BMS Bolsters China Compliance In Wake Of SEC Fine

Following an investigation under the US Foreign Corrupt Practices Act violations, Bristol-Myers Squibb has been fined for improper business activities in China, which has been strengthening policies on drug price monitoring and to control kickbacks to doctors. The US firm says the matter has been resolved through a number of steps to improve practices and compliance.

SHANGHAI - Bristol-Myers Squibb Co. (BMS) has been charged by the US Securities and Exchange Commission (SEC) over alleged improper payments made by its joint venture in China to health care providers, becoming the latest among its peers to settle a foreign bribery case with US authorities.

According to the SEC, BMS and its majority-owned joint venture in China violated the internal controls and record-keeping provisions of the US Foreign Corrupt Practices Act (FCPA), with the company fined $14m to settle the finding that it reaped more than $11m in profits from the misconduct.

BMS China said in a response statement that "We have resolved this matter with the US SEC, and are committed to the highest standards of business integrity, vigilance and ethics across our organization."

The SEC found that between 2009 and 2014, BMS failed to design and maintain effective internal controls relating to interactions with health care providers at state-owned and state controlled hospitals in China, and it falsely recorded the relevant transactions as legitimate business expenses in its books and records.

During this period, certain sales representatives of the China joint venture improperly generated funds that were used to provide corrupt inducements to health care providers in the form of cash payments, gifts, meals, travel, entertainment, and sponsorships for conferences and meetings in order to secure new sales and increase existing sales.

In its 2014 annual report, BMS noted that it has received a subpoena from the SEC issued in connection with its investigation under the FCPA, primarily relating to sales and marketing practices in various countries in March 2012. In particular, the company said it was investigating certain sales and marketing practices in China.

Despite its longstanding presence in the country, BMS did not implement a formal FCPA compliance program until April 2006, when it adopted its first standalone anti-bribery policy and corresponding corporative directive. There was no dedicated compliance officer for BMS China until 2008, and no permanent compliance position in China until 2010, according to the SEC.

According to the SEC ruling, BMS has now implemented significant measures to enhance its anti-bribery and general compliance training and policies, and to strengthen its accounting and monitoring controls relating to interactions with healthcare providers, including the retention of a third-party vendor to conduct surprise checks at events sponsored by sales representatives.

Additionally, the firm has terminated over 90 employees and disciplined an additional 90 employees, including sales representatives and managers of BMS China, who failed to comply with or sufficiently supervise compliance with relevant policies.

BMS has also replaced certain BMS China officers as part of an overall effort to enhance “tone at the top” and a culture of compliance. Further, the firm has revised the compensation structure for BMS China employees by reducing the portion of incentive-based compensation for sales and distribution staff.

BMS’s China Operations

First founded back in 1982, currently BMS has four corporate units in China, namely Sino-American Shanghai Squibb Pharmaceuticals Limited, Bristol-Myers Squibb (Shanghai) Co., Ltd.; Bristol-Myers Squibb (China) Investment Limited and Bristol-Myers Squibb (China) Pharmaceutical Co., Ltd. In 2014 China contributed 4% of the company’s global sales, according to the annual report.

BMS transferred its China diabetes business to AstraZeneca PLC for $292m during the third quarter of 2014, and BMS is now focused on supporting care for high-risk patients with hepatitis B and C in China. In December 2014, the BMS Foundation awarded nine new grants totaling more than $3.5m as part of its Delivering Hope program, one of which was for the establishment of a Center of Excellence in China to replicate achievements in hepatitis awareness, prevention and treatment.

As part of a local transformation with the objective to create an organization that is more agile and customer-focused, BMS laid off a reported 1,000 employees in China, mostly in sales functions, in November 2014.

“As part of our organizational evolution, we are reviewing and determining the appropriate structure and size of the organization with the objective to best serve patients in China,” the company said in a statement at the time (Also see "BMS Downsizes In China Amid Slow Sales, Regulatory Uncertainty" - Scrip, 1 Dec, 2014.).

String Of Compliance Probes

Over the past few years, pharma companies have been given plenty of red flags about improper and illegal sales and marketing practices in China.

In 2014, China ruled that GlaxoSmithKline (China) Investment Co. Ltd. had offered money or property to non-government personnel in order to obtain improper commercial gains, and been found guilty of bribing non-government personnel.

GSK was fined £297m by the Chinese government, and its former China head and four other executives pleaded guilty to bribery-related charges (Also see "GSK “Sincerely Apologizes” And Accepts Record $485 Million Fine For China Bribes" - Scrip, 19 Sep, 2014.).

Following the corruption scandal, GSK fired 110 staff in China as a result of its internal investigation in March this year.

In September 2013, China’s 21st Century Business Herald first reported that Novartis AG’s eye care unit Alcon Inc. offered money to doctors in more than 200 Chinese hospitals to push sales of lens implants. Novartis said it would investigate allegations published in the Chinese newspaper but has not revealed the investigation’s results yet.

Both Pfizer Inc. and Eli Lilly & Co. settled corruption charges with the US SEC in 2012 for offering entertainment, spa treatments and other improper gifts and cash payments to Chinese doctors.

Policy Crackdown

In parallel, broad anti-corruption efforts by Chinese authorities have constantly been intensifying in the pharma industry in recent years.

In 2013, the Evaluation Center of Drug Pricing at the Development and Reform Commission (NDRC) launched a four-month long investigation into the cost and price of pharmaceutical products. 27 companies were investigated on pricing, including large multinationals such as Merck & Co. Inc., Boehringer Ingelheim GMBH, GSK, Astellas Pharma Inc. and Sandoz Inc.

China’s State Council also issued the notice of major working arrangement in 2013 for deepening healthcare reform, which addressed doctors receiving kickbacks.

In May 2014, to further promote the implementation of the Ethical Codes for Pharmaceutical Companies, strengthen the building of the industry’s credit system, actively execute industry-based disciplines and create an orderly, fair environment for competition and a self-regulatory platform for the industry, the China Forum on Ethical Business Practices for Pharmaceutical Industry was held in Beijing.

This had wide industry participation, be jointly organized by several industrial associations including the R&D-based Pharmaceutical Association Committee under the China Association of Enterprises with Foreign Investment (RDPAC).

Most recently on May 4 this year, the NDRC and seven agencies including the National Health and Family Planning Commission and the Ministry of Human Resources and Social Security jointly published Opinions on Promoting Drug Price Reform. The NDRC also issued a Notice on Strengthening Monitoring of Drug Prices.

With the aim of strengthening supervision of drug prices and punishing illegal price activities, the NDRC will reveal typical cases or investigations to the news media and keep records of drug producers who have conducted illegal drug pricing activities.