Pharmas Probed Over Foreign Bribery Allegations

Federal investigators are looking into allegations that major drug companies paid bribes overseas to boost sales and accelerate approvals, The Wall Street Journal reported, citing unnamed sources.

The 1977 Foreign Corrupt Practices Act bars companies whose stock is traded in the U.S. from bribing government officials in other countries to win business. Several large drug companies, including Merck (MRK), AstraZeneca (AZN), Bristol-Myers Squibb (BMY) and GlaxoSmithKline, (GSK) have recently reported officials from the Securities and Exchange Commission and the Justice Department are investigating them for possible violation of the law.

The Journal reviewed letters the government sent to the companies requesting a voluntary probe, and identified four types of possible violations: "bribing government-employed doctors to purchase drugs; paying company sales agents commissions that are passed along to government doctors; paying hospital committees to approve drug purchases; and paying regulators to win drug approvals. Some of the alleged bribes could involve payments to doctors to influence drug trials, the Journal added.

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So far, none of the companies has been accused of wrongdoing, and the investigation ultimately may not result in charges, the Journal added. SciClone Pharmaceuticals (SCLN) and Eli Lilly (LLY) both said they'd been subpoenaed in relation to practices in China and Poland, respectively, and Baxter International (BAX) said it's also being probed.

The investigation is targeting transactions in Brazil, China, Germany, Italy, Poland, Russia and Saudi Arabia, the newspaper said.

Pharmaceutical companies face a tough reality. On the one hand, emerging markets present the best opportunities for growth, already comprising about a third of total sales. On the other hand, many aspects of the business involve government officials in these countries, which creates a risk, even if drugmakers say they have policies meant to ensure compliance with the FCPA.

Meanwhile, it seems the government has been stepping up FCPA enforcement actions, tripling related cases in just a few years -- and not only in the pharmaceutical industry. General Electric (GE) recently announced that it had reached a $23.5 million settlement over bribery charges. An estimated $1 trillion is paid each year in bribes -- out of a $30 trillion global economy. The government will no doubt find these fines lucrative.