Asia Pacific Pharmaceutical Compliance Congress

Compliance best practices

Ms. Vidya RajaraoIndia Leader, Forensic ServicesSeptember 14, 2011

www.pwc.com

September 20112PwC

Agenda

Indian Pharmaceutical Market

•Overview

•Regulatory Pressure

Compliance issues & challenges

•Regulatory compliance

•Code of Marketing Practices for Indian Pharma Industry

•Anti-corruption Laws and Regulations

•Compliance Issues and challenges

Compliance best practices

•Framework for Compliance

•Compliance Focus Areas

•Best Practices

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Indian Pharmaceutical market

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Overview

• The Indian pharmaceutical market is set to reach USD 20 billion by 2015 and the clinical trial business is set to reach USD 1 billion by 2011 as stated by the Associated Chambers of Commerce and Industry (ASSOCHAM)*;

• India also ranks among the top 5 countries with a total of 48 mergers and acquisition in 2010;

Source: Thomson M&A database, IMAP – Pharmaceuticals and Biotech Industry Global Report, 2011

*Economic times: http://articles.economictimes.indiatimes.com/2011-04-15/news/29421955_1_clinical-trials-medicines-usd

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Growing Regulatory Pressure

The FDA Amendments Act of 2007 has forced the FDA to

increase standards for approvals of new drugs, introducing

mandatory risk evaluation and mitigation strategies (REMS)

Sun Pharmaceutical unit gets FDA Warning

(Wall Street Journal, August 2010)

DA Warning: Glenmark Pharmaceuticals issued warning in connection with

marketing of unapproved drugs

(USFDA, March 2010)

Lupin Pharma sued in US over Drug Patent violation

(The Financial Express, December 2010)

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Growing Regulatory Pressure (continued)

Increased Global Scrutiny of FCPA violations

Johnson and Johnson to settle charge over Drug’s marketing

(New York Times, August 2011)

US probes corruption in big Pharma companies: GlaxoSmithKline, Bristol

Myers-Squibb and Eli Lilly

(Financial Times, August 2011)

Pfizer discloses ‘potentially improper payments’ to SEC

(Wall Street Journal, August 2011)

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Compliance issues & challenges

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Regulatory compliance

These expanding regulatory forces are

driving an urgent need for

pharmaceutical companies to develop practical and effective solutions for meeting

the challenges of integrating

governance, risk and compliance on a

global level.

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Code of Marketing Practices for Indian Pharma Industry

Pharma companies are also under the lens for their marketing practices as adapted to suit local promotional

models.

The Department of Pharmaceuticals (DoP) in the Ministry of Chemicals and Fertilizers has spelt out

marketing practices for the pharma industry. A draft voluntary Code of Marketing Practices for the

Indian Pharmaceutical Industry was released on June 2, 2011.

Highlights of the Code are discussed under the following broad categories:

• Lays down rules for manufacturers on product claims and product comparisons to other existing

products in the market;

• Provides guidance on the dos and dont’s for using textual & audio-visual promotional materials;

• Defines a medical representative and requires the medical representatives and other third parties to

adhere to a strict code of conduct;

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Code of Marketing Practices for Indian Pharma Industry (continued)

• The code provides rules on the manner of distribution of and record keeping for samples;

• Prohibits pharma companies from giving gifts to secure advantages, benefits or promises;

• The Code lays down stringent guidelines on hospitality sponsorships and meetings;

• The Code also envisages a Committee for complaint handling i.e. “Committee for Pharma

Marketing Practices” and spells out its mechanism and mode of operation.

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Anti-corruption Laws and Regulations

The anti-corruption challenges as illustrated below are of a special concern in the pharmaceutical

industry:

•HCPs are considered as government officials due to their potential affiliation with government

hospitals;

•Sales and marketing staff (including medical representatives) are often the public face of the company

having direct contact with the HCPs;

•Clinical trials require a government interface;

•Pharma companies are generally required to interact with the Ministry of Health officials, licensing

authorities at local, state and central Government level;

•Third parties play an important role in the supply chain and are deemed agents of the pharma

companies.

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Compliance Issues & Challenges

Some of the key compliance challenges are observed in the following categories:

A. Sales and Marketing

• Fraudulent expense claims by sales force to create ‘kitty’ to make inappropriate payments to

Healthcare Providers (HCPs).

• Categorisation of HCPs based on prescribing habits and enticing them to prescribe products:

HCPs are provided inducements in form of gifts, surgical equipments, medical books,

birthday parties, etc;

Requests for gratification (in the form of gifts to be given to doctors) are initiated by sales

force at the request of HCPs;

Lack of medical necessity for prescribed treatments (promoting excessive use of medicine

for profit).

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Compliance Issues & Challenges (continued)

• Depending on prescribing habits of HCPs, they are entitled to an all expense paid trip to a medical

conference/seminar, either locally or internationally or to an exotic international destination;

‘Walking around money’ given as perdiem in addition to all costs by the pharma company.

• Volume discounts given to HCPs who resell products to patients. The free products received by

HCPs are then sold at market price.

• Samples

Purchase of products by sales force from pharmacies to be distributed to HCPs. These products

are not marked as free samples and, as such, can be dispensed by the HCPs at their private

clinics at the price indicated on the product;

Sample drugs can be unpacked by HCPs from their original packing and then dispensed at their

private clinics for a fee.

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Compliance Issues & Challenges (continued)

• Off-label marketing;

Salesperson indicating or implying that a drug is appropriate for treatment for children when its

use has been approved only for adults;

Selling a product outside its legally approved use (for example, an expired or expiring product

in an attempt to try to extend sales life).

• Use of Consultants by pharma companies for:

Obtaining drug/ factory/ environmental licenses;

Registration of new products involves interaction with Ministry of Health officials;

Payments for recurring visits of Government officials to warehouse or plant sites;

Clearing check post matters for inter state product movement;

Expediting sales tax and income tax assessments or to obtain favourable judgement;

Customs agents – to expedite clearance of goods or to overlook deficiencies in documentation.

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Compliance Issues & Challenges (continued)

B. Counterfeiting of drugs:

• Mixing genuine and counterfeit product in the supply chain;

• Using legitimate distributors to import and sell pirated products;

• Illegal trade rings also acquire expired medicines in order to repackage it and reintroduce it in the

distribution channel.

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Compliance best practices

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Framework for Compliance

Control Framework

ManagementBehaviour

Values

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Compliance Focus Areas

Tone/BehaviourSenior Management Regular leadership

communicationDemonstration of compliance behaviour by senior

management

Compliance Office

Gatekeeper & monitoring of compliance policies/procedures

Assess risk periodically

Ongoing training and development

Localised Policies & Procedures

Development/enhancement of code of ethics, policies and operating procedures

Business PartnersDefine/enhance structure for engagement with government

officials

TrainingDevelop & deliver training on a continuous basis &

ensure attendance

Tone at the top

WhistleblowingDevelop/enhance whistleblowing and incident

management process

Pre-engagement evaluation

RiskCompliance Risk

AssessmentRisk assessment process should be used in local decision

making & in setting up operation in high risk markets

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Best Practices

Step 1 - Ensure right tone at the top

• In order to be effective, the compliance message must be embraced and driven from the Board of

Directors and executive management team down through the organization;

• It must be driven by words and by example;

• Build confidence amongst employees to do the right thing and identify clear sanctions for non-

compliance;

• Update corporate documents and communications that address key messages on anti-bribery, anti-

corruption, interaction with government officials, internal controls, etc.; and a formal communications

and certification plan (intranet access, web training, messages from senior leadership).

Tone/BehaviourManagement & Policy owners

commitmentCommunicate key messages Regular leadership communication and

demonstration of compliance behaviour

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Best Practices (continued)

Step 2 – Localised policies and procedures

•To operationalise compliance at local level – need an ‘eye opener’ for local senior management via trainings;

•Customization to the local context to the extent possible since compliance its generally viewed as a foreign

concept;

•The policies must discourage perception that corruption in the local country is ‘part of everyday business’;

•An implementation “tool kit”; recommended monitoring controls, and internal reporting protocols to meet

the compliance requirements should be provided locally.

Localised Policies & Procedures

Development/enhancement of code of ethics, policies and operating procedures

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Best Practices (continued)

Step 3 – Compliance function

•The role of a compliance office is to act as a gatekeeper of the compliance policies and procedures;

•Events held by Compliance office to underscore the “tone from the top” and to proactively drive

implementation;

•Perform periodic risk assessment to assess compliance with defined policy and procedures;

Providing gifts, entertainment, other hospitalities and travel to foreign public officials;

Making political and charitable contributions, community support and facilitating payments;

Identification, retention and use of third-party intermediaries;

Assess the need to update policies and guidelines on periodic basis with change in environment and

news rules and regulations.

Compliance office

Gatekeeper & monitoring of compliance policies/procedures

Ongoing training and developmentTone at the top

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Best Practices (continued)

Step 4 – Risk Assessment

•In order to identify processes vulnerable to fraud and non-compliance, companies should conduct on a

proactive basis an enterprise wide assessment to identify compliance risks;

•This assessment must consider vulnerability to management override and potential schemes to circumvent

existing control activities, which may require additional compensating control activities.

•Evaluate corporate policies to ensure that they cover high-risk activities - a set of “global” standards and

expectations for controls around high-risk business activities.

RiskCompliance Risk

AssessmentRisk assessment process should be used in local decision

making & in setting up operation in high risk markets

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Best Practices (continued)

Step 5 – Business Partners

1. Documented approach to assessing integrity & corruption risk

• Known connections to local government figures or bodies

• The industry and local country’s reported reputation for public corruption (e.g. use of TI or other trade indices)

• Competence and qualifications of the party for the project or activity contemplated

• Circumstances of referral

• Nature of the activities to be performed under contract

• Specific contract terms

• High-level sanctions or Politically Exposed Persons (PEP) screening

2. Integrity due diligence on higher risk entities to verify, identify and assess…

• Background, career history, commercial interests and business associates of shareholders and directors of companies or individual applicants

• Qualifications, capabilities and capacity for the role

• Reputation in the market

• Connections to government officials or bodies

• Reports or allegations of involvement in corrupt activities

• Reports of other adverse issues which may affect the proposed relationship (e.g. history of disputes with business partners or unethical or criminal behaviour

3. Business partner compliance management process and materials

• Bespoke questionnaire / application form

• Contracts with suitable anti-corruption clauses

• Policy and guidance material for dealing with third party relationships

• Reporting templates

• Database of completed due diligence and IT-based (or other) tracking tool for due diligence

• Documented approvals and sign-off process

• Process for ongoing monitoring or re- application after set period of time

Assess risk periodicallyBusiness Partners

Define/enhance structure for engagement with government officials

Pre-engagement evaluation

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Best Practices (continued)

Step 6 – Compliance Training

• Promote compliance by educating local management on the key tenets of rules and regulations,

communications with regulatory agencies, expectations of international and local country “pharma

codes,” increases in local regulatory agency investigations, etc;

•Provide senior management training on the need of a robust compliance programme;

• The compliance training should also be disseminated on entity-wide basis with special focus on

interaction of employees with government touch points.

TrainingNeeds analysis/develop

strategyDevelop & deliver training Build into sustainable ‘business as

usual’ training

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Best Practices (continued)

Step 7 – Whistleblowing

•Fortune 500 pharmaceuticals companies have initiated the concept of an open door policy;

•The policy also offers anti-retaliation protections to ensure that all employees have a safe mechanism for

reporting potential violations / concerns;

•Further, to encourage reporting, they have established reporting mechanisms which include a compliance

helpline available in 70 languages, allowing employees around the world to raise concerns and seek guidance.

WhistleblowingDevelop/enhance whistleblowing and incident

management process

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Closing thoughts…

Compliance programmes are

at the core of companies’ best

strategies for minimising the

risk of regulatory and non-

regulatory violations

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Questions, suggestions, ideas…

© 2011 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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