Pharmaceutical%20Regulatory%20and

1
Pharmaceutical Regulatory and Compliance
Conference 2008
FCPA and the Practical Implications to
Interactions with HCPs November 8, 2007
2
FCPA Overview

• Roots in the 1970s
• 400 companies making questionable or illegal
  payments
• 300 million
• Prohibits corrupt payments to foreign officials
  for the purpose of obtaining or keeping business.
• Since 1998 also applies to foreign entities who
  further a corrupt payment while in the US
• The Department of Justice is the chief
  enforcement agency
• Coordinate role played by the Securities and
  Exchange Commission (SEC).
• Books and record requirements

3
FCPA Five Elements

• Who Potentially any individual, firm, officer,
  director, employee, or agent of a firm and any
  stockholder acting on behalf of a firm.
• Corrupt Intent The person making or authorizing
  the payment must have a corrupt intent and the
  payment must be intended to induce misuse of an
  official position.
• Payment The FCPA prohibits paying, offering,
  promising to pay (or authorizing to pay or offer)
  money or anything of value.

Source www.usdoj.gov/criminal/fraud/docs/dojdocb
.html
4
FCPA Five Elements

• Recipient The FCPA applies to payments to any
  public official, regardless of rank or position.
  Also includes candidates and party officials.
• Business Purpose Payments made in order to
  assist the firm in obtaining or retaining
  business for or with, or directing business to,
  any person.

Source www.usdoj.gov/criminal/fraud/docs/dojdocb
.html
5
Facilitation Payments

• Permits payments for routine items obtaining
  permits, licenses, or other official documents
  processing governmental papers, such as visas and
  work orders providing police protection, mail
  pick-up and delivery providing phone service,
  power and water supply, loading and unloading
  cargo, or protecting perishable products and
  scheduling inspections associated with contract
  performance or transit of goods across country.

Source www.usdoj.gov/criminal/fraud/docs/dojdocb
.html
6
The Anti-Corruption Landscape

• Clear consensus that corruption must be avoided.
• OECD
• EU Anti-Bribery Conventions
• World Bank
• Public opinion
• Stepped up, and coordinated enforcement.
• DOJ and SEC
• Robust penalties.
• Fines
• Internal monitors

7
The Anti-Corruption Landscape

• Enforcement efforts affecting a wide range of
  industries.
• Defense
• Oil gas
• Medical devices
• Pharmaceuticals

8
Multiple Challenges

• Cultures of corruption.
• Large number of countries with widespread
  corruption
• Transparency International bottom scores
• Sudan
• Guinea
• Iraq
• Myanamar
• Haiti
• China constant source of concern

9
Multiple Challenges

• Difficulty in controlling remote offices and
  agents.
• Challenges in auditing and monitoring
• Sometimes difficult to know who is a government
  official.
• Especially for pharma and medical devices
• Can be too tempting.
• Easy to see what you can get, hard to remember
  that how you get it counts

10
Reputational Complication

• Damage goes beyond the fine.
• Long-term reputational consequences
• Stock price
• Recruiting
• Press mentions

11
What Countries Are Doing -- Communicating
12
What Companies Are Doing Agents Contractors
13
What Companies Are Doing -- Detection

• Whether domestically or internationally,
  companies rely on multiple reporting tools for
  detecting violations.

14
What Companies Are Doing -- Detection

• Supervisors are generally seen as the first line
  of detection, but there was no strong pattern.

15
Speakers

• Adam Turteltaub
• Corporate Relations Executive
• LRN
• aturteltaub_at_lrn.com
• William Jacobson
• Assistant Chief, Fraud Section, Criminal Division
• US Department of Justice
• William.jacobson_at_usdoj.gov

• Gary Giampetruzzi
• Senior Corporate Counsel
• Pfizer, Inc.
• Gary.giampetruzzi_at_pfizer.com
• Michael Horowitz
• Commissioner, US Sentencing Commission
• Partner, Cadwalader Wickersham Taft
• Michael.horowitz_at_cwt.com

16
FCPA and the Practical Implications to
Interactions with HCPs

• Gary GiampetruzziAssistant General
  CounselPfizer, Inc.

17
General Program Guidance From The Cases

• Focus on maintenance of controls by companies
  (and individuals?)
• Development of clear FCPA policies and program
  elements
• Communication, regular training, and annual
  certifications
• Reporting systems, and appropriate discipline
  when violations occur
• Development of FCPA procedures reasonably capable
  of preventing violations
• Should be a risk-based approach to controls /
  procedures
• Due diligence and post-retention oversight of
  third-party relationships
• Appropriate contractual language with third-party
  agreements setting forth anti-corruption reps and
  warranties, compliance with anti-corruption laws,
  etc.
• Controls to ensure that books, records and
  accounts are maintained accurately
• Senior management reporting on FCPA status to
  audit committee, etc.
• Regular audits to ensure that program has been
  implemented in an effective manner

18
An FCPA Code of Conduct? Start With Your FCPA
Risk Areas

• Direct Healthcare Regulators
• Product approval and registration
• Product pricing
• Product reimbursement
• Placement on hospital formularies

• Government-employed doctors
• Gifts and hospitality
• Congresses and meetings
• Consultant arrangements
• Education and research grants

Foreign Officials

• Other public officials
• Customs and importation officials
• Charitable and political contributions, etc.
• Third-party agreements (ex. wholesalers,
  distributors and other service providers)

19
Global Policy on Interactions with Healthcare
Professionals
Transparency
Corporate Citizenship
Primacy of Patient And Healthcare Professional
Relationship
Core Global Policy Principles
20
Dealing With Specific Areas Of Risk

• Ex. Support for Third Party Medical Meetings and
  ConferencesThe main purpose of medical
  congresses, conferences, symposia and similar
  programs supported by Pfizer must be scientific
  exchange and/or medical education.   . . . In no
  instance will Pfizer provide financial support as
  an inducement for a healthcare professional to
  use, prescribe or recommend a Pfizer product or
  otherwise influence the outcome of a clinical
  trial.

21
Dont Forget The Controls A Global FCPA
Procedure

• A comprehensive, corporate-developed global
  procedure
• Real controls not merely another statement of
  policy (ex. GPIHP)
• Implementation by local markets to enforce and
  implement corporate procedure
• Local market identification of public officials
• Detailed written procedures govern gifts and
  hospitality, congresses, consultant arrangements,
  research and other grants, third-party
  relationships, etc. with officials
• Local implementation reviewed by Legal, with
  annual certifications
• Essentially becomes gap analysis with existing
  implementing SOPs
• Local systems, processes and controls subject to
  periodic auditing
• Local trend analysis on interactions in
  consultation with Corporate Compliance
• Appropriate record retention and training,
  training and more training

22
Fundamental Point Policies Are Not Procedures
Policy
Procedure

• Directional guidance
• No specification of process

• Detailed guidance
• Process steps and controls outlined

23
Example Dealing With Third-Party Consultants
FCPA Procedure
GPIHP (Policy)

• Consider the subject market / territory
• Identify relationships with govt officials
• Determine the competence / integrity of the third
  party (questionnaires, interviews, etc.)
• Reasonableness of compensation (vs. work to be
  performed, fair market value)
• Ensure compliance with local laws
• Integrate standard FCPA language and safeguards
  into the third-party agreement
• Maintain continuing oversight of third-party
• Maintain accurate books and records, including
  the due diligence file

• Healthcare professionals may be hired as
  consultants to provide bona fide services, such
  as assisting in the development of medicines,
  participating in clinical trials, etc.
• In no instance will Pfizer retain any healthcare
  professional, regardless of qualification, as an
  inducement for such healthcare professional to
  use, prescribe, or recommend products.
• In some countries, many healthcare professionals
  are employed by government or regulatory
  authorities. Pfizer will ensure that all such
  relationships are appropriately reviewed to
  ensure compliance with Pfizer policies and
  applicable laws.

VS.
24
FCPA Training (Along With More Communications)

• Prior training approach - The first 150 years
• Mostly non-web based (ex. Compliance and Values
  Workshops)
• New employee orientations, various corporate and
  divisional programs
• The past several years Addition of web-based
  training
• More than 45,000 colleagues trained in the U.S.
  and Puerto Rico
• Pfizer Code of Conduct module healthcare law and
  other modules
• Feedback (92 liked the course 91 better
  understand rules 94 intend to use)
• Initial international roll outs complete
• Almost 50,000 additional colleagues trained
• More than 80 countries worldwide, and
  approximately 30 languages
• Proactive collaborative market education and
  review
• Online FCPA and other certifications

25
Pfizer Compliance Education Center (PCEC)
26
Auditing and Assessing An FCPA Program

• Legal Division survey
• Global Colleague and Values survey
• Global compliance survey
• Employee exit interviews
• Corporate Compliance website

• PCEC feedback and statistics
• Feedback and statistics from the Open Door and
  Compliance Hotline
• Auditing and Monitoring functions (Healthcare,
  Manufacturing, RD, etc.)
• Global Compliance Liaisons(eyes and ears on the
  ground)

27
Identifying Issues A Viable Open Door Policy
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Referable Compliance Issues (RCIs)

• Definition
• Significant violations of applicable law or
  company policy or procedure
• Significance determined by severity of action
  or consequence and nature of law (i.e.
  intentional, criminal, or repeated behavior
  participation of a manager serious financial,
  operational, investor relations, health, or
  safety consequences)
• Points of process
• Handled exclusively at the direction of Corporate
  Compliance and GI
• Reported to the Corporate Compliance Officer
  Audit and Compliance Committees
• Response to changed environment
• Need to ensure corporate awareness of significant
  compliance issues (ex. Sarbanes)
• Provides ability to investigate and decide
  whether to disclose

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Identifying Issues Hotlines in Every Country
and Region
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Global Compliance Liaisons / Regional Compliance
Directors

• Liaison Partnership between Corporate Compliance
  and leadership of local markets
• Designated Compliance Liaisons in every market
  around the world
• Liaise between market and Corporate Compliance
• Ensures that Corporate Compliance Officer (CEO,
  CFO, Board and Audit Committee of Board)
  up-to-date on compliance issues at every Pfizer
  location around the world
• Report Referable Compliance Issues to Corporate
  Compliance Group
• Act as chief point of contact between business
  and Compliance Group
• Be an on-site source of compliance information
  for colleagues
• Spreads compliance knowledge and empowers
  colleagues
• Drives compliance into the business
• Regional Compliance Directors
• Beijing, New Delhi, Buenos Aires, Karlsruhe,
  Istanbul, Hong Kong, etc.

31
Dont Be Afraid To Ask A Global Compliance
Survey
32
8th Annual Pharmaceutical Regulatory Compliance
Congress

• Michael E. Horowitz, Esq.
• Partner, Cadwalader, Wickersham Taft
  Michael.Horowitz_at_cwt.com [phone]

33
Potential Industry FCPA Issues

• Direct Regulators
• Product Registration
• Reimbursement Rules
• Importation/Customs
• Distributors/Agents
• Government-Employed Doctors
• Employee of Government Hospital or University
• Clinical Trials, Gifts, Conference Travel,
  Honorarium, Consultants/KOLs
• Charitable Donations

34
Health/Pharma Industry Recent Cases

• Syncor (2002) Cardinal Health acquisition.
  Improper payments to govt physicians
• At least 400,000 in commissions to influence
  purchasing decisions cash payments improperly
  recorded as promotional and advertising expenses
• At least 113,000 in referral fees (much in cash)
  to influence doctors
• Loans never repaid, personal expenses not
  incurred, over invoicing arrangements to
  generate cash gifts
• At least 245,000 involving sponsorship at
  educational seminars (registration fees, travel,
  lodging, meals), gifts of computer equipment,
  digital cameras, expensive wines, wristwatches,
  software and office furniture, sponsorship of
  social functions and hospital fundraisers, etc.
• Syncor Taiwan pleaded guilty to violating FCPA
  anti-bribery and books records provisions
  sentenced to 3 years of supervised probation and
  2 million fine
• Syncor International charged by SEC with
  violating FCPA anti-bribery, books records, and
  internal controls provisions paid 500,000 civil
  penalty required to retain independent consultant

35
Syncor Lessons Learned

• Enforcement action can slow closing of
  transactions
• Acquisition by Cardinal Health was delayed until
  investigation concluded and agreements were
  struck with DOJ and SEC
• FCPA liability/exposure can have an impact on
  pricing
• Cardinal Health purchased for lower price than
  originally negotiated
• Parent liability established through the foreign
  subsidiarys books and records
• Notable as first Healthcare Industry FCPA
  prosecution - established U.S. government
  position that state-employed doctors are
  government officials for purposes of the FCPA
• Notable as first case in which DOJ criminally
  prosecuted a foreign subsidiary of a U.S. company

36
Health/Pharma Industry Recent Cases (cont)

• Schering Plough (2004)
• At request of director of Polish regional
  government health care fund, Schering made
  76,000 in donations to Polish charity payments
  structured to avoid detection and exceeded local
  manager approval levels (no knowledge at U.S.
  headquarters).
• During time period when donations made, sales of
  two oncology products increased
  disproportionately in that Polish region
• SEC Resolution 500,000 civil penalty and
  Schering retained independent consultant to
  review and make recommendations on FCPA
  procedures Company agreed to adopt all
  recommendations.

37
Health/Pharma Industry Recent Cases (cont)

• Micrus (2005) private medical device company
• Payment of more than 105,000 to doctors employed
  at publicly owned and operated hospitals in
  France, Turkey, Spain, and Germany in return for
  the hospitals' use of Micrus' products.
• Payments "disguised" in Micrus' books as stock
  options, honorariums and commissions paid in
  return for the doctors' service on "advisory
  committees.
• Additional payments totaling 250,000 for which
  Micrus had failed to obtain necessary prior
  administrative or legal approval required under
  the laws of the relevant foreign jurisdiction.
• Non-prosecution agreement, fine of 450,000,
  adopt compliance program, retain independent
  compliance expert for 3 years

38
Health/Pharma Industry Recent Cases (cont)

• DPC (Tianjin) (2005) provider of medical
  products
• Approximately 1.6 million in bribes from 1991 to
  2002 in form of illegal "commissions" to
  physicians and laboratory personnel employed by
  government-owned hospitals in PRC to obtain
  hospital business.
• Payments authorized by DPC Tianjin's general
  manager, and paid in cash and hand-delivered by
  DPC Tianjin salespeople to person who controlled
  purchasing decisions for particular hospital
  department.
• DPC Tianjin recorded payments on its books and
  records as "selling expenses.
• DPC pleaded guilty to violations of the FCPA, and
  settled with SEC. Agreed to pay 4.8 million in
  fines and disgorgement, and retain independent
  monitor.

39
Health/Pharma Industry Recent SEC Filings
(alphabetical order)

• AstraZeneca SEC request for policies, audits,
  correspondence, and compliance documents re
  FCPA, as well as for any payments to doctors and
  internal accounting controls for several specific
  countries
• Bristol-Myers Squibb SEC informal inquiry (now
  formal) into companys German subsidiary and
  certain employees and/or agents investigation
  apparently initiated by Munich prosecutors
• GlaxoSmithKline SEC subpoena regarding
  participation in U.N. oil-for-food program SEC
  investigation into sales and marketing practices
  in Verona, Italy region (clinical studies,
  congresses, medical education)
• Immucor Self-report to SEC settle with
  prosecutor in Milan alleged improper cash
  payments to physicians in exchange for favorable
  contract awards by hospital
• Johnson Johnson Voluntary disclosure to SEC
  and DOJ overseas units are believed to have made
  improper payments related to sale of medical
  devices in two small market countries
• Pfizer Voluntary disclosure to SEC and DOJ
  regarding potentially improper payments related
  to sales activities in several foreign markets

40
Potential Industry FCPA Red Flags

• Large aggregate payments/benefits to physician
• Physician has purchasing authority for govt
  hospital or active in regulatory approvals
• Conferences/training are not appropriate to
  physicians practice
• Extensive or inappropriate entertainment/dinner/tr
  avel
• Unusual increase in product purchases or
  prescriptions written
• High commissions or unusually large fees/gifts
• Insufficient/incomplete due diligence (i.e. govt
  relationship, credit)

41
Potential Industry FCPA Red Flags

• Distributor/agent lacks expertise or track record
• Distributor/agent unusually successful in
  obtaining government contracts/benefits
• Payments into offshore accounts
• Inadequate, generic or otherwise questionable
  descriptions on invoices/requests
• Missing or incomplete documentation
• Substantial activity for new vendor/physician
• Invoices paid too quickly payments in cash or
  check

42
MA Due Diligence Areas of Special Interest

• Foreign Operations in Suspect Markets
• Low C.P.I. Score
• Previous Allegations
• Lack of a Compliance Operation/No FCPA Procedure
• Joint Venture/Joint Distributorship
  Responsibilities
• Non-public Company
• Foreign Representatives and Agents
• Commission Payments
• Finders Fees
• Foreign Discontinued Operations

43
Some Additional Issues

• Low CPI Countries are usually poorer and in need
  of training and medical assistance
• Usually few employees
• Low revenue countries/remote locations
• Often operate through distributors/agents

44
MA Examples

• Michael E. Horowitz
• Partner, Cadwalader, Wickersham Taft
  Michael.Horowitz_at_cwt.com [phone]

45
ABB Vetco Gray - Allegations

• Acquisition by Equity Club (JP Morgan Partners,
  Candover Partners Limited and 3i Group) of
  Upstream Oil and Gas business of ABB Limited, a
  Swiss company with ADRs listed on NYSE
• Problem ABB Vetco Gray of Houston, Texas and
  ABB Vetco Gray of UK paid more than 1 million to
  officials of NAPIMS (Nigerian govt agency) to
  obtain confidential bid information and favorable
  recommendations from Nigerian govt agencies in
  connection with 7 oil gas construction
  contracts in Nigeria for which companies expected
  to realize profits greater than 12 million
• Payments also made to government officials in
  Angola and Kazakhstan for similar reasons
• Payments included cash and gifts to NAPIMS
  officials, travel and entertainment, per diem
  payments

46
ABB Vetco Gray Enforcement Actions

• DOJ charged ABB Vetco Gray Inc. as a domestic
  concern, and ABB Vetco Gray UK Ltd. under 1998
  law expanding jurisdiction to foreign companies
  that take acts in U.S. in furtherance of a bribe
• Both companies pleaded guilty to violations of
  FCPAs anti-bribery and books records
  provisions each fined 5.25 million
• SEC alleged violations of FCPAs anti-bribery,
  books records, and internal controls provisions
  by Swiss parent agreed to pay 5.9 million in
  disgorgement and prejudgment interest, and 10.5
  million penalty (penalty satisfied by payment of
  criminal fines by subsidiaries)
• Parent required to retain Independent Consultant
  to review FCPA compliance procedures even though
  it sold Vetco Gray entities

47
ABB Vetco Gray Lessons Learned

• Necessity to conduct rigorous due diligence and
  monitor activities of foreign agents,
  consultants, representatives, distributors,
  suppliers and joint venture partners
• Upon acquiring company, FCPA risk areas to be
  addressed
• System of internal controls
• Compliance program and due diligence procedures
• Disciplinary actions
• Change in business culture
• Government investigation can slow closing --
  acquisition by Equity Club delayed until
  agreements struck with DOJ and SEC
• FCPA liability/exposure can have an impact on
  pricing Equity Club purchased for lower price
  than originally negotiated

48
InVision Technologies, Inc. - Allegations

• GE acquisition of InVision Technologies,
  manufacturer of airport security/explosive
  detection systems
• InVision sold equipment via local agents and
  distributors
• InVision aware of high probability that
  agents/distributors in Thailand, China and
  Philippines paid or offered to pay money (travel
  expenses and/or gifts) to foreign officials or
  political parties in connection with sale of
  machines
• SEC alleged InVision improperly accounted for
  certain payments as cost of goods sold,
  realizing profits of approximately 589,000 from
  sale of two machines in China
• SEC alleged InVision failed to develop adequate
  process to select and train its foreign sales
  agents and distributors

49
InVision Technologies, Inc. Enforcement Actions

• DOJ Deferred Prosecution Agreement -- 800,000
  penalty, accepted responsibility for misconduct,
  and agreed to statement of facts summarizing
  improper transactions
• Required to integrate InVision business into GEs
  FCPA compliance program and retain Independent
  Consultant to evaluate GEs efforts
• SEC Disgorged 589,000 in profits, an
  additional 28,700 in interest, and penalty of
  500,000 SEC alleged violations of the FCPAs
  anti-bribery, books records, and internal
  controls provisions (failure to have system of
  internal controls to detect and prevent FCPA
  violations)

50
InVision Technologies, Inc. Lessons Learned

• Government investigation slowed closing GE
  announced acquisition in March 2004, but
  transaction did not close until December 2004,
  after company agreed to deferred prosecution
• Voluntary disclosure allowed the transaction to
  close Credibility of GEs compliance program
  was an important factor

51
Titan Corporation - Allegations

• Proposed acquisition by Lockheed Martin of Titan
  Corp.
• Titan employed consultant and paid 3.5 million
  to business advisor of Benins President
• 2 million in indirect contributions to
  Presidents re-election campaign at least two
  wires of 500,000 from Titans US account to
  agents Monaco account remaining payments in
  cash
• Payments characterized on Titans books as
  social program payments required by contract
  with Benin government
• Titan gave a 1,850 pair of earrings to Benin
  Presidents wife
• Titan falsified documents to enable agents to
  under-report commission payments in Nepal,
  Bangladesh, and Sri Lanka
• SEC alleges Titan falsely reported to U.S.
  government commission payments on equipment
  exported to Sri Lanka, France and Japan

52
Titan Corporation Enforcement Actions

• Titan pleaded guilty to violating FCPAs
  anti-bribery and books records provisions, as
  well as tax violation sentenced to 3 years
  supervised probation and 13 million fine
  ordered to institute FCPA compliance program and
  internal controls
• SEC alleged violation of FCPA anti-bribery, books
  records, and internal controls provisions paid
  15.5 million in disgorgement and prejudgment
  interest, and 13 million penalty (satisfied DOJ
  fine)
• Titan required to retain independent consultant
  to review its FCPA compliance procedures and to
  adopt consultants recommendations
• SEC issued 21(a) Report criticizing Titan proxy
  for including false FCPA representations and
  warranties

53
Titan Corporation Lessons Learned

• Reps Warranties in merger agreement must be
  accurate (or qualified) when included in proxy
  statement
• Internal controls must be designed to detect red
  flags, such as offshore payments and
  inconsistent invoices
• Must conduct meaningful due diligence on foreign
  agents and consultants
• Must ensure services alleged to be performed are
  actually provided
• Risk of additional prosecution under
  International Traffic in Arms Regulations
  (ITAR) and possible suspension of export
  privileges
• Potential U.S. and foreign tax exposure
• Possible contractor debarment issues
• Deal failed when Titan was unable to meet
  contractual agreement to settle with U.S.
  Government by certain time

54
(No Transcript)