India Compliance Update Pharmaceutical · PDF filePage 2. India Compliance Update: Life science space. Contents Life science space in India Setting up Life science shop in India –

India Compliance Update Life science spaceSeptember 12, 2012

Shanghai, China

India Compliance Update Life science spaceSeptember 12, 2012Shanghai, China

Presenter:Mr. Sandeep BaldavaPartner – Fraud Investigation & Dispute ServicesErnst & Young, India

India Compliance Update: Life science spacePage 2

Contents

►

Life science space in India

►

Setting up Life science shop in India –

Compliance update►

Compliance requirements►

Compliance –

regulation effectiveness►

Compliance violation

►

Doing business in IndiaChallenges: Bribery and corruption

►

Fraud risk susceptibility in Life science space

►

Way forward




Indian Pharmaceutical Industry ranks 3rd

in terms of volume and is 14th

in terms of value globally.

In the last 10 years, Government of India has aggressively adopted prudent strategies to boost the country’s life science sector. From granting 100% Foreign Direct Investment (‘FDI’) in the drugs and pharmaceuticals segment, to establishing various pharmaceutical Special Economic Zones (‘SEZs’) across the country, a range of initiatives have further strengthened the Indian pharmaceutical industry. Manufacturers are free to produce any drug duly approved by the drug control authority.

Yet, effective regulatory enforcement is still in progress. The sub-continent is grappling with challenges of regulatory non compliance, counterfeit drugs, poor infrastructure, topped with bribery and corruption.

Background

Five broad segments of Life science space in India

“Pharmacy

of the

Developing

World”

Setting up Life science shop in India Compliance update


Setting up Life science shop in India Compliance requirements

Health care compliance

Statutory requirements•Shop and establishment license•Factory License•Environmental clearance•Labour license•Local municipal corporation clearance

Regulatory requirements•Main regulatory body in India is the Central Drugs Standard Control Organization (CDSCO), in charge of approval of licenses for drugs

•National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing and controlling prices of bulk drugs as per Essential Commodities Act

•The Drugs & Cosmetics Act, 1940 regulates the import, manufacture, distribution and sale of drugs in India

•The Pharmacy Act, 1948 is meant to regulate the profession of Pharmacy in India

Health care compliance•The Medical Council of India (MCI) is a statutory body with the responsibility of establishing and maintaining high standards of medical education and recognition of medical qualifications in India.•Department of Pharmaceuticals, to ensure abundant availability of high quality essential drugs at reasonable prices in India.

Other compliance requirements•US Foreign Corrupt Practices Act•UK Anti Bribery ActPublic servants in India can be Penalized for corruption under -•Indian Penal Code, 1860•Prevention of Money Laundering Act, 2002•The Prevention of Corruption Act, 1988, Amendment 2008•Code of Criminal Procedure, 1973 •The Central Vigilance Commission Act, 2003

And several others …….


Setting up Life science shop in India Compliance – regulation effectiveness

Ethical conduct of heath care professionals (“HCP”) is vital for maintaining

professional autonomy, integrity and independence in their interactions with the

pharmaceutical and allied healthcare organizations. Implementation of good

marketing practices by pharmaceutical companies demonstrates their adoption

of ethical practices and transparency in their operations.

EY conducted a survey * in September 2011 in an attempt to

provide insight into how the current regulations are affecting

health care professionals and the pharmaceutical industry.

The survey was administered in two parts:

Part one was conducted among marketing professionals in the pharmaceutical

sector on the draft uniform code of marketing practices for the Indian

pharmaceutical industry (UCPMP) issued by the Department of Pharmaceutical

(DoP).

Part two was conducted among health care professionals on the guidelines

issued by the Medical Council of India (MCI), regarding its code

of conduct for

HCPs in their relationship with pharmaceutical and allied health

care companies.

* Source: Pharmaceutical Marketing: ethical and responsible conduct, A survey on effectiveness of guidelines


Sample : 50Base: All



Ineffectiveness of regulations

More than 50% of the respondents felt that the MCI’s guidelines for medical practitioners and the DoP’s code of the marketing practices for pharma companies will not suffice to ensure ethical marketing of drugs in India

Is the two-tier approach of MCIs regulating HCPs and the DoP in the Ministry of Chemicals and Fertilizers to regulate the pharma industry the best way of deterring the practice of pharma companies luring HCPs through gifts and free hospitality offers?

Lack of significant enforcement by the MCI

According to 72% of the respondents, there has not been significant enforcement of the MCI’s guidelines

Has there been significant enforcement of these guidelines by the MCI?





Manipulation in record-keeping of samples Need for more robust controls

More than 40% of the respondents felt that enforcement of UCPMP may lead to manipulation in recording actual sampling activity

In light of UCPMP regulations relating to distribution of free medicinal samples, would field formations indulge in manipulation of records to conceal non-compliance with the code?

90% of the respondents felt that pharma companies need more robust internal controls to ensure their compliance with regulations

With the implementation of the UCPMP in the country, do you feel

that pharma companies should focus on building a robust internal control system that relates to compliance with the DoP’s guidelines?

Setting up Life science shop in India Compliance violations



Source: http://pharmabiz.com/NewsDetails.aspx?aid=67239&sid=1http://pharmabiz.com/NewsDetails.aspx?aid=67385&sid=1

Statutory requirements•Shop and establishment license•Environmental clearance•Labour license•Local municipal corporation clearance

http://pharmabiz.com/NewsDetails.aspx?aid=67239&sid=1




Source: http://pharmabiz.com/NewsDetails.aspx?aid=70027&sid=2http://businesstoday.intoday.in/story/drug-approval-india/1/24757.html

Regulatory requirements•Main regulatory body in India is the Central Drugs Standard Control Organization (CDSCO), in charge of approval of licenses for drugs

•National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing and controlling prices of bulk drugs as per Essential Commodities Act

•The Drugs & Cosmetics Act, 1940

regulates the import, manufacture, distribution and sale of drugs in India

•The Pharmacy Act, 1948

is meant to regulate the profession of Pharmacy in India


http://businesstoday.intoday.in/story/drug-approval-india/1/24757.html



Source: http://www.downtoearth.org.in/content/15-doctors-went-foreign-jaunt-sponsored-pharma-company-says-lok-sabha-memberhttp://articles.timesofindia.indiatimes.com/2010-07-01/india/28285348_1_indian-doctors-new-panel-nitehttp://pharmabiz.com/NewsDetails.aspx?aid=70095&sid=1

Health care compliance•The Medical Council of India (MCI) is a statutory body with the responsibility of establishing and maintaining high standards of medical education and recognition of medical qualifications in India.•Department of Pharmaceuticals, to ensure abundant availability of high quality essential drugs at reasonable prices in India.

http://www.downtoearth.org.in/content/15-doctors-went-foreign-jaunt-sponsored-pharma-company-says-lok-sabha-member

http://articles.timesofindia.indiatimes.com/2010-07-01/india/28285348_1_indian-doctors-new-panel-nite




Source:

http://www.financialexpress.com/news/cbi-arrests-mci-president-ketan-desai-in-bribe-case/610549/http://articles.timesofindia.indiatimes.com/2012-07-31/jaipur/32960592_1_bribe-anti-corruption-bureau-acbhttp://ibnlive.in.com/news/lilavati-hospital-caught-in-black-money-mess/143601-3.htmlhttp://pharmabiz.com/NewsDetails.aspx?aid=69736&sid=2

Other compliance requirements•US Foreign Corrupt Practices Act•UK Anti Bribery ActPublic servants in India can be Penalized for corruption under -•Indian Penal Code, 1860•Prevention of Money Laundering Act, 2002•The Prevention of Corruption Act, 1988, Amendment 2008•Delhi Special Police Establishment Act, 1946•Code of Criminal Procedure, 1973 •The Central Vigilance Commission Act, 2003

http://www.financialexpress.com/news/cbi-arrests-mci-president-ketan-desai-in-bribe-case/610549/

http://articles.timesofindia.indiatimes.com/2012-07-31/jaipur/32960592_1_bribe-anti-corruption-bureau-acb

http://ibnlive.in.com/news/lilavati-hospital-caught-in-black-money-mess/143601-3.html


Doing business in India Challenges: Bribery and corruption



% Applies to

North Amer.

Latin Amer.

Western Europe

Central & Eastern Europe

Middle East India Africa

Far East & Asia Japan Australia

14 68 22 51 44 70 67 36 14 14

5 21 5 17 14 20 17 20 - 4

9 25 16 29 38 32 50 31 6 14

% Does not apply to % Applies to

*Source: 12th Global Fraud Survey, Growing Beyond: a place for integrity (May 2012)Between November 2011 and February 2012, our independent researchers conducted a total of 1,758 interviews with employees in 43 countries covering North America, Latin America, Europe, Africa, Middle East, Far East Asia, Japan and Australia. The survey achieved a broad industry sector coverage. The researchers interviewed senior decision makers from a sample

of the largest companies (by turnover) in each country. Principle respondents, who were chosen for their responsibility for tackling fraud, included CFOs, heads of internal audit, heads of legal and chief compliance officers.

Perception on bribery and corruption per Ernst & Young’s 12th Global Fraud Survey*, 2012



Unethical behavior is widespread, with an increased willingness to pay bribes to survive economic downturn, as per Ernst & Young’s 12th Global Fraud Survey, 2012

28% of India respondents believe it is acceptable to use cash payments to win or retain business. By contrast, in North America and Africa only 3% and 7% of respondents respectively stated it was acceptable.

34% in India as against 9% in North America and 10% in Africa think that personal gifts to win or retain business can be justified.

54% in India as against 13% in Latin America and 26% in Western Europe think that entertainment to win or retain business can be justified.

In order to survive an economic downturn, respondents are increasingly willing to mis-state financial statements (overall 5% versus 3% in last survey).

16% respondents in India as against 1% in Africa and 2% in North America, Australia and Central and Eastern Europe consider mis-stating financial statements justifiable.




Five broad segments of Life science space in India


Fraud risk susceptibility in Life science space Pharmaceutical

Irregularities in the practice of taking expert opinion on

deciding about new drugs.

The so-called expert opinion is actually guided and written by “invisible hands of drug

manufacturer”.

Drug Manufacturer

Drug Approving Authority

Clinical Trials on Patients

Medical Experts

Drug Controller

According to the health ministry, 31 new drugs were approved between January 2008 and

October 2010 without clinical trials on Indian

patients.

Expert Opinion Forged: Whenever drug controller sought expert opinion on drugs, they appeared forged as experts sitting in different parts of India gave identical opinion and in many cases, committed the same typographical mistakes.

Trials have to be conducted at different sites so as to include various ethnic groups. But firms were permitted to conduct trials at convenient sites/ locations which do not represent diverse populations.

HCPs are lured by promise ofcostly gifts and foreign trips to exotic locales in the guise of seminars and conferences in return for prescribing company’s products.

Medical Representatives

While many drugs of foreign firms have been approved without proper trials,

rules are not adhered to even when they are conducted.

Source:http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETD/2012/05/11&PageLabel=3&EntityId=Ar00300&ViewMode=HTML

Nexus between Drug manufacturers, Regulator and Medical experts* illustration basis newspaper article

http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETD/2012/05/11&PageLabel=3&EntityId=Ar00300&ViewMode=HTML


Fraud risk susceptibility in Life science space Medical equipments

Scheduled surgery requires certain medical equipments not available locally

While bringing the medical equipment in city, dealers are pressurized by sales staff to make unofficial payments to tax officials to evade duty.

The dealer is then compensated for such unofficial payments by way of increased remuneration or free trade schemes.

*Local tax collected on various articles brought into a district

for consumption.

Use of Dealers to make inappropriate payments at tax* checkpoints

Octroi/Entry tax collected from Company but not deposited with authorities. Vehicles passed by offering speed payments


Fraud risk susceptibility in Life science space Contract Research Organization

Doctor

Hospital

Sponsor

Company owned by Doctor

Payments made to unrelated party

Tripartite agreement requirement over-ruled to pass payments to favored party


Fraud risk susceptibility in Life science space Research and Development

Agreement has consultant fee component designed to provide access to excess funds. These could be used for inappropriate payments to Government authorities for license approval and facilitation. In such cases, consultant fee is exponentially higher than Government license application fee.

For example, manufacturing license application fee for testing and analysis (for developmental purposes) is approximately USD 3 while corresponding consultant fee approximately USD 100.

Consultant offers car hire services to Government officials for “relationship management”, to benefit all his clients.

These expenses are not separately reimbursed by consultant’s clients and hence cannot be allocated to any specific client.

Client pressurizes Consultant to obtain license urgently

Third party consultants could be used to liaise with multi-level state, district and federal licensing bodies like CDSCO to expedite approvals by making inappropriate payments/ rendering favours

Way forward


Way forward

Source: http://articles.timesofindia.indiatimes.com/2011-04-10/india/29402855_1_anna-tum-sangharsh-karo-civil-society-combat-corruptionhttp://pharmabiz.com/NewsDetails.aspx?aid=70770&sid=1http://southasiamail.com/blog/will-lokpal-bill-help-to-stop-corruption-in-indiahttp://newindianexpress.com/editorials/article586296.ece?pageNumber=1&parentId=5358&operation=complaint

India’s fight against

corruption

http://articles.timesofindia.indiatimes.com/2011-04-10/india/29402855_1_anna-tum-sangharsh-karo-civil-society-combat-corruption


http://southasiamail.com/blog/will-lokpal-bill-help-to-stop-corruption-in-india

http://newindianexpress.com/editorials/article586296.ece?pageNumber=1&parentId=5358&operation=complaint


Way Forward Freebies to medical practitioners to be taxed - CBDTCBDT Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012

► It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the ‘Council’) which is a regulatory body constituted under the Medical Council Act, 1956.

►The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility,

Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries.

►Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.

►Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income.

► It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action.


Way forward

* Source: http://www.nistads.res.in/indiasnt2008/t4industry/t4ind18.htm

While civil society in India is fighting back corruption, Government of India is supporting by putting in place regulations to strengthen compliance implementation and monitoring. Recent initiatives* in this direction are:

►

Move to establish an integrated regulatory system through the constitution of a National Drug Authority so that quality regulation and price control is performed by the same agency

►

Establishment of pharmacovigilance centers at national, zonal and regional levels to monitor adverse drug reactions

►

Move to bring 300+ bulk drugs under price control

and regulate trade margins

►

Capability strengthening to monitor clinical trials, including the setting up of

the Clinical Trials Registry of India (CTRI)

Technologically strong and totally self-reliant, the life science sector in India has low costs of production, low R&D costs, innovative scientific manpower and strength of national laboratories. With these strengths, Indian life science space is undoubtedly the sunshine of global pharmaceutical industry.

Understanding the inherent compliance and fraud risks and addressing them proactively would help life sciences companies in avoiding adverse financial and reputational impact

http://www.nistads.res.in/indiasnt2008/t4industry/t4ind18.htm

India Compliance Update Life science spaceSeptember 12, 2012

Shanghai, China

Thank you

©

2012 Ernst & Young Pvt. Ltd. Published in India. All Rights Reserved.Publication or reproduction by any means only with written approval by Ernst & Young

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young Pvt. Ltd. nor any other member of the global Ernst & Young

organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate

advisor.

Mr. Sandeep BaldavaPartner – Fraud Investigation & Dispute ServicesErnst & Young, India

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India Compliance Update Pharmaceutical · PDF filePage 2. India Compliance Update: Life science space. Contents Life science space in India Setting up Life science shop in India –