ETHICAL NEEDS OF LIFE SCIENCES’ COMPANIES: BETWEEN STATUTORY

OBLIGATIONSAND SELF-REGULATION

MAY 17, 2019

Avv. Paola SangiovanniGitti and Partners - Studio Legale Associato

WHY I AM HERE TODAY

I am a transactional counsel with a thorough understanding of regulatory issues affecting companies active in life sciences.

I have been providing legal assistance to multinational corporations for 20+ years.

After graduating in law at the University of Milan, I received a Fulbright scholarship and obtained an LL.M. from the University of California at Berkeley in 1997.

I practiced within a large international law firm for several years. Since 2017 I am a partner of the Italian independent firm “GITTI AND PARTNERS” based in Milan.

I am featured on “Who’s Who Life Sciences” since 2013.

THIS PRESENTATION WILL INCLUDE:

• 1. Reflections on ethics and healthcare;

• 2. Regulations in the life sciences industry;

• 3. Self-regulation in the life sciences industry;

• 4. Italian law 231 and compliance programs;

• 5. The Italian Sunshine Act; and

Your questions whenever you want to share your thoughts!

• Mission statements of life sciences companies:

– Medtronic: «alleviate pain, restore health, extend life»

– Zimmer: «helping restore lives worldwide»

– GSK: «help people do more, feel better, live longer»

– Roche: «doing now what patients need next»

• Titles of articles in the press:

– “How Pharma Companies Game the System to Keep DrugsExpensive” (Harvard Business Review, 04/06/17)

– “How big Pharma’s money - and its politicians - feed the US opioidcrisis” (The Guardian 10/17/17)

IT IS INTERESTING TO COMPARE…

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“Thorough review of the literature and newspapers indicates

that the perception of ethical issues in the pharmaceutical

industry is largely negative and highlights the scrutiny placed

on pharmaceutical companies.”

Valverde, José. (2012). Ethical challenges in thepharmaceutical industry. Pharmaceuticals Policy and Law. 14.123-127. 10.3233/PPL-120349.

SO, SAVING LIVES OR KILLING PEOPLE?

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LIFE SCIENCES’ COMPANIES FACE MANY ISSUES

• product safety;

• pricing;

• cost effectiveness of treatments;

• data disclosure;

• clinical study design;

• issues related to vaccines;

• developing countries;

ARE THESE BUSINESS or ETHICAL ISSUES?

• Health is considered a “sacred value”;

• When financial considerations interact with HEALTH,

ethical judgements start to be applied;

• Ethical judgments are not rational;

• Moral outrage campaigns are often started;

HEALTHCARE & ETHICS: INTERTWINED

ethics

business

CONFLICTING FORCES?

• Life sciences’ companies operate in a context surrounded

by ethical issues;

• Their reputation is generally bad;

Can ethical issues be regulated? Must they?

The response tends to be:

• Hyper regulation by a variety of sources (micro rules)

• Reference to ethical values (big values)

WHAT WE MAY CONCLUDE:

• LEGISLATION:

– European Regulations

– European Directives

– National legislation

• SECONDARY LEGISLATION:

– Regulations by specialized bodies (e.g., Ministry of Health,Pharma agencies, Anti-corruption agencies)

– Other authorities (e.g., purchasing bodies)

• CASE LAW RULINGS:

– Case law at European and national level

– Civil, criminal, administrative courts

RULES: A VARIETY OF SOURCES

THAT’S A LOT OF LAYERS!

• More focused on safety, public procurement and anti-corruption than on ethics

• Multi-layered landscape

• Hard to keep up!

– Hard to reconcile different sources sometimes

– Hard to anticipate developments

(Life sciences’ law is NOT a niche, it has a 360°

front from which enemies can creep up)

ISSUES WITH THESE NORMS:

The compliance stack or pyramid:

• CODE OF CONDUCT on top

• Then POLICIES

• Then PROCEDURES

SELF REGULATION BY COMPANIES

• General (and generic) values are introduced («integrity»«professionality» «independence», «sustainability», etc.)

• Is the Code of Conduct introducing ethics within acorporation, or:q Simply providing a summary a compliance program?

q Sets forth a general rule because processes and regulationscannot be so pervasive as to cover every possible circumstance?

q Because corporations need to remind employees of the meaningof processes and regulations?

WHY A CODE OF CONDUCT?

ü Ethical values are terribly subjective;

ü So, by making reference to ethics, the corporation is opening the

door to moral judgments;

ü This can be great to motivate employees (especially millennials),

but…

ü Allows employees to use their conscience, and consciences are

subjective tools!

ü Usually entrusts leaders to issue definitive ethical/business

decisions (E.g.: conflict of interests policy)

ISSUES WITH CODES OF CONDUCT

ü Badly written;

ü Not in sync with the operations of the company

(sometimes too sophisticated, sometimes too simple);

ü Simply not known to employees;

ü Even hard to find in the galaxy of rules inside a

corporation;

ü Under Italian law, employees who breach them can be

sanctioned, but usually not dismissed…

ISSUES WITH POLICIES AND PROCEDURES

SELF REGULATION BY INDUSTRY ASSOCIATIONS

• ETHICAL CODES by INDUSTRY:

– MEDTECH, ASSOBIOMEDICA, ADVAMED;

– EFPIA, FARMINDUSTRIA.

• A fascinating concept: business ethics’ standards for an entire market

• The real purposes:

– Making sure that as many competitors as possible abide by the same ethical

standards

– Preventing regulations by the regulator

– Improving the image of the industry

• PROS:

v There is lots of training administered on codes of business conducts;

v They actually shape the behavior of companies;

• CONS:

v Actual enforcement varies;

v Sanctions within industry associations are rare;

v Lots of politics within industry associations (ethics is often a

competitive edge that large corporations use to their advantage,

while smaller companies do not use as well as the big ones);

ISSUES

• Not just for ethical or reputational reasons…

• A strong compliance program is one of the basis for aCourt to grant an exemption from corporate liability underItalian Legislative Decree no. 231 of 2001…

WHY A COMPLIANCE PROGRAM?

• In 2001, Legislative Decree no. 231 (“Law 231”) was passedand introduced criminal/administrative liability ofcorporations under certain circumstances;

• Before 2001, the Italian criminal system was based on theprinciple that only individuals may be subject to criminalliability (societas delinquere non potest);

WHAT IS LAW 231?

• Disqualification sanctions: from 3 months to 2 years of:

• ban from carrying out the company’s business;

• suspension or revocation of permits, licenses or concessions;

• ban from contracting with the Public Administration;

• exclusion from benefits, loans, contributions or subsidies;

• ban from advertising goods or services;

• appointment of a judicial commissioner.

• Monetary fines up to 1.5M and confiscation of the profitresulting from the crime;

• Publication of the Court’s decision, in case of adisqualifying measure;

SANCTIONS (ALSO AS PRECAUTIONARY MEASURES!)

In case of crimes committed by top management, thecompany is not liable if:

• before the crime was committed, the company adoptedand effectively implemented an adequate organizationalmodel tailored to the company;

• has entrusted an independent body with the task ofsupervising the implementation and fulfillment of thecompliance program (‘Compliance Committee’), who didnot fail to supervise properly;

• the individual(s) who committed the crime actedfraudulently by evading the compliance program.

AFFIRMATIVE DEFENSE

• effective: not only formally adopted, but effectively andentirely put in place;

• specific: tailored to the characteristic of the company inrelation to its size, its structure and to the activities itcarries out;

• updated: in order to reflect any change occurred in thecompany and in the laws applicable to the activity carriedout by the company or in Law 231 (new crimes are oftenadded).

AN ORGANIZATIONAL MODEL MUST BE:

should include:

• specific identification of the ‘areas at risk ’ ;

• establishment of appropriate internal procedures in theareas at risk;

• appointment of a Compliance Committee;

• reporting lines to the Compliance Committee;

• introduction of adequate disciplinary measures;

• communication and training program of the company’spersonnel, especially in the ‘areas at risk’.

ORGANIZATIONAL MODELS UNDER LAW 231

The organizational models and risk assessments need to be:

• officially adopted through a Board resolution;

• printed on corporate ledgers;

• communicated to the employees;

The Compliance Committee:

• must be appointed through a Board resolution;

• each member should certify her/his independence inwriting;

• should resolve on an audit and training plan.

PRACTICAL STEPS:

The exemption from corporate criminal liability occurs only if:

1. before the crime was committed, the company adopted

and effectively implemented an adequate organizational

model tailored to the characteristics of the company (don’t

act like Siemens AG!); and

2. the Compliance Committee did not fail to supervise

properly.

Your compliance program will not help unless it is effectively

implemented, diligently documented, updated and unless the

Compliance Committee can prove its active role.

WARNING!

• Italy will soon have its own SUNSHINE ACT;

• Transparency is considered a «disinfectant», that purifies

and sheds light on industry interactions;

• The bill cites “the right to know” the economic

relationships between pharma and medtech and any

health care professional and healthcare organization;

THE QUEST FOR TRANSPARENCY

SUNSHINE ACT: A BILL PROPOSAL OF APRIL 2018

ART. 3 OF THE BILL

The following transactions will be made public:

• Agreements and disbursements in cash, goods, services or otherutilities:• to an HCP when they have a unitary value greater than €10 or an

overall annual value greater than €100;• To an HCO, when they have a unitary value greater than €500 or

a total annual value greater than €1000.

• Direct or indirect relations of interest, such as the participation,even free of charge and honorific, to conferences, training events,committees, commissions, advisory boards or scientific committeesor in the establishment of consultancy reports, teaching or research;

Data must be published for each quarter by the end of thefollowing quarter.

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ART. 4 OF THE BILL

Additionally, life sciences companies must communicate:

• Any equity investments by HCP or HCO in their company;

• Any proceeds from intellectual property in the previousyear paid to HCP or HCO;

Publication is mandatory even if the conditions are met withrespect to the individual’s spouse, living partner and relativeup to the second degree.

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ONLINE DATABASE: «TRANSPARENT HEALTHCARE»

• Data will be published in a special section of the website ofthe Ministry of Health called "Transparent Health";

• The data will be available for 5 years, after which it will bedeleted;

• The interested party may request rectification or removalof their personal data, but only in the event of errors orincorrect identification of the subject (Sunshine 1 – Privacy0);

• But the Data Protection Authority will provide its opinionon the data base;

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SANCTIONS AND ENFORCEMENT

• Failure to disclose: sanction of €1000 increased by 20 timesthe amount of the disbursement which was not disclosed;

• Failure to disclose equity investments and proceeds fromintellectual property: sanctions from €30,000 to €150,000;

• False disclosures: sanctions from €20,000 to €200,000;

• The sanctions are also published in the database;

• Enforcement by the financial administration and the taxpolice;

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THE SUNSHINE ACT…

• Will prevent corruption?

• Will the perception that the media and the public have ofdoctors and industry change?

• Will the relationship between doctor and patient change?

• Will the perception of doctors change on low-value giftsthat are often considered "innocent"?

• Will the attitudes of doctors towards industry change? Ina positive sense or even in a negative sense?

• Transparency is great, who can dispute that?

• But with the press already biased against life sciences’ company, this may fuel «GOTCHA QUESTs» based on an assumption of fraudulence;

• When did you last read a positive story of interaction between an HCP and the industry?

HOW WILL THE «SUNSHINE» DATA BE USED?

POSSIBLE NEGATIVE EFFECTS…Lisa Rosenbaum, M.D.: “Beyond Moral Outrage –Weighting the Trade-Offs of COI Regulation” – The New England Journal of Medicine – May 21, 2015 (nejm.org; 372;21):

• “Patients trust us to put their interest above desire for financial gain, but they also trust us to work hard and quickly to find cures for their diseases”

• “As reputational costs of exposure grow, everyone works harder at damage control, and fewer people defend themselves, because self-justifications may only intensify the criticism: those who are exposed just hope it will go away quickly”

• “[…] we undermine potentially productive research collaborations, dissemination of expertise, and public trust”

THANK YOU FOR YOUR ATTENTION!

Additional questions or comments?

Email me:

Paola.Sangiovanni@grplex.com

MILANOVia Dante, 9

BRESCIAPiazza della Loggia, 5

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