HONG KONG It's been more than a year since Chinese authorities leveled allegations against Glaxosmithkline plc (GSK) for corrupt activities amounting to almost $500 million in bribes, setting off an industrywide crackdown that has garnered the attention of not only the Chinese, but also the U.S. and UK anti-corruption authorities. For big pharma, ensuring compliant commercial operations has risen to a new level of intensity from the C-suite on down.
"Compliance has become a general manager-, chief executive officer-level topic," Angus Cole, associate director at Deloitte in Shanghai, told BioWorld Asia. "It was an important consideration before, but not necessarily at the forefront of every decision people were making."
For years, the China strategy for many foreign pharmas was a rocket-like trajectory with double-digit growth matched by double-digit sales targets. While companies grew their sales and compliance teams into the thousands, the complex compliance risk was not always as easily managed.
"I sense that people make a much stronger effort to understand their business from top to bottom," said Robert Braithwaite, chief executive of Luqa Pharmaceuticals, of Shanghai. "People who maybe came here one or two years ago are now getting a much deeper understanding of the business, instead of flying over."
Hospitals are doing their part as well to stay clear of hints of impropriety as they put in place bribery boards and become 'no-see' hospitals, no longer putting out the welcome mat for sales reps. According to Cole, there is a rise of physicians declining to take part in drug company-sponsored interviews and advisory boards.
A year into the crackdown and the industry is making changes that can largely be viewed for the better.
BEEFING UP INTERNAL CONTROLS
In a benchmarking study across a dozen multinational companies (MNCs) in China, Deloitte found that certain internal control functions have been significantly beefed up such as monitoring of sales events and travel agency audits with closer reviews of expense reports and fapiaos (receipts).
It is not that a plethora of new systems and processes were needed to be put in place almost all MNCs had these before the GSK case the major change is there are more people, deeper scrutiny and the companies have a better acknowledgement that these issues exist. The changes, said Cole, are driven by the companies themselves as well as by the hospitals and physicians.
There are systemic factors to the industry in China that are often cited as driving a lot of the corruption such as exceedingly low salaries for doctors and some argue if these are not tackled, then the temptation to bribe will continue to exist.
However, one area that has been addressed head on is greater monitoring of the sales events hosted by pharma to educate physicians on products. A large pharma can host up to 60,000 medical training events a year. It is not unheard of for a sales force of 5,000 reps to have each rep host an event a month. Such a high rate of activity translates to a sizable compliance challenge.
A typical way to manipulate an event would be to claim expenses for more participants than actually attended, using faked receipts to collect cash to funnel to doctors directly.
These events, typically attended by a sales rep and a medical officer, have come under close monitoring:
- sales managers now attend a certain percentage of events to confirm they happened as planned;
- tablets are used by reps to report and record the event in real time;
- and, most importantly, there has been an increased use of unannounced third-party auditors doing spot checks of events.
"It is on top of two or three levels of control," said Cole, " the third-party auditors create additional transparency as you never know when they will show up."
These medical events have been a crucial way for pharmaceutical companies to educate doctors on how to use their medicines safely and are not likely to go away any time soon. Each year there are 150,000 to 180,000 doctors graduating from medical college with little ongoing professional support.
"The government relies on pharma-cos to play a much bigger role here than anywhere else," Cole said. "Most continuing medical education is provided by the pharmaceutical companies and is not handled by the government."
RELATIONSHIP-BASED SELLING YIELDS WAY TO RISE OF SCIENCE-BASED TALKS
Just three months before the GSK scandal made headlines, Deloitte published a paper identifying a trend that has only gained ground in the scandal's aftermath. It's a trend with long-term, systematic implications for the industry and its commercialization problem and set to have a greater impact than enhanced monitoring alone.
The report outlined that physicians were requiring more science-based discussions from reps. A key finding was that companies with strong medical evidence programs had stronger sales trajectories than those with only limited programs.
This is what Cole calls a transformation of the commercial model and one that holds significant promise as the industry continues to reform itself and as more innovative products come on the market.
In surveys of doctors, Deloitte found that these professionals prescribe based on their judgment about what is best for their patient.
"We do physician interviews every week," said Cole. "And while the information from pharmaceutical companies is relevant, if they don't believe it or don't buy it, no amount of convincing is going to change that."
In the beginning, there was an open field, with little competition for the doctors' attention and relationship-based selling was the norm.
"From the pharma side, they are saying, 'we have taken just getting to know the doctors as far as we can. We have to educate and inform. We need to take it to all levels from the marketing team to sales team to the medical team. We need some very scientific messages, we need very high skilled reps and we need a different set of capabilities than before,'" Cole said.
Editor's note: For more on this topic, see BioWorld's News & Views interview with Friedhelm Blobel, CEO, Sciclone Pharmaceutical Inc. He commented on the ongoing investigation of Sciclone related to possible violations of the U.S. Foreign Corrupt Practices Act in China. He also discussed the company's resulting compliance program and confirmed that, despite these challenges, being in China outweighs all of the expenses and risks.