quickly disclose its Zolgensma data problem—both of which appeared legal but still raised eyebrows.

“Organizations are increasingly aware that some of the largest risks are not actual legal risks, but reputational,” Eugene Soltes, an associate professor at Harvard Business School focused on corporate cultures and compliance systems, said in an email interview. But still, companies in highly regulated industries such as pharma “can focus on the technical legal concerns, but lose sight of the broader goals they need to manage,” he said.

RELATED: Can J&J, on the litigation hot seat, hold off long-term brand and reputation damage?

Sometimes there are no easy answers to ethics questions. But is there a yardstick against which corporate decisions could be measured? It comes down to one element that almost every company has but Chen said had never been invoked in any business discussion in her 20-some years of corporate experience: a mission statement.

Every biopharma company has a statement of values that usually stresses innovation, product quality and the importance of patients. The key is grounding difficult decisions to the discussions of “what does that do to our patients’ trust for us?” Chen argued. “I’ve only ever seen company’s values live on their walls,” she said. “We say we care about integrity, we say we care about patients. What does that mean in this decision? I’ve never seen any company [ask that] in my entire career today.”

Novartis might not have been good at drilling down that value question in its handling the data falsification issue. At an investor’s meeting after the Cohen scandal last year, Narasimhan said the company is developing a principles-based system to improve its decision-making, which is already enshrined in its values.

“There will always be a way around the rule, whereas if you ask the question, ‘Is this the right thing to do, are you comfortable with this being on the front page of the newspaper?’ (...) That’s going to help get us to a better place,” the CEO said.

It takes time

How a company chooses to deal with the two sometimes non-overlapping circles of compliance and ethics is “really a collective decision of the company,” Chen said. “I think it depends on whether only one function is trying to do it or is the entire company really willing to make that change.” Chen’s old job at the DOJ was to help prosecutors determine whether a corporate compliance system is merely window dressing.

Soltes compared rating a compliance program to the evaluation of a new drug. “Efficacy is based on impact (e.g., percentage of patients without disease in one year), not on subjective measures like ‘taste’ or ‘appearance.’ However, too often compliance program initiatives are designed to have the appearance of impact, without actual rigorous evidence that demonstrate such impact.”

An effective compliance program should be able to affect employee behavior, Soltes said—and, as Chen sees it, that can take time to change.

First, a company should take each incident as an opportunity to learn its lessons. Assuming Novartis has done its root-cause analysis and has made the moves necessary to put what Chen called “the lock on the door,” it takes time for such an international organization to work through changes. “Given commitment, given resources, given hard choices, it could still take years.”

RELATED: Reeling from Cohen scandal, Novartis recruits Siemens veteran as new ethics chief

Novartis at least appears to be moving toward self-redemption. It has incorporated building trust with society into its execs’ compensation scorecard, and earlier this year, it established a Trust & Reputation Committee chaired by Narasimhan.

The company’s ethics and compliance department is led by someone who knows a thing or two about effective compliance programs: Klaus Moosmayer, the former Siemens chief compliance officer who’s credited for building that company's new compliance system in the wake of a long-lasting bribery scandal that ended with a record-setting $800 million penalty to U.S. authorities. Novartis is in the middle of composing a new code of ethics and is asking its associates for input, Moosmayer told investors recently.

Novartis is on track for a payment almost as large to settle its U.S. kickback allegations. But as Chen said, folding one lawsuit might be the easier part. “Culture is formed by people who are there and the way they're used to doing things,” she said. “Even if you change the incentive behavior, people's habits are harder to change, and it also takes making difficult choices.” 

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