China Intensifies Scrutiny of Multinational Pharmaceutical Companies

The Chinese government’s recent crackdown on alleged bribery and corruption of local officials by multinational pharmaceutical companies could signal a broad trend toward elevated scrutiny of all foreign corporations operating in the country—and provides an even greater incentive for companies to identify and implement anti-corruption practices focused on China’s unique business and legal culture.
In early July 2013, the government of the People’s Republic of China (PRC) announced a milestone investigation into GlaxoSmithKline Plc. (GSK) that has allegedly uncovered bribery involving millions of U.S. dollars that were funneled through more than 700 travel agents and other third parties over the last six years. The exact trigger for the inquiry is currently unknown, but there has been wide speculation about a variety of motives for the timing and targets of the case including a desire to reduce healthcare costs. The PRC government will be targeting foreign pharmaceutical companies with official “requests,” unannounced visits and dawn raids. Indeed, at least one other company has acknowledged being visited recently by government investigators in connection with this investigation.
In the wake of the Chinese government’s launch of a new round of aggressive investigations, multinational companies should begin scrutinizing their operations more carefully to ensure that their policies are well understood, and look for signs of potential bribery being carried out by their employees. To do so, they should truly localize their global compliance policy and program to specifically address their local operations in China, including the development and implementation of the following:
  1. Thorough and complete Foreign Corrupt Practices Act (FCPA) risk-based due diligence for mergers with, and acquisitions of, Chinese local companies
  2. Thorough due diligence review of third-party business partners, including but not limited to agents, distributors, consultants and travel agents
  3. A robust compliance program covering all critical functions, including sales and marketing personnel as well as compliance, legal, finance and human resources staff
  4. A well-run ethics helpline with active follow-up to all complaints and queries
  5. Ongoing compliance training for local management as well as employees
  6. Periodic compliance audits and immediate remediation as necessary
To fully benefit from these compliance efforts, multinationals should consider engaging professionals with the following skills and strengths:
  1. Familiar not only with FCPA requirements but also PRC anti-corruption laws and regulations
  2. Possess a deep understanding of Chinese business culture, along with a command of the unique nuances of compliance challenges in China, and able to identify and formulate effective responses to new and innovative forms of bribery and corruption
  3. Specialized in dealing with Chinese government investigations appropriately and licensed in China
The insights of such professionals would be helpful in minimizing risk and potential consequences, including reputational damage and executives’ liability. Ultimately, global compliance measures superimposed upon China’s unique business environment are not enough. A truly effective compliance program for China needs to be one that identifies and addresses the issues arising out of local business and legal culture.

Senate Bill Proposes Patient-Centered Outcomes Research Institute

The Facts

The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.

What’s at Stake

Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.

Steps to Consider

  • Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome. 
  • Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
  • Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
  • Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
  • Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

Legislative Proposals Would Expand Pharma Obligations to Offer Discount Drugs to Hospitals

The Facts

The health care reform process is speeding along with various proposals that could have substantial impact on the market for pharmaceuticals, particularly those favored by hospitals. A subset of these proposals would expand the 340B Drug Program and increase manufacturer Medicaid Drug Rebate Program (MDRP) payment obligations. 

Both the House Tri-Committee Bill (H.R. 3200) and the Senate HELP Committee Bill include provisions that would expand the categories of facilities that qualify as “covered entities” under the 340B Program. Children’s hospitals, certain DSH hospitals and critical access hospitals are among the six categories included in the proposed changes. Both bills would extend 340B pricing to drugs administered n connection with inpatient services. 

H.R. 3200 would significantly affect the MDRP by expanding the scope of included classes of trade to Medicaid managed care organizations (Section 1743 of H.R. 3200) and Medicaid/Medicare dual eligibles (Section 1181 of H.R. 3200). Section 1181 would expand the scope of the program. Section 1742 would raise the minimum rebate percentage amount from 15.1 percent to 22.1 percent. Section 1742 also would impose a higher rebate percentage on new formulations of older single source or innovator multiple source drugs. Note that the Senate Finance Committee Chairman's Markup proposes an even larger increase in the minimum rebate percentage to 23.1 percent

What’s At Stake

While the 340B-related proposals in the House and Senate Bills would increase the market for discounted drugs, the MDRP proposals from both the House and Senate would also increase the cost to a manufacturer participating in the MDRP.

Steps to Consider

  • Work with your commercial account teams to assess the potential additional customer opportunities presented by an expansion of 340B eligibility.
  • Prepare to engage in strategic planning around the launch of enhanced versions of existing products subject to higher Medicaid Drug Rebate obligations.
  • Work with your finance and government price reporting teams to determine steps needed to keep your price reporting systems in compliance.

Health Care Reform: Pathway for Biosimilars

The Facts 

The U.S. House Energy and Commerce Committee's health reform legislation, HR 3200, includes a provision to enable the U.S. Food and Drug Administration (FDA) approval of biological products as biosimilars under the Section 351 of the Public Health Service Act. By a vote of 47-11, the Committee adopted the Eshoo-Inslee-Barton amendment that, among other things, would protect original approval data for a minimum period of 12 years. Termed “data exclusivity,” it prevents potential competitors from relying on the innovator’s intellectual property, such as clinical trials supporting the safety and efficacy of the innovator product, to support FDA approval of a biosimilar product. 

What’s at Stake

The biosimilar language in HR 3200 is not identical to that agreed to in the health reform bill approved by the Senate HELP Committee. Consequently, there is an opening for additional changes to the provisions related to biosimilars during the House/Senate conference should health reform legislation containing these provisions be passed in both chambers. Stakeholders continue to advocate for changes related to the data exclusivity provisions, which are favored by the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America but opposed by the generics industry and AARP, which believe shorter exclusivity and more liberal patent protections are necessary to speed lower cost biologicals to patients.

Steps to Consider

Consider selected outreach to Congress or supporting your trade organization's efforts to advocate for more favorable accommodations in the ultimate legislative package. Determine the implications and corresponding business and legal risks from current legislative proposals. Identify steps to take prior to enactment of legislation to best position products going forward, including the following: 

  • Reimbursement approaches
  • Product nomenclature, marketing and labeling
  • Issues related to “similar” or "interchangeable" products, including antitrust, intellectual property protection and potential litigation strategies
  • Regulatory strategies for pipeline products

New Tobacco Bill Signals Shift in Focus at FDA

The Facts
The Family Smoking Prevention and Tobacco Control Act was approved by Congress on June 12, 2009, and is on its way to President Obama. The bill for the first time gives the U.S. Food and Drug Administration (FDA) the power to regulate tobacco, but not ban tobacco products outright. The agency may also limit nicotine, but may not require it to be removed completely. Particular tobacco products, just like other FDA-regulated products, may be found to be “misbranded” or “adulterated” by FDA and subject to an array of enforcement actions, including seizure of the products. The new tobacco center will be partially funded by user fees, similarly to other centers. 

What’s at Stake
The act marks a significant shift in focus at FDA. The relative weight within FDA of the tobacco center compared to existing centers, such as those for drugs, devices or foods, has yet to be determined, but it will certainly absorb time, funds and senior talent. Tobacco is estimated to be responsible for 400,000 deaths per year, according to the Centers for Disease Control and Prevention, far more than any other single product FDA regulates, and as such is a critical public health issue. A lengthy conversation internally at FDA over balance among the centers will undoubtedly occur over the next months and years. The bill’s implementation will likely receive a great deal of attention from the No. 2 at the U.S. Department of Health and Human Services, Deputy Secretary Bill Corr, former executive director of the Campaign for Tobacco-Free Kids.

Steps to Consider
Because the new tobacco center at FDA may divert resources and focus from other centers, and may slow down initiatives (or possibly even approvals) at the drug, biologics or devices centers, interested parties should watch this space closely and stay alert to the potential impact on approvals and needed initiatives being carried out by FDA and its other centers.