Drugmaker Merck discloses Justice, SEC probes of possible foreign anti-bribery law violations

By Linda A. Johnson, AP
Monday, August 9, 2010

Merck discloses probe of foreign sales practices

TRENTON, N.J. — Two federal agencies are probing drugmaker Merck & Co. for possibly violating anti-bribery laws in multiple foreign countries.

Merck, the world’s second-biggest drugmaker by revenue, has received inquiry letters from both the Department of Justice and the Securities and Exchange Commission, the company said in a regulatory filing. The letters “seek information about activities in a number of countries and reference the Foreign Corrupt Practices Act,” according to Merck.

The FCPA act bars U.S. companies from bribing government officials in other countries to win business, among other things.

“Merck has in place an FCPA compliance program, and our policy is to conduct our business in accordance with all applicable laws, including FCPA,” Merck spokesman Ron Rogers said Monday.

Merck, based in Whitehouse Station, N.J., disclosed the investigation in a regulatory filing with the SEC on Friday. Merck said in the filing that it is cooperating with the agencies and believes that the probe is part of a broader review of pharmaceutical industry practices overseas.

Merck and most other large drugmakers for the past couple years have been hotly pursuing sales in emerging markets including China, Russia, India and Brazil. Government health programs in such countries often control the prices allowed for prescription drugs and decide which brands they will buy for millions of hospital and other patients.

That’s why the Justice Department Criminal Division is focusing on overseas sales practices in the pharmaceutical industry, Assistant Attorney General Lanny A. Breuer said last November at a conference on the anti-bribery law.

According to a transcript of his speech, Brewer said that in some countries “nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug” may involve a foreign official.

“Combined with fierce industry competition and the closed nature of many public formularies,” that creates a big risk that “corrupt payments will infect the process,” he said.

The industry sees high-volume sales in emerging markets as its best hope for growth. Companies have been adding thousands of salespeople and building factories staffed by lower-paid workers in those countries.

Revenue growth is waning in the U.S. and Europe. Reasons include the global recession, bigger U.S. government discounts under the health care overhaul and dozens of blockbuster medicines getting cheap generic competition in Western countries — with few big new products coming on the market to replace those billions in annual sales.

Meanwhile, Merck has a history of trouble regarding promotion of its products.

It’s paid out $4.85 billion to settle roughly 50,000 lawsuits brought by patients or survivors of people who took its former blockbuster painkiller Vioxx and claimed Merck downplayed the pill’s dangers. Vioxx doubled the risk of heart attacks and strokes, including fatal ones.

Currently, Merck is operating under a federal Corporate Integrity Agreement covering its promotional practices and price reporting. The agreement runs through February 2013 and is similar to two earlier, five-year corporate integrity agreements with the U.S. Department of Health and Human Services Office of Inspector General.

Merck entered into one of the agreements in February 2008 and Schering-Plough Corp. entered into the other in 2004 and later extended it for a couple years. Merck bought Schering-Plough for $41 billion last November.

The agreements in general require Merck and its Schering-Plough unit to maintain an ethics training program, as well as “policies and procedures governing promotional practices” and reporting of prices for its drugs to the Medicaid health program.

Medicaid is entitled to the lowest discount any drugmaker gives to other customers, such as hospitals or prescription benefit managers. Major drugmakers have repeatedly been investigated for allegedly overcharging Medicaid by reporting inflated drug prices to the government. That’s resulted in numerous multimillion-dollar settlements paid by the pharmaceutical companies.

Merck shares rose 38 cents, or 1.1 percent, to close at $35.36 Monday.

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