Pharmaceutical industry

Grandstanding Without Results

Members of Congress subjected the CEOs of a pair of rogue corporations to much-deserved castigation in recent days, but the executives will probably turn out to be the victors. John Stumpf of Wells Fargo and Heather Bresch of Mylan endured the barbs knowing that they will not lead to any serious consequences.

The periodic grilling of business moguls amid corporate scandals is a longstanding feature of Congressional oversight. In the 1930s the Senate Banking Committee, led by investigator Ferdinand Pecora, questioned Wall Street titans such as J.P. Morgan about the causes of the stock market crash. In the late 1950s Sen. Estes Kefauver asked pharmaceutical executives about rising drug prices. In the 1960s Sen. Abraham Ribicoff, with the help of a young lawyer named Ralph Nader, interrogated auto industry executives about their seemingly cavalier attitude toward safety.

Jumping to the recent past: In 2010 the CEO of BP was hauled before a House hearing to testify about the Deepwater Horizon disaster. In 2013 the Senate’s Permanent Subcommittee on Investigations questioned Apple CEO Tim Cook about his company’s international tax avoidance. And so forth.

Yet there is a big difference between the older and the more recent hearings. In the 20th Century these events were preludes to legislative reform. The Pecora hearings led to the passage of the Glass-Steagall Act separating speculative activities from commercial banking. Kefauver tried but failed to pass price restrictions but was able to enact stricter drug manufacturing and reporting rules. The Ribicoff hearings led to the passage of the National Traffic and Motor Vehicle Safety Act and the Highway Safety Act.

Those earlier hearings may have been political theatre, but they were followed by serious regulatory changes. Today’s hearings, on the other hand, seem to be nothing more than theatre. For many members of Congress, they are opportunities to pretend to be concerned about corporate misconduct while having no intention to do anything about it.

That’s not surprising, given that the party in control of both chambers of Congress is rabidly anti-regulation. The 2016 Republican National Platform is filled with critical comments about regulation, including an assertion that the Obama Administration “triggered an avalanche of regulation that wreaks havoc across the economy.”

The Consumer Financial Protection Bureau, the lead regulator in the Wells Fargo fake accounts case, is a favorite target of conservative lawmakers. Right after the CFPB’s Wells Fargo announcement, Speaker Paul Ryan sent out a tweet claiming that the agency “tries to micromanage your everyday life.” Senate Banking Committee Chair Richard Shelby tried to block the appointment of Richard Cordray to head the CFPB and subsequently sought to weaken the agency. And during his opening statement at the hearing, he took a pot shot at CFPB for not being aggressive enough in pursuing the case.

Congressional grandstanding against corporate miscreants has been going on for decades, but what was once a device to build public support for real legislative change now serves mainly to conceal the fact that too many legislators are in office to do the bidding of corporations, even the most corrupt ones.

Generic Price Gouging

Price gouging by the producer of EpiPens has been creating a hardship for those suffering from severe allergies, but it is also revealing the truth about the one segment of the drug industry that was thought to have some decency.

Mylan, the corporation behind the EpiPen scandal, is best known as a leader in the production of generic drugs, which were supposed to weaken the stranglehold of the pharma giants. Building on the 1984 Hatch-Waxman Act, Mylan and the other generic firms began to have an impact. Mylan introduced cheaper versions of brand-name medications for Parkinson’s disease, depression, arthritis and other ailments.

In the past decade or so, however, Mylan began to stray from its mission. The company became preoccupied with growth and was soon appearing in the business news more in connection with mergers than with product announcements. In the early 2000s it got entangled in a drawn-out dispute with investor Carl Icahn over the attempted purchase of King Pharmaceuticals.

While that deal did not go through, Mylan made a string of other deals, including the 2007 purchase of the generics businesses of Germany’s Merck KGaA, among which was EpiPen producer Dey L.P.. Mylan was also acquiring legal problems. In 2010 the Justice Department announced (in a press release that did not mention Mylan) that Dey would pay $280 million to settle False Claims Act allegations. DOJ said the case resolved claims that Dey “engaged in a scheme to report false and inflated prices for numerous pharmaceutical products, knowing that federal health care programs relied on those reported prices to set payment rates. The actual sales prices for the Dey products were far less than what Dey reported.”

Mylan went on with its dealmaking, even to the point of giving up its identity as a U.S. company. In 2014 Mylan — led by CEO Heather Bresch, daughter of West Virginia Senator Joe Manchin — arranged to merge with a foreign subsidiary of Abbott Laboratories and used the deal to reincorporate itself in the Netherlands to lower its tax liabilities.

Last year, the new Mylan launched a takeover bid for its rival Perrigo and then found itself targeted by yet another generic producer, Teva Pharmaceuticals, which had its own legal problems. Neither of these deals panned out, but this year Mylan acquired the Swedish company Meda for some $10 billion.

Among its other businesses, Meda is the European distributor of EpiPens. It is unclear to what extent Mylan’s recent EpiPen price hikes are meant to pay for the Media acquisition. They may also be designed to cover the steep increases in executive compensation at the company. In 2012, when Bresch became CEO, she was paid annual compensation of just under $10 million and realized more than $6 million in paper profits from the exercise of stock awards and options.

In 2015 Bresch’s annual compensation jumped to nearly $19 million and her profits from the exercise of stock awards and options soared to nearly $32 million, putting her total compensation for the year at more than $50 million.

Perhaps Mylan and the other generic drug companies never were real crusaders, but now it is difficult to distinguish them from the worst rogues of Big Pharma.

Johnson & Johnson’s Self-Inflicted Wounds

Baby powder, the product along with Band-Aids that for decades gave Johnson & Johnson a benign image, is now the latest symbol of its deterioration into one of the most unreliable of large corporations. Juries have recently awarded a total of $127 million to women with ovarian cancer who charge that their disease was caused by the talc in the company’s powder.

J&J, which disputes the allegations and is appealing the verdicts, faces some 1,400 additional similar lawsuits brought by plaintiffs’ lawyers armed with company documents they say show that J&J was concerned about a link between talcum powder and ovarian cancer as early as the 1970s. It is unclear what will happen with the litigation, but the lawsuits are part of a long string of scandals that have plagued the giant medical products firm during the past decade and forced it to pay out vast sums in civil settlements and criminal fines.

The most serious of those cases involved allegations that several of its subsidiaries marketed prescription drugs for purposes not approved as safe by the Food and Drug Administration, thus creating potentially life-threatening risks for patients.

In 2010 J&J subsidiaries Ortho-McNeil Pharmaceutical and Ortho-McNeil-Janssen had to pay $81 million to settle charges that they promoted their epilepsy drug Topamax for uses not approved as safe. The following year, J&J subsidiary Scios Inc. had to pay $85 million to settle similar charges relating to its heart failure drug Natrecor.

In 2013 the Justice Department announced that J&J and several of its subsidiaries would pay more than $2.2 billion in criminal fines and civil settlements to resolve allegations that the company had marketed it anti-psychotic medication Risperdal and other drugs for unapproved uses as well as allegations that they had paid kickbacks to physicians and pharmacists to encourage off-label usage. The amount included $485 million in criminal fines and forfeiture and $1.72 billion in civil settlements with both the federal government and 45 states that had also sued the company.

At a press conference announcing the resolution of the case, U.S. Attorney General Eric Holder said the company’s practices ”recklessly put at risk the health of some of the most vulnerable members of our society — including young children, the elderly and the disabled.”

Other J&J problems resulted from faulty production practices. During 2009 and 2010 the company had to announce around a dozen recalls of medications, contact lenses and hip implants. The most serious of these was the massive recall of liquid Tylenol and Motrin for infants and children after batches of the medication were found to be contaminated with metal particles.

The company’s handling of the matter was so poor that J&J subsidiary McNeil-PPC became the subject of a criminal investigation and later entered a guilty plea and paid a criminal fine of $20 million and forfeited $5 million.

J&J also faced criminal charges in an investigation of questionable foreign transactions. In 2011 it agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement with the Justice Department resolving allegations of improper payments by J&J subsidiaries to government officials in Greece, Poland and Romania in violation of the Foreign Corrupt Practices Act. The settlement also covered kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.

All of this has been a humiliating comedown for a company that was once regarded as a model of corporate social responsibility and which set the standard for crisis management in its handling of the 1980s episode in which a madman laced packages of Tylenol with cyanide. While the company was then being victimized, the more recent crises have been largely of its own making.

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Note: This piece is drawn from my new Corporate Rap Sheet on Johnson & Johnson, which can be found here.

The Corporate Wrongdoers Sticking with ALEC

If a group of major drug dealers, identity thieves and bank robbers were to put out a statement calling for relaxation of the criminal code, no one would take it very seriously.

Yet complaints about the regulatory system coming from large corporations — including many with repeated environmental and safety violations — are regarded as important pronouncements by too many policymakers and political candidates. Corporate interests don’t simply complain. They use their money and influence to urge lawmakers to alter the rules in their favor.

One of the main vehicles by which big business pushes its deregulatory agenda is the American Legislative Exchange Council. ALEC, which is currently holding one of its periodic gatherings of corporate lobbyists and legislators, takes aim at agencies such as the EPA, which it likes to call a “regulatory train wreck.”

Since my colleagues and I at the Corporate Research Project of Good Jobs First released our Violation Tracker database recently, I’ve been comparing notes with the ALEC watchers at the Center for Media and Democracy. What we’ve found is a substantial overlap between the corporations that remain loyal to ALEC (more than 100 have left in response to public pressure) and the companies in Tracker with the largest penalty totals. Mary Bottari of CMD has posted a piece that focuses on the energy companies in the two groups. Here I look at the full overlap.

The current list of ALEC corporate members includes 11 corporations that rank in the Violation Tracker top 100 (in a few cases the membership is held by a subsidiary). These parents and their subsidiaries have racked up a total of $1.7 billion in federal environmental, health and safety penalties and settlements since the beginning of 2010:

Pfizer: $563,357,650
Novartis: $422,569,368
WEC Energy Group: $310,621,475
Duke Energy: $112,150,534
Honeywell International: $93,641,829
Berkshire Hathaway: $46,810,063
Exxon Mobil: $46,285,706
Energy Transfer: $25,467,251
Dominion Resources: $14,168,658
Norfolk Southern: $11,675,325
Chevron: $11,373,376

Pfizer is in the news because of its deal to merge with a smaller drug company and move its legal headquarters to Ireland, all to dodge federal taxes. It has amassed more than half a billion dollars in penalties in the past five years largely because of cases involving the illegal marketing of drugs for purposes not approved as safe by the Food and Drug Administration. In 2009, the year before Violation Tracker’s coverage begins, Pfizer had to pay $2.3 billion to settle Justice Department civil and criminal charges relating to the illegal marketing of the painkiller Bextra and three other medications. John Kopchinski, a former Pfizer sales representative whose complaint helped bring about the federal investigation, told the New York Times: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Novartis has also been accused of illegal marketing of drugs and has had to pay more than $400 million in penalties. Not yet included in Violation Tracker is a case in which federal prosecutors are seeking $3 billion in penalties from the company for paying illegal kickbacks to get pharmacies to encourage use of expensive drugs for kidney-transplant patients covered by Medicare and Medicaid.

WEC Energy Group, whose subsidiaries North Shore Gas and Peoples Gas are ALEC members, is on the top violators list mainly because of a $307 million settlement another subsidiary, Wisconsin Public Service Corporation, reached with the Justice Department and the EPA to resolve Clean Air Act violations at two of its power plants. Most of the settlement involves mandatory spending on new pollution control technology at the facilities.

Duke Energy earned its spot on the top violators list mainly because of a case from earlier this year in which three of its subsidiaries pled guilty to criminal violations of the Clean Water Act and paid $102 million in penalties in connection with a massive coal ash spill into the Dan River in North Carolina.

The largest portion of Honeywell International‘s $93 million in penalties comes from a 2013 case in which it agreed to pay a $3 million civil penalty and spend $66 million on new pollution control equipment to resolve Clean Air Act violations at its plant in Hopewell, Virginia.

Conglomerate Berkshire Hathaway is on the list because one of its major subsidiaries, BNSF Railway, is an ALEC member. While it has not been involved in any large cases like those above, since 2010 BNSF has accumulated more than 600 violations from the Federal Railroad Administration with total penalties of $7 million (the FRA’s fines tend to be less than onerous). BNSF was also pressured by OSHA to change its practices that the agency said discouraged workers from reporting on-the-job injuries.

Exxon Mobil‘s penalty total comes largely from its subsidiary XTO Energy, which focuses on fracking. For example, in 2013 XTO had to pay $20.1 million to the EPA to settle Clean Air Act violations linked to the discharge of wastewater in Pennsylvania.

These cases illustrate the track record of the companies that are sticking with ALEC, presumably with the hope that the organization can bring about policy changes that will allow them to continue business as usual and pay less in the way of penalties. ALEC may be correct that the regulatory system is a “train wreck,” but that’s because the rules are too weak, not too stringent.

Tarnished Heroes of the Drug Industry

teva Generic drugmakers are supposed to be the heroes of the pharmaceutical business, injecting a dose of competition in what is otherwise a highly concentrated industry and thus putting restraints on the price-gouging tendencies of the brand-name producers.

Just recently, the Food and Drug Administration approved a generic version of Copaxone, paving the way for the first multiple sclerosis medication that is not wildly overpriced.

Yet some generic producers are acting too much like Big Pharma. Israel’s Teva Pharmaceuticals just announced a $40 billion offer for its rival Mylan NV, which had recently made its own bid for another drugmaker, Perrigo. A marriage of Teva and Mylan would create the world’s largest generic drugmaker with more than $30 billion in revenue from customers in 145 countries.

Bigger would not be better, at least for customers. A stock analyst told the New York Times: “Last year taxes were one of the main drivers,” referring to deals in which Mylan and Perrigo reincorporated abroad to avoid federal taxes and Pfizer sought to do the same. “Now the main driver is getting bigger. Getting bigger gives you better pricing and better leverage.”

Even before the Mylan deal, Teva’s shining armor has been getting tarnished. Recently, its subsidiary Cephalon agreed to pay $512 million to settle allegations that it made questionable payments to other generic producers to keep their cheaper versions of the narcolepsy drug Provigil off the market.

Last year the Federal Trade Commission sued Teva and AbbVie for colluding to delay the introduction of a lower-priced version of the testosterone replacement drug AndroGel. While AbbVie filed what the agency called “baseless patent infringement lawsuits,” it also entered into an “anticompetitive pay-for-delay” deal with Teva. Mylan’s record also has blemishes. It once had to pay $147 million to settle price-fixing allegations.

A weakening of the deterrent power of generics is troubling at a time when the brand-name producers remain sluggish in their introduction of new drugs and are doing everything possible to milk their existing offerings. Their idea of innovation seems focused these days on what are known as “biosimilars,” close copies of certain brand-name drugs that are somewhat less expensive but much more costly than traditional generics. In March the FDA approved the first biosimilar, a cancer drug called Zarxio made by Sandoz. Pfizer indicated its intention to compete in this arena by announcing plans to acquire biosimilar pioneer Hospira.

Rising drug costs are, of course, a concern not only for individuals but also for taxpayers. The Medicare program, which thanks to the Bush Administration and Congress cannot negotiate with pharmaceutical companies, now spends about $76 billion a year providing drug benefits.

To be fair, Part D costs in recent years have been lower than the Congressional Budget Office had previously projected, but the CBO attributed the difference in large part to the increased use of generics. If generic producers continue to consolidate — and collude with brand-name producers — those savings will evaporate and we will be completely at the mercy of Big Pharma.

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New Resource: Greenpeace has introduced the Anti-Environmental Archives, a collection of thousands of documents on the efforts of corporations and their surrogates to undermine the environmental movement and government regulation.

Another Healthcare Website Contractor Mess

The Obama Administration’s struggle with healthcare information technology is once again on display, with the release of the first wave of disclosure mandated by the Affordable Care Act on payments by drug and medical device corporations to doctors and hospitals. These payments include consulting fees, research grants, travel reimbursements and other gifts Big Pharma and Big Devices lavish on healthcare professionals to promote the use of their wares — in other words, what often amount to bribes and kickbacks. The new Open Payments system is said to document 4.4 million payments valued at $3.5 billion for just the last five months of 2013.

This sleazy practice certainly deserves better transparency. Yet in announcing the data release, the Centers for Medicare & Medicaid Services (CMS) seemed to be sanitizing things a bit: “Financial ties among medical manufacturers’ payments and health care providers do not necessarily signal wrongdoing.”

Perhaps, but very often that is exactly what they signal. Let’s not forget that many of the big drugmakers have been prosecuted for making such payments as part of their illegal marketing of products for unapproved (and thus potentially dangerous) purposes. In 2009 Pfizer paid $2.3 billion and Eli Lilly paid $1.4 billion to settle such charges. Novartis consented to a $422 million settlement in 2010. That same year, AstraZeneca had a $520 million settlement. Illegal marketing inducements were among the charges covered in a $3 billion settlement GlaxoSmithKline consented to in 2012. The list goes on.

While the release of the aggregate numbers is useful, there are serious snafus in the rollout of the search engine providing data on specific transactions. As ProPublica is pointing out, the new site is all but unusable for such purposes. It is set up mainly to allow sophisticated users to download the entire dataset, yet even the wonks at ProPublica found that it did not function well in that way either.

Even if one overcomes these obstacles, the ability to analyze financial relationships between corporations and specific healthcare providers is limited by the fact that some 40 percent of the records — accounting for 64 percent of payments– are missing provider identities.

What makes the disappointing Open Payments rollout all the more infuriating is that it is being brought to us by the same infotech contractor, CGI Federal, that was primarily responsible for the much bigger fiasco surrounding the Healthcare.gov enrollment website a year ago. The contractor is part of Canada’s CGI Group, which as I noted in 2013, had a history of performance scandals both in its home country and in the United States.

Problems with the Open Payments site began even before its official public debut. Over the summer, the portion of the site through which providers could register to review the data attributed to them had to be taken offline during a critical period for nearly two weeks to resolve a “technical issue.”

As with Healthcare.gov, it is likely that the government bashers will succeed in putting most of the blame for the shortcomings of the Open Payments system on the CMS. Yet the real lesson of the websites, along with that of the U.S. healthcare as a whole, is that the dependence on for-profit corporations –whether they be pharmaceutical manufacturers, managed care providers or information technology consultants — is always going to generate bloated costs and plenty of inefficiency.

Will Big Pharma Cripple Healthcare Reform?

big-pharma-pills-and-money For those of us who criticized the Affordable Care Act for not going far enough, a big part of the concern was the law’s reliance on the private insurance industry to handle much of the expanded coverage. That industry, with its history of denying coverage and inflated premiums, deserved to be phased out rather than being awarded a large new captive customer base.

It now looks like an even more serious problem for healthcare reform will be another industry with a checkered past: Big Pharma. The drugmakers are generating a growing crisis not only for Obamacare but also for more established programs such as Medicare and Medicaid.

When the federal government recently released data on Medicare billings by individual providers, many of the top amounts were linked to doctors who administer expensive drugs in their offices and thus include the cost of those treatments in their Medicare claims. For example, some 3,000 ophthalmologists billed an average of $1 million each (one billed $21 million by himself), reflecting heavy use of an expensive medication for macular degeneration injected into the eye.

Another challenge comes from Sovaldi, a new hepatitis C drug sold by Gilead Sciences with a list price of $1,000 per pill, or $84,000 for a typical course of treatment. The product is doing great things for Gilead, which recorded $2.3 billion in sales for the drug’s first full quarter on the market — a pharmaceutical industry record.

It is causing problems for those entities that have to pay for use of the drug, including state Medicaid programs, the Department of Veterans Affairs and private insurance companies. One of the largest of those companies, UnitedHealth Group, recently cited the cost of hepatitis C treatments such as Sovaldi as one of the reasons for a drop in its earnings in the first quarter of 2014.

Earlier, several members of Congress, including Rep. Henry Waxman of California, sent a letter to Gilead expressing concern about the price of Sovaldi, but it generated little concern on the part of the company or the rest of the industry. One pharma industry analyst was quoted as saying: “We just look at this letter as a little bit of noise.”

Unfortunately, the dismissive tone was justified. Congress has done little to rein in the cost of prescription drugs and even took the absurd step of barring the federal government from negotiating with pharmaceutical providers in the Medicare Part D program.

The cost problem will only get worse. Patents are expiring on many major drugs, and the industry is creating fewer new ones, prompting companies to squeeze everything they can out of their shrinking product lines.

That means higher prices and other shady practices such as promoting drugs for uses for which they have not been approved. Many of the industry’s largest companies have paid large amounts to settle illegal-marketing charges brought against them by the Justice Department, among them Eli Lilly ($1.4 billion relating to Zyprexa), GlaxoSmithKline ($3 billion relating to Paxil and Wellbutrin) and Pfizer ($2.3 billion relating to Bextra and other medications).

Illegal marketing is just one of the serious charges brought against Big Pharma in recent years. The $3 billion GlaxoSmithKline settlement also covered allegations that it withheld crucial safety data on its diabetes drug Avandia from the U.S. Food and Drug Administration. Merck paid the federal government more than $650 million to settle charges that it routinely overbilled Medicaid and other government programs and made illegal payments to healthcare professionals to induce them to prescribe its products. Eli Lilly paid $29 million to settle foreign bribery charges.

It remains to be seen whether these cases have prompted Big Pharma to clean up its act. I remain skeptical, especially in light of recent signs that the industry is engaged in more concentration designed to allow companies to narrow their focus and thus gain bigger market share in particular sectors.

More specialization will mean less competition, which in turn will mean fewer choices and rising prices. When it comes to drugs, the Affordable Care Act will have increasing difficulty living up to its name.

China’s Familiar Charges Against Glaxo

big-pharma-pills-and-money Global corporations piously claim to adhere to the laws of the countries in which they do business, knowing full well that those laws in many places are weak or are not rigorously enforced.

It’s thus amusing to see British drug giant GlaxoSmithKline squirm in the face of corruption charges unexpectedly brought by the Chinese government. GSK purports to be shocked by allegations that its Chinese executives used funds laundered through travel agencies to bribe doctors, hospitals and public officials to purchase more of its products. The company insists that it has zero tolerance for such behavior and that a recent internal investigation had found no evidence of corruption in its Chinese operations.

These protestations are as unconvincing as the Chinese government’s claims that it is simply enforcing the law—as opposed to giving its emerging pharmaceutical industry a leg up. GSK’s alleged transgressions are little different from the practices that it and the rest of Big Pharma employ around the world.

Take the United States. In recent years, GSK has become known as the company that pays massive amounts to resolve wide-ranging allegations brought by regulators and prosecutors.

Some of those charges involved payments very much like the ones it is being accused of making in China. GSK was charged with giving kickbacks to doctors and other health professionals to prescribe drugs such as the anti-depressants Paxil and Wellbutrin for unapproved (and possibly dangerous) purposes. Payments also went to figures such as radio personality Drew Pinsky, who was given $275,000 by the company to promote Wellbutrin on his program.

The kickback allegations were among the charges covered by a $3 billion settlement GSK reached with the U.S. Justice Department in 2012. Also included in the deal were accusations that GSK withheld crucial safety data on its diabetes medication Avandia from the Food & Drug Administration and that it defrauded government healthcare programs in its pricing practices.

These safety and pricing matters were the culmination of years of controversy surrounding GSK and its predecessor companies. The safety issues dated back at least to the 1950s, when Smith, Kline & French was among the firms linked to Thalidomide and its horrible legacy of birth defects.

Until it was sold off in the late 1980s, Glaxo’s infant formula business, like that of Nestle, was accused of undermining public health in the third world by marketing the powder to women who were so poor that they tended to dilute the formula to the point that it lost its nutritional potency.

In the 1980s, SmithKline Beckman was the target of a rare criminal case brought under U.S. drug laws for failing to warn regulators and the public about the potentially lethal side effects of its blood pressure medication Selacryn.

Later years saw frequent charges that GSK suppressed evidence about the dangers of Paxil, especially in children. There were also many cases involving pricing abuses, including one in which GSK paid $150 million to resolve allegations of violating the federal False Claims Act in its dealings with Medicare and Medicaid.

Unlike many corporate settlements, GSK’s $3 billion deal with the feds required it to plead guilty to several criminal counts. It also had to sign a Corporate Integrity Agreement with the Department of Health and Human Services.

In other words, the company is in effect on parole and subject to heightened scrutiny. The Chinese accusations seem to point to a big, fat violation of the U.S. Foreign Corrupt Practices Act. That would jeopardize GSK’s settlement and subject it to new penalties and sanctions.

Foreign corporations have long taken advantage of China’s lax regulatory system. Now that the People’s Republic is (selectively) cracking down, a company such as GSK deserves no sympathy.

The Golden Gag and Other Sins of Novartis

vasella Novartis raked in more than $12 billion in profits last year, but it was a planned expenditure of $78 million that prompted an uprising by the Swiss drug giant’s shareholders and compelled the company’s management to make an embarrassing about-face. The reason is that the $78 million was an unwarranted giveaway to the retiring chairman.

In January, Novartis announced that Daniel Vasella (photo) would leave the company after serving in top positions for the past 17 years. Vasella had already been granted more than $12 million in retirement benefits after he gave up the chief executive’s post in 2010 while staying on the board of directors as chairman with another $12 million in additional annual compensation. That payout was highly controversial, coming after years of fat CEO paychecks for Vasella.

It also set the stage for the current scandal, which grew out of a plan to pay Vasella not to work for another pharmaceutical company for the next six years. The non-competition agreement is referred to in the European press as a “golden gag” arrangement.

The pent up anger against Vasella was obvious in the reaction to the announcement. The corporate accountability group Ethos called on shareholders to withhold their support for the re-election of members of the board’s compensation committee. One Swiss official denounced the payment, saying “it does huge damage to the social cohesion in our country.” A lawyer in Zurich filed a criminal complaint against Novartis, the compensation committee and Vasella for breach of trust and lying to shareholders. A public statement by Vasella that he would donate the money to charity did little to quell the uproar.

The subsequent decision by Novartis to drop the plan was a significant victory for corporate accountability activists and critics of excessive executive and director pay, who have been targeting bloated compensation not only at Novartis but also at other large Swiss companies.

What’s ironic, however, is that this planned parting payment to Vasella generated a lot more controversy than other, arguably more serious sins of the company during his tenure, especially those committed in its U.S. operations.

For example, in 2010 Novartis had to pay $422 million to U.S. authorities to resolve criminal and civil liability arising from charges that it engaged in illegal marketing of its epilepsy drug Trileptal, including the payment of kickbacks to doctors to get them to prescribe the medication for off-label and potentially dangerous purposes.

That same year, Eon Laboratories, a Novartis subsidiary, agreed to pay $3.5 million to settle allegations that it violated the U.S. False Claims Act by submitting inaccurate reports to the federal government that obscured the fact that the Food and Drug Administration had found that the company’s Nitroglycerin Sustained Release capsules lacked substantial evidence of effectiveness.

In 2005 a Novartis U.S. unit, OPI Properties, had agreed to pay $49.2 million in civil and criminal fines and be excluded from federal healthcare contracts to resolve charges relating to its improper marketing of nutritional products to the Medicare and Medicaid programs.

In 2005 a group of women who had worked as sales representatives for Novartis in the United States filed a lawsuit against the company, saying they were discriminated against in pay and promotions, especially after becoming pregnant. In 2010 a federal jury ruled in favor of the women, awarding them $3.3 million in compensatory damages and $250 million in punitive damages. Novartis appealed and then settled the case for $152 million.

Novartis has also been at the center of a worldwide controversy over the pricing of its cancer medication Gleevec (Glivec in Europe), a year’s supply of which in the early 2000s was priced at about $27,000. Novartis sought to quiet the criticism by promising to give the drug away to many of those who could not afford it, but in 2003 it was reported that the effort was falling far short of expectations.

Novartis later found itself in a battle with the Indian government, which rejected the company’s patent application for Gleevec as part of its effort to encourage the production of low-cost generic drugs for poor countries. A wide range of non-governmental organizations, such as Doctors Without Borders and the Interfaith Center on Corporate Responsibility, called on Novartis to drop its suit, which was heard by the Indian Supreme Court in 2012.

Novartis was right to cancel its big giveaway to Vasella, but the company has a lot more to answer for.

Note: The latest addition to my Corporate Rap Sheets collection is dossier number 41, describing the track record of another ethically challenged Swiss company, Credit Suisse.

Pfizer’s Long Corporate Rap Sheet

The Dirt Diggers Digest is taking a break from commentary for the Thanksgiving holiday, but the Corporate Rap Sheets project marches on. I’ve just posted a dossier on drug giant Pfizer. Here is its introduction:

Pfizer made itself the largest pharmaceutical company in the world in large part by purchasing its competitors. In the last dozen years it has carried out three mega-acquisitions: Warner-Lambert in 2000, Pharmacia in 2003, and Wyeth in 2009.

Pfizer has also grown through aggressive marketing—a practice it pioneered back in the 1950s by purchasing unprecedented advertising spreads in medical journals. In 2009 the company had to pay a record $2.3 billion to settle federal charges that one of its subsidiaries had illegally marketed a painkiller called Bextra. Along with the questionable marketing, Pfizer has for decades been at the center of controversies over its pricing, including a price-fixing case that began in 1958.

In the area of product safety, Pfizer’s biggest scandal involved defective heart valves sold by its Shiley subsidiary that led to the deaths of more than 100 people. During the investigation of the matter, information came to light suggesting that the company had deliberately misled regulators about the hazards. Pfizer also inherited safety and other legal controversies through its big acquisitions, including a class action suit over Warner-Lambert’s Rezulin diabetes medication, a big settlement over PCB dumping by Pharmacia, and thousands of lawsuits brought by users of Wyeth’s diet drugs.

Also on Pfizer’s list of scandals are a 2012 bribery settlement; massive tax avoidance; and lawsuits alleging that during a meningitis epidemic in Nigeria in the 1990s the company tested a risky new drug on children without consent from their parents.

READ THE ENTIRE PFIZER RAP SHEET HERE.