Posted : 2016-08-11 16:35
Updated : 2016-08-11 21:01

Novartis Korea mired in `rebate' scandal

Six executives indicted for offering kickbacks to doctors

By Lee Hyo-sik

Novartis Korea is facing the biggest crisis in its 30-year history as six former and current executives have been indicted on charges of offering kickbacks to doctors for years in return for prescribing its products.

The latest indictment will likely tarnish the corporate image of the Swiss pharmaceutical giant and adversely affect its business dealings in Asia's fourth-largest economy, industry analysts said.

According to the Seoul Western District Prosecutors' Office, Thursday, investigators indicted former company CEO Moon Hak-sun and five other executives, as well as 28 doctors and heads of medical journals on charges of giving and receiving cash and other kickbacks.

Novartis Korea, established in 1983, provided a total of 18.1 billion won ($16.5 million) to five medical journals between 2011 and 2015, according to the prosecution. On behalf of Novartis, the journals then gave 2.6 billion won in cash to dozens of doctors for writing articles or taking part in seminars.

Investigators had sought to bring charges against two former CEOs who managed the Korea unit of the world's second-largest multinational drug maker from 2011 to 2015. However, they had to drop the cases because the two refused to return to Korea.

Instead, Moon, the first Korean CEO who took the company helm last September, has been a primary figure since prosecutors raided company offices in February. Moon was then relieved of his duties in April and summoned for questioning. Since May, Klaus Ribbe has been heading Novartis Korea.

One industry analyst told The Korea Times that Moon is a scapegoat for his non-Korean predecessors, saying that most of the irregularities took place under their watch.

"The indictment will certainly hurt Novartis' corporate image and deal a blow to its operations in Korea," said the analyst, who declined to be named. "I don't think doctors and others in the medical industry are eager to do business with the Swiss drug maker."

Novartis Korea has dismissed the prosecution's charges, saying that its senior managers were unaware of the provision of kickbacks, known in the pharmaceutical industry as "rebates," to doctors. It claims that only a few low-ranking employees arbitrarily orchestrated the scheme, amounting to nearly 20 billion won.

"We have acknowledged and regret that certain associates in Korea conducted small medical meetings and other scientific-related activities through trade journals, in violation of our policies and inconsistent with our culture and the expectations society has for us and our industry," CEO Klaus Ribbe said.

Some associates also supported travel to overseas congresses for some healthcare practitioners in a way that did not fully comply with self-regulation standards set by the Korean Research-based Pharmaceutical Industry Association (KRPIA), he said.

"However, we reject the implication that the alleged conduct was sanctioned by the most senior management of Novartis Korea," the CEO said, indicating that the company will fight the prosecution charges in court.

However, prosecutors are confident that they can prove CEOs and other senior managers at Novartis Korea were aware of and systemically involved in the kickback scheme.

"Most drug makers indicted for offering rebates argue that senior managers were not involved. It is the result of some individuals' deviant behavior," a prosecution official said. "But we have secured solid evidence to prove otherwise. The truth will be revealed in court."

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