PharmaGossip: Pfizer to Pay About $60 Million to Settle Foreign-Bribery Case

By CHRISTOPHER MATTHEWS And JOE PALAZZOLO
Pfizer Inc. will pay more than $60 million to resolve U.S. government probes into whether the drug maker paid bribes to win business overseas, people familiar with the matter said.

The settlements, expected to be made public by year-end, come as part of a government investigation that has changed how the pharmaceutical industry conducts business overseas in light of U.S. antibribery laws.

Pfizer and rival Johnson & Johnson, which settled a bribery probe earlier this year, provided U.S. authorities with information about industry practices that could violate the Foreign Corrupt Practices Act, according to court documents and people familiar with the investigations.

The FCPA, enacted in 1977, bars companies from paying bribes to foreign officials to obtain business. According to the Justice Department and the Securities and Exchange Commission, which jointly enforce the FCPA, that includes doctors and other employees of government-run overseas hospitals. As a result, the agencies consider some industry practices, such as paying a doctor to encourage the physician to buy a medicine, in violation of the act if the doctor works for a foreign state-owned institution.

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Pfizer's and Johnson & Johnson's cooperation contributed to a government investigation that has affected several major drug companies, including Merck & Co., AstraZeneca PLC, Bristol-Myers Squibb Co. and GlaxoSmithKline PLC, according to the people familiar with the investigations. The four companies last year said in regulatory filings that they received letters of inquiry from the Justice Department and the SEC. The companies have said they are cooperating with investigators.

Spurred by the investigations, companies throughout the industry are developing multimillion-dollar compliance programs and are spending more time trying to identify foreign doctors and health-care workers that could qualify as foreign officials, said Jay Perlman, director of global investigations and compliance at Navigant Consulting Inc. "We're seeing a real sea change in the attitude," he said.

Pfizer, which is based in New York, said in a Nov. 10 regulatory filing that it had reached agreements in principle with the SEC and the Justice Department in connection with "potentially improper payments" made by units of Pfizer and Wyeth, which Pfizer acquired in 2009 for $68 billion. Two of the people familiar with the negotiations said they are continuing, so the terms could change before the final settlement is reached. It isn't clear if Pfizer or Wyeth will admit to wrongdoing.

Representatives of Pfizer and Johnson & Johnson declined to comment.

Johnson & Johnson in April agreed to pay $70 million to settle allegations that subsidiaries paid bribes to Greek doctors who chose the company's surgical implants and to doctors in Poland and Romania in exchange for contracts and agreements to prescribe the company's drugs. In a deferred prosecution agreement with the Justice Department, Johnson & Johnson admitted to violations of the antibribery law and will avoid prosecution if it satisfies the government that the company has made changes to prevent future misconduct.

In a settlement with the SEC, Johnson & Johnson neither admitted nor denied civil accusations.

The Justice Department said in settlement documents that Johnson & Johnson received a $17 million discount on its $21.4 million criminal fine for "substantial assistance in the prosecution of others."

Pfizer disclosed in 2004 that it had voluntarily contacted the Justice Department and the SEC about an internal investigation into "potentially improper payments" in Croatia.

After acquiring Pharmacia Corp. in 2003, Pfizer uncovered potential corruption in the company's operations in Eastern Europe, one of the people familiar with the matter said. More evidence of improper payments surfaced after Pfizer's acquisition of Wyeth about six years later, the person said.

"It was through the lens of Pfizer and Johnson & Johnson that the industrywide probe got going," the person said.

Lawyers who represent companies in foreign-bribery investigations said the government investigations transformed anticorruption compliance."Companies are investing more in compliance. And they realize it's an investment," said Peter Spivack, a partner at law firm Hogan Lovells US LLP who represents companies in foreign bribery investigations. "They are realizing they need programs that work overseas as well as they work in the U.S."

With the Johnson & Johnson case, the government created incentives for companies to come forward, not only to cooperate in investigations but also to inform on competitors, Mr. Spivack said.

Some companies, such as AstraZeneca, have barred payments to doctors to attend international scientific and medical congresses. Giving gifts in most cases has been restricted to educational items.

AstraZeneca Chief Executive David Brennan, who announced the policy at an industry conference in Istanbul in May, said the company could no longer afford ambiguity.

"I know that this is not easy," he said. "But we have made it clear that our sales force have to say, 'No.' They must do the right thing, not the easy thing."