April 18, 2024

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[THE INVESTOR] Korea’s tax authorities have launched an investigation into Novartis Korea in what industry watchers speculate may be linked to the company’s corruption scandal that broke out last year, marking the latest event to place a negative spotlight on the Swiss pharmaceutical giant.

Last week the National Tax Service began an investigation into Novartis Korea, zeroing in on the company’s spending records. It did not clarify the purpose of the investigation at the time.

Though Novartis Korea claims it is a “regular tax inspection that takes place every four to five years,” industry pundits and pharma trade media believe it is likely related in some way to the firm’s bribery scandal for which a trial is still pending.

The scandal broke in August last year, when Korean prosecutors indicted six high-level officials at Novartis Korea including its then-CEO Moon Hak-sun for providing 2.59 billion won ($2.37 million) in kickbacks to doctors in exchange for prescribing its drugs.

The prosecution said the company funded academic events outwardly organized by medical journals, and handed up to 1 million won to the involved doctors as attendance fees and reimbursement for articles the doctors contributed to the publications.

In April this year, Korea’s Ministry of Health and Welfare slapped Novartis Korea with an administrative fine of 55.1 billion won for 33 drugs and a six-month suspension of insurance coverage benefits for nine variations of two Novartis drugs: Exelon and Zometa.

The Ministry of Drug and Food Safety had also fined the company with 200 million won and placed a three-month sales ban on 12 variations of three drugs, including Exelon.

The moves had led to speculation the National Tax Service could decide to open a tax investigation into Novartis Korea as a further follow-up measure.

In addition to the bribery case, Novartis Korea’s public reputation recently took another hit when its employees were found to have been mired in a sexual harassment scandal.

Last month, a male employee at Novartis Korea reported his female boss sexually harassed him during a company dinner in September. He says his superior made excessive physical contact and inappropriate comments to junior staff at the occasion.

Novartis reportedly opened an internal investigation into the case and organized a disciplinary committee to push for due punishments. However, the executive voluntarily resigned, resulting in the closing of the case, according to local media reports.

By Sohn Ji-young/ The Korea Herald (jys@heraldcorp.com)