India drugs inquiry could prompt new U.S. scrutiny

Thu May 10, 2012 5:53pm EDT

* India cites collusion between drug regulator, pharma firms

* US foreign bribery drug probes focus on sales, marketing

* Report could initiate new US inquiries-sources

By Aruna Viswanatha

WASHINGTON, May 10 (Reuters) - Global drugmakers could face new U.S. scrutiny after a report from lawmakers in India alleged abuses in that country's drug approval process, lawyers familiar with such investigations said.

An Indian parliamentary panel on Wednesday said officials of India's drug regulator had been colluding with pharmaceutical companies to speed up approval procedures, allowing some drugs that are not permitted in other countries to go on sale.

The U.S. Justice Department and the Securities and Exchange Commission are conducting extensive inquiries into nearly every major drug and medical device manufacturer for potential violations of a U.S. law that bars bribes to officials of foreign governments, the Foreign Corrupt Practices Act.

Many of those probes focus on accusations of bribery in emerging markets, such as China and Latin America, but dealings in India have yet to come under major scrutiny.

"If the Indian parliament issued a report condemning practices, then I'm sure my clients will be getting calls from the DOJ pretty soon," said one lawyer who works with pharmaceutical companies on such investigations. The lawyer spoke on condition of anonymity, as did others who represent drugmakers in FCPA cases.

Other experts familiar with the Justice Department's workings agreed.

"There is certainly going to be Department of Justice interest, said Howard Sklar, who ran anti-corruption programs for several major companies and now works at Recommind Inc, which makes software used in corporate investigations.

The 78-page report by Indian lawmakers named several major international drug companies including Eli Lilly and Co. and Novartis. It cataloged a series of procedural failures that it said raised questions about how certain drugs were allowed to be sold in India, but it did not directly accuse the companies of wrongdoing.

"If these Indian drug regulators were in cahoots, then it's not particularly a stretch of the imagination to say that part of the reward for their laxity was money, and that is very clearly a violation of the FCPA," Sklar said.

Officials at the SEC and the Justice Department had no immediate comment.

CLINICAL TRIALS MAY DRAW SCRUTINY

When the Justice Department and the SEC sent letters in April 2010 to several drug manufacturers including Lilly, Bristol-Myers Squibb Co. and AstraZeneca PLC in its foreign bribery probe of the industry, it requested information on countries like Brazil, China, Greece and Russia but did not include India in that list, people familiar with the matter said at the time.

Most of those investigations have focused on sales and marketing practices, people familiar with the investigations said, rather than the higher-level drug approval issues that were cited in India.

Some of those cases are wrapping up. Lilly disclosed last month it was in "advanced discussions" with the SEC to resolve foreign bribery issues in Poland and other countries.

Johnson & Johnson paid $70 million last year to resolve FCPA charges that its subsidiaries made improper payments to healthcare providers employed at state-run hospitals in countries like Greece and Iraq to induce them to purchase its medical devices and drugs.

The same factors have not been at work in India, where much of the booming medical market is privately run, and expensive, brand-name products are rarely purchased by public hospitals, the people said.

But the Justice Department has signaled its interest in examining possible corruption in the clinical trials process, said John Kelly, a former federal healthcare fraud prosecutor now in private practice at the law firm Bass, Berry & Sims.

"With clinical trials, you're going to have constant interaction with either foreign officials or entities that are operated by government entities," Kelly said. "If they weren't (looking at it), they will be now."

Novartis said on Thursday it would investigate the drug approval irregularities alleged in the report. Lilly said on Wednesday it "followed all appropriate regulatory processes required by the regulatory agency in India."

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