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Humongous Pharma Corruption: China Ups The Ante…and India?

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In the ‘pharma bribery’ related scandal in China, many postulated that the Chinese Government has cracked down selectively on Multinational Corporations (MNCs) to extend unfair business advantages for its local players.

Media reports of September 2013 indicate that in all probability the intent of the Chinese Government is not to spare homegrown corruption in this area. The country appears to be taking tough measures against both global and local perpetrators of such criminal acts, which have spread their vicious tentacles deep into the booming Chinese pharmaceutical industry.

The report names the following domestic companies:

  • Sino Biopharmaceutical Ltd has set up a team to investigate allegations broadcast on the state television that its majority-owned subsidiary had paid for illegal overseas trips for doctors to Thailand and Taiwan.
  • Privately held Gan & Lee Pharmaceuticals investigating allegations of spending around US$ 130.75 million to bribe doctors to promote their pharmaceutical products over five years.

More MNCs under investigation:

At the same time, international media are reporting names of more and more big global pharma players allegedly involved in this humongous scam, as follows:

  • In July 2013, the British drug maker GlaxoSmithKline (GSK) was allegedly involved in around US$ 490 million deceptive travel and meeting expenses as well as trade in sexual favors. Chinese authorities detained four senior executives of GSK in China to further investigate into this matter.
  • In the same month Chinese police reportedly visited the Shanghai office of another British pharmaceutical major AstraZeneca for investigation related to this scam.
  • In August 2013, Sanofi of France reportedly said that it would cooperate with a review of its business in China after a whistle-blower’s allegations that the company paid about US$ 276,000 in bribes to 503 doctors in the country.
  • Again in August 2013, a former employee of the Swiss pharmaceutical major Novartis has reportedly claimed that her manager urged her to offer ‘kickback’ to doctors to increase use of the cancer drug Sandostatin LAR. She had about US$ 105,000 budget for payments to doctors who prescribed at least 5 doses, aiming for 50 doses in all. She filed the compensation claim of US $817,000 after resigning from the company.
  • In the same month, another whistleblower has reportedly made bribery allegations involving Eli Lilly of the United States and US$ 4.9 million in purported kickbacks to Chinese doctors.
  • In September 2013, media reports indicated that the Chinese authorities are investigating the German pharma major – Bayer over a “potential case of unfair competition”.
  • Another very recent report of September 17, 2013 states, Alcon Eye Care division of Novartis is investigating allegation of fabricated clinical trials to bribe doctors. The report says Alcon outsourced the trials to a third-party research company, which in turn compensated doctors with “research payments”. It is claimed by the whistleblower that Alcon used funds earmarked for “patient experience surveys” on lens implants to bribe doctors at more than 200 hospitals. One doctor received about US$ 7,300, for studying 150 patients. Alcon allegedly spent more than US$ 230,000, on such studies last year.

This list of pharmaceutical companies involved in alleged serious malpractices to boost their sales and profits in China is probably not exhaustive.

However, only time will unravel whether this juggernaut of scams will keep moving unabated despite all high voltage actions, bulldozing patients’ interest.

Crack down on food companies too:

Crack down of the Chinese Government on alleged malpractices has reportedly extended to milk products’ companies too.

Again in August 2013, Mead Johnson Nutrition and Danone were among six dairy companies ordered to pay a combined 669 million Yuan by the Chinese Government for price fixing of their products.

Global industry lobby has a different view point:

In an interview with the BBC, an expert from APCO Worldwide, considered as the giant of the lobbying industry said:

“China’s behavior was very worrisome for foreign companies. They don’t know what’s hitting them right now. The government is resorting to its traditional “toolbox” of coercive methods, including shaming and ordering people to confess that they’ve done wrong so that your penalties can be minimized. They’re just treating foreign companies the way they’ve treated their own for many years, and this is the way the Party does things.”

He continued, “What may be going on is they’re telling foreign companies and they’re telling private companies here: Behave yourself; remember we’re the Party, we’re in charge.”

This is seemingly an interesting way of pooh-poohing serious allegations of bribery and other malpractices by the pharmaceutical companies in China without even waiting for the results of the pending enquiry.

However, such comments coming from an industry lobbying organization or any Public Relations (PR) Agency is not uncommon. That’s their business.

Possible reasons for crack down:

Experts opine that China has a high drug price problem. This is vindicated by the fact that while most developed nations of the world spend not more than 10-12 percent of their healthcare budget on medicines, in China it exceeds 40 percent. This huge disparity is believed to have prompted Beijing’s crackdown on the industry, especially the MNCs that dominate the Chinese pharmaceutical industry with newer drugs. The powerful National Development and Reform Commission (NDRC) of China has already said that it is examining pricing by 60 local and international pharmaceutical companies.

Some other reports point out, low basic salary of the doctors at the 13,500 public hospitals in China, who are the key purchasers of drugs, is the root cause of corruption in the Chinese healthcare industry.

According to McKinsey with estimated healthcare spending of China nearly tripling to US$1 trillion by 2020 from $357 billion in 2011, the country is increasingly attracting pharma and medical equipment companies from all over the world in a very large number.

The fall out:

A recent media report indicates that Chines crackdown on the widespread pharma bribery scandal in the country is quite adversely affecting the sales of both global and local players, as many doctors in the Chinese hospitals are now refusing to see medical representatives for fear of being caught up in this large scam.

Drug expenditure is even more for healthcare in India:

Several studies indicate that Out Of Pocket Expenditure towards Healthcare in India is one of the highest in the world and ranges from 71 to 80%.

According to a 2012 study of IMS Consulting Group, drugs are the biggest expenditure in the total Out Of Pocket (OOP) spend on healthcare as follows:

Items Outpatient/ outside Hospital (%) Inpatient/ Hospitalization (%)
Medicines 63 43
Consultation/Surgery - 23
Diagnostics 17 16
Minor surgeries 01 -
Private Consultation 14 -
Room Charge - 14
Others 05 04

Despite these facts, India has remained virtually inactive in this critical area so far, unlike China, except some sporadic price control measures like, Drug Price Control Order (DPCO 2013) for essential drugs (NLEM 2011), which covers around 18% of the total pharmaceutical market in India.

Universal Healthcare (UHC): A possible answer?

Another interesting study titled, ‘The Cost of Universal Health Care in India: A Model Based Estimate’ concludes as follows:

The estimated cost of UHC delivery through the existing mix of public and private health institutions would be INR 1713 (USD 38) per person per annum in India. This cost would be 24% higher, if branded drugs are used. Extrapolation of these costs to entire country indicates that Indian government needs to spend 3.8% of the GDP for universalizing health care services, although in total (public+private) India spent around 4.2% of its GDP on healthcare (2010) at 11% CAGR from 2001 to 2010 period.

Moreover, important issues such as delivery strategy for ensuring quality, reducing inequities in access, and managing the growth of health care demand need be explored.

Thus, it appears, even UHC will be 24% more expensive after a public spend of staggering 3.8% of the GDP towards healthcare, if branded drugs are used, which attract huge avoidable marketing expenditures, as we have seen in the Chinese pharma industry scandal.

High marketing costs making drugs dearer?

A recent article, captioned “But Don’t Drug Companies Spend More on Marketing?” vindicates the point, though the drug companies spend substantial money on R&D, they spend even more on their marketing related activities, legally or otherwise.

Analyzing six global pharma and biotech majors, the author highlights that SG&A (Sales, General & Administrative) and R&D expenses vary quite a lot from company to company. However, in this particular analysis the range was as follows:

SG&A: 23% to 34%
R&D: 12.5% to 24%

SG&A expenses typically include advertising, promotion, marketing and executive salaries. The author says that most companies do not show the break up of the ‘S’ part separately.

In the pharmaceutical sector all over the world, the marketing practices have still remained a very contentious issue despite many attempts of self-regulation by the industry. Incessant media reports on alleged unethical business practices have not slowed down significantly, across the world, even after so many years of self-regulation. This is indeed a critical point to ponder.

Scope and relevance of ‘Corporate Ethical Business Conducts and Values’:

The scope of ‘ethical business conducts and value standards’ of a company should not just be limited to marketing. These should usually encompass the following areas, among many others:

  • The employees, suppliers, customers and other stakeholders
  • Caring for the society and environment
  • Fiduciary responsibilities
  • Business and marketing practices
  • R&D activities, including clinical trials
  • Corporate Governance
  • Corporate espionage

That said, codes of ethical conduct, corporate values and their compliance should not only get limited to the top management, but must get percolated downwards, looking beyond the legal and regulatory boundaries.

Statistics of compliance to codes of business ethics and corporate values are important to know, but perceptible qualitative changes in ethics and value standards of an organization should always be the most important goal to drive any business corporation and the pharmaceutical sector is no exception.

Foreign Corrupt Practices Act (FCPA): A deterrent?

To prevent bribery and corrupt practices, especially in a foreign land, in 1997, along with 33 other countries belonging to the ‘Organization for Economic Co-operation and Development (OECD)’, the United States Congress enacted a law against the bribery of foreign officials, which is known as ‘Foreign Corrupt Practices Act (FCPA)’.

This Act marked the early beginnings of ethical compliance program in the United States and disallows the US companies from paying, offering to pay or authorizing to pay money or anything of value either directly or through third parties or middlemen.

FCPA currently has some impact on the way American companies are required to run their business, especially in the foreign land.

However, looking at the ongoing Chinese story of pharma scams and many other reports of huge sums paid by the global pharmaceutical companies after being found guilty under such Acts in the Europe and USA, it appears, levy of mere fines is not good enough deterrent to stop such (mal)practices in today’s perspective.

China acts against pharma bribery, why not India? 

Like what happened in China, many reports, including from Parliamentary Standing Committee, on alleged pharma malpractices of very significant proportions, which in turn are making drugs dearer to patients, have been coming up in India regularly, since quite sometime.

Keeping these into consideration, abject inertia of the government in taking tough measures in this area is indeed baffling and an important area of concern.

Conclusion:

The need to formulate ‘Codes of Business Ethics & Values’ and more importantly their effective compliance, in letter and spirit, are of increasing relevance in the globalized business environment.

Unfortunately, as an irony, increasingly many companies across the world are reportedly being forced to pay heavy costs and consequences of ‘unethical behavior and business practices’ by the respective governments.

Intense quarterly pressure for expected business performance by stock markets and shareholders, could apparently be the trigger-points for short changing such codes and values.

There is, of course, no global consensus, as yet, on what is ethically and morally acceptable ‘Business Ethics and Values’ uniformly across the world. However, even if these are implemented in country-specific ways, the most challenging obstacle to overcome by the corporates would still remain ‘walking the talk’ and ‘owning responsibility’.

That said, to uphold patients’ interests, China is already giving the perpetrators of the ongoing humongous pharma scam a ‘run for life’, as it were, despite what the industry lobbyists have been laboriously working on for the world to believe. Today, common patients’ in India being in a much worse situation for similar sets of reasons, should the domestic regulators not now wake up from the ‘deep slumber’, up all antennas, effectively act by setting examples and bring the violators to justice?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

FDC Saga: Defiant Manufacturers, Sloppy Regulators and Humongous Inaction

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“TO SIN BY SILENCE WHEN THEY SHOULD PROTEST MAKES COWARDS OF MEN”       – Abraham Lincoln

The ghost of untested, irrational and even of bizarre kind of Fixed Dose Combination (FDC) drugs, which continue to be launched, promoted, prescribed and sold freely across the length and breadth of India, has started haunting the Ministry of Health of India, yet again, in 2013. 

Though the issue originated decades ago, in 1988 appropriate ‘Rule’ of the Drugs and Cosmetics Act of India was amended suitably to have a firm regulatory grip over this situation. Despite this much awaited amendment, the situation almost went astray with incessant market entry of a large number untested FDC medicines of dubious medical rationale.

A free for all situation, as it were, in the FDC arena, continued to be facilitated by blatant laxity on the part of, especially, the state drug regulators by allowing unfettered market entry of such drugs, ignoring the CDSCO directive.

On the other hand, the Central Drugs Standard Control Organization (CDSCO), despite its statutory powers,  continued to suffer from humongous inaction untill the issue resurfaced again in 2007 and then of course, now in 2013.

The WHO Model:

The 2005 ʹProcedure to update and disseminate the WHO Model List of Essential Medicines, Criteria for Selection’ includes the following statement regarding Fixed Dose Combination products (FDCs):

ʺMost essential medicines should be formulated as single compounds. Fixed‐dose combination products are selected only when the combination has a proven advantage over single compounds administered separately in therapeutic effect, safety, and adherence or in delaying the development of drug resistance in malaria, tuberculosis and HIV/ AIDS.ʺ

Thus, FDCs:

  • Need to demonstrate clinical efficacy and safety beyond the individual drugs when given alone.
  • Need to ‘demonstrate bioequivalence of the single combined dose unit with the components administered in the same doses separately but concomitantly’.

‘Adherence’ aspect of WHO Model for FDCs is also important. Problems with ‘adherence’ could lead to inadequate and inconsistent dosing, which in turn could lead to development of drug resistance.

With robust and unquestionable medical rationale, FDCs are expected to provide superior efficacy and improved compliance without causing any untoward risk to patients.

A major disadvantage:

However, one of the major disadvantages with the FDCs is lack of flexibility in adjusting dose of individual ingredients, even if it is required for some patients. Internationally, most popular example is the FDCs of antiretroviral drugs for HIV infected patients like, Combivir, Trzivir, Kaletra etc.

Interestingly, in India there are FDCs for almost all disease areas from allergic disorders to Wolf-Parkinson-White syndrome (exaggerated), as it were.

Market attractiveness for FDCs in India: 

The domestic market for FDCs is very large and growing much faster, in sharp contrast to the western world. The following table will vindicate this point:

% Share

Drug

2008

2009

2010

2011

Plain

55

55

55

54
Combinations

45

45

45

46

Domestic Market: USD 13 Billion; MAT Apr 2013

Source:IMS

Thus, because of growing market demand, pharmaceutical companies in India tend to market FDCs of all different permutations and combination, at times even crossing the line of any ‘sound medical rationale’. For this reason, we find in the website of ‘Central Drugs Standard Control Organization’ (CDSCO), the banned list of so many FDCs.

A messy regulatory situation:

Introduction of new FDCs does not only warrant a ‘sound medical rationale’ but also ‘strict conformance to all prescribed regulatory requirements’ for patients’ interest. 

To check unfettered market introduction of potentially harmful FDCs, the Ministry of Health issued a Notification in September 1988, including FDCs in Rule 122 E of the Drugs & Cosmetics Rules (D&CR) 1945.

In effect, it removed the powers of the State FDAs to give manufacturing or marketing approval of FDCs. After the notification was issued, all manufacturers/marketers of all new FDCs are required to apply only to the Drug Controller General of India (DCGI) under Rule 122E of the D&CR 1945 as a new drug, along with the stipulated fees by way of a Treasury Challan.

Since this entire process entails appropriate regulatory data generation, besides  time and expenses involved, the above ‘Rule’ was continuously and deliberately broken and manufacturing and marketing approvals for various types of FDCs falling under ‘new drug’ category were regularly sought and granted by the State Drug Controllers.

Many believe that the State FDAs were equally responsible for knowingly flouting the Law, as were the pharmaceutical manufacturers.

Patients’ safety – the foremost concern:

Despite serious concerns expressed by a Parliamentary Standing Committee, this complicity resulted in the market being flooded with ‘irrational combinations’ which posed a real threat to patients’ interest and safety. The State FDAs were reminded of the notification by the earlier DCGI.

294 FDCs were banned by the DCGI in 2007. Thereafter, the important issue of patients’ interest and safety got converted into a legal quagmire, as many FDC manufacturers chose to go to the court of law to protect their business interest and also managed to obtain a ‘Stay’ order from the Madras High Court. The matter is still subjudice.

Be that as it may, those 294 FDCs banned by the Ministry of Health of India on health and safety grounds continue to be promoted, prescribed and sold to patients across India without any hindrance, whatsoever.  

Untangling the messy knot:

As the issue got entangled into prolonged litigations, the CDSCO took initiative of resolving this contentious issue again in 2009 with the help of an expert committee, involving the manufacturers.

This subcommittee cleared 48 FDCs under ‘similar FDCs already approved’, after discussing the merits and demerits, including pharmacodynamics, pharmacokinetics, side effects, dosage, medical rationale etc. of each ingredient and the combinations. The decision of the Sub Committee was then submitted to the Drug Technical Advisory Board (DTAB).

After formal approval of DTAB, these combinations are construed to be new drugs and any company wishing to market/manufacture the formulation would require submitting its Application in Form 44 to the DCGI to get approval in Form 45.

This decision was expected to send a clear signal to all concerned that resorting to any form of shortcuts to bypass strict adherence to prescribed regulatory requirements, could seriously jeopardize patients’ interest and safety. The same process was subsequently followed for the balance 142 FDCs, as well.

Thereafter, a special committee was again appointed by the CDSCO in 2013 to look into this matter in a holistic way. However, such sporadic knee-jerk reactions have failed to deliver any tangible results in this area – not just yet.

The saga continues:

Even after the above critical decision of the DTAB the saga still continues.

In March 2013, by a written reply, the Minister for Health and Family Welfare reportedly informed the Lok Sabha (the lower House of the Parliament) that in twenty three cases of new FDC, licenses have been granted by the State Licensing Authorities (SLAs) without the mandatory approval of the DCGI and action will be taken in all these cases.

However, no one seems to know, as yet, what action the Government has taken against those errant officials.

Current scenario:

Recently, the Directorate General of Health Services (DGHS) by a notification to State Drug Controllers has reportedly ordered all manufacturers of new FDC products, licensed locally before October 2012 without CDSCO permission, to submit safety and efficacy data prior to 30 August 2013.

This decision of DGHS has created a furore within the concerned FDC manufacturers, yet again, the possible outcome of which is yet to be ascertained.

The State Drug Controllers had issued manufacturing licenses for these FDCs prior to October 2012. At that time concerned manufacturers were given 18 months time period to prove efficacy and safety of these medicines to the DCGI. Regrettably, as per the above report, the DCGI has confirmed that he has received hardly any response from the FDC manufacturers till date on this regulatory requirement.

CDSCO has also stated that manufacturers, who will fail to submit the required data by the deadline run the risk of having their products banned from the market.

Before this, the State Drug Controllers were informed about this requirement on January 15, 2013.

At this point it is worth mentioning, the DCGI in October 2012 had reportedly also barred the State Drug Controllers from granting manufacturing licenses to pharmaceutical companies under brand names of the drugs, directing them to strictly issue licenses under generic name of the molecule. Additionally, he also asked the state licensing authorities not to grant licenses to combination drugs, which are technically ‘new drugs’ and fall within the domain of DCGI only.

Conclusion:

This logjam with FDCs certainly cannot continue in perpetuity, neither should such regulatory sloppiness be acceptable to any right thinking stakeholder.

All blatant violations of Drugs and Cosmetics Act of India must be stopped forthwith and the violators be brought to justice without delay. Patients’ health interest, as required by the drug regulators, is non-negotiable.

The order of DGHS asking all manufacturers of new FDCs, licensed locally before October 2012 without CDSCO permission, to submit safety and efficacy data prior to 30 August 2013, should not follow recently reported Pioglitazone type of volte face, once again, under similar outside pressure.

It is high time now for the Government to bring the unending saga of  irrational and harmful FDCs, orchestrated by defiant manufacturers, encouraged by sloppy regulators and catalyzed by humongous systemic inaction, to its logical conclusion, for patients’ sake. 

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.