The issue of illegal rebates is stirring the Korean pharmaceutical sector, again.
Industry officials are paying particular attention to the government’s thorough investigation into owners of pharmaceutical firms in bribery cases.
Recently, the police booked Kukje Pharma’s Co-CEO Nam Tae-hun for giving illegal rebates to doctors. In June, Dong-A Socio Holdings Chairman Kang Jung-seok was sentenced to three years in jail for offering kickbacks to hospitals.
Intense probe on drug firm executives, owners
The Gyeonggi Nambu Provincial Police Agency said on Wednesday that they booked without detention Kukje Pharma’s Co-CEO Nam and nine other executives for bribing physicians to promote the company’s medicines. Nam is the grandson of Kukje Pharm founder and Chairman Nam Sang-ok.
The police said Kukje Pharma paid from 3 million won ($2,623) to 200 million won to physicians or managers at 384 hospitals and clinics across the country, from January 2013 to July 2017, in return for prescribing Kukje’s drugs.
Dong-A Socio Holdings Chairman Kang has been detained after receiving a jail term for offering illegal rebates to hospitals.
The Busan Eastern District Court sentenced Kang to three years in prison and a fine of 13 billion won for embezzling the company’s funds and offering bribes to hospitals and clinics, after nullifying his bailout.
Will drug companies admit responsibility?
Local pharmaceutical companies have regarded illegal rebate issues as individual wrongdoings to block investigators from expanding the probe to top executives.
The companies used to say that their sincere employee management and supervision could not stop individual employees’ personal bribery. It was a strategy to minimize the bribery cases’ impact on sales.
However, observers said such a strategy would no longer work, as the government went ahead with investigations even on drug firm owners.
The recent result of the trials on Handok in an illegal rebate case showed the change.
The authorities caught Handok giving dinner expenses (995,000 won) to a doctor at the Korea University Ansan Hospital’s respiratory department, twice – in March 2012 and December 2013 – in return for prescribing Handok’s flagship diuretic Lasicx Injection.
As the Ministry of Food and Drug Safety ordered a suspension of Lasix sales for three months due to the bribery, Handok filed an administrative suit against the ministry to seek cancellation of the sales suspension order.
Handok reportedly claimed that its employee’s offer of the illegal rebate was an individual’s deviation.
In July, the Daejeon District Court ruled against Handok.
The court said it was difficult to find data that showed Handok did not neglect management and supervision of employees. Also, the Handok worker wrote a letter confirming his violation of the Pharmaceutical Affairs Act, the court said.
As the company failed to fulfill its duty to manage and supervise salespersons for the establishment of the drug distribution system and the maintaining of the market order, the company can be held accountable for the breach in an administrative measure, the court added.
The ruling was a wakeup call for pharmaceutical companies not to avoid their responsibility in bribery cases.
Second, third-generation heirs on high alert
The government’s stricter approach on drug company owners is expected to affect the management of upcoming second-generation and third-generation of heirs.
Many children of founders of pharmaceutical companies are managing the firms. At some old drug firms, their grandchildren have emerged as executives to gear up for management.
Lim Jong-yoon, CEO of Hanmi Science, is the eldest son of Hanmi Pharmaceutical’s Founder Lim Sung-gi. GC Pharma CEO Huh Eun-chul is the grandson of Green Cross Founder Huh Young-sup. Kwangdong Pharm CEO Choi Sung-won is the son of the late founder Choi Soo-boo.
Lee Seung-young, director at Daehan Pharmaceutical and the son of CEO Lee Yoon-woo, is taking steps for a succession of management. Others with similar moves include Huh Yong-jun, executive vice president at GC Pharma and the third son of the late founder Huh, and Chung Yu-seok, director at Il-yang Pharmaceutical and the grandson of the founder Chung Hyeong-sik.
“If the police continue to investigate illegal rebate cases in tough stance, the second and third-generation managers will have to take a strong corporate measure to root out kickbacks or establish a new management strategy,” said an official at the compliance department of a drug company.