Novartis faces legal action in Korea after exec indictments, including possible suspension

Novartis got another black eye in Asia this week as South Korea indicted a half-dozen executives for issuing improper rebates. But the company itself may face legal action, too.

South Korean prosecutors have asked the government to suspend Novartis’ operations in the country, among a range of other potential government actions, spokesman Eric Althoff said via email.

If the government complies with that request, Novartis would have to stop selling its products in Korea until the suspension was lifted. But court proceedings in the case have not begun, and it may be several months before any actual penalties are issued.

Prosecutors may be weighing whether Novartis higher-ups in the country were aware of the potentially criminal activity. The company says employees who overstepped were acting on their own. "[W]e reject the implication that the alleged conduct was sanctioned by the most senior management of Novartis Korea," the company said in a statement.

It wouldn’t be the first time that the Swiss drugmaker has been suspended in Asia. A Japanese data scandal forced the company's unit there into temporary suspension last year.

The allegations are different in South Korea: They stem from potentially improper "rebates" paid to local doctors--in the form of cash and other incentives--that might be construed as illegal kickbacks designed to increase sales. Prosecutors say Novartis sales staff offered kickbacks to doctors who attended meetings sponsored by medical journals. Fifteen doctors were also indicted, as were top leaders at 5 medical journals.

The company admits that "certain associates in Korea conducted small medical meetings and other scientific related activities through trade journals" and that "some associates supported travel to overseas congresses for some healthcare practitioners" in a way that didn't comply with domestic self-regulation standards. 

The activities were "in violation of our policies and inconsistent with our culture and the expectations society has for us and our industry," the company's statement said. "[W]e are already implementing a remediation plan in Korea based on the findings from our own investigation."

South Korea's government probe went public in February, when the Seoul Western District Prosecutor’s Office raided Novartis offices there. Prosecutors took account records and other documents. 

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.

Novartis’ Asian trouble also extended into China this year. In March the company agreed to pay $25 million to settle a Securities and Exchange Commission investigation into bribery allegations there. The SEC probe had focused on travel and other inducements allegedly designed to boost prescriptions of Novartis drugs.

Of course, Novartis is far from the only Big Pharma to run into allegations of corruption and misconduct in Asia. GlaxoSmithKline ($GSK) was caught up in a bribery probe in China and forced to pay a $490 million fine there. The company says it has changed the way it does business in China and no longer markets directly to doctors.

More recently, Bristol-Myers Squibb paid $14.7 million to settle an SEC bribery investigation in China. The company has since overhauled its China unit's operations; one of its reforms was a moratorium on speaker fees paid to doctors.

U.S. officials are continually looking at drugmakers for possible violations of the Foreign Corrupt Practices Act in China, Italy, Russia, Hungary and other locales. A variety of companies have paid fines related to bribery investigations, including Eli Lilly ($LLY), which paid a $29 million penalty, and Pfizer ($PFE), which shelled out $15 million.

Related Articles:
South Korea prosecutors indict Novartis execs on drug sale rebate charges
Prosecutors raid Novartis South Korea in kickbacks probe
Novartis wraps up China bribery probe with $25M payment to SEC
Bristol-Myers shells out $14.7M in China bribery settlement
Bristol-Myers scraps doc payments in China after last fall's FCPA settlement