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Date Posted: 23:29:26 08/04/06 Fri
Author: Roderick Seeman
Subject: PHARMACEUTICALS SAFETY TESTING--INDUSTRIAL ESPIONAGE--INDUSTRY AND GOVERNMENT---RAMPANT CORRUPTION
In reply to: So Much To Think About 's message, "THE TOP 100 CORPORATE CRIMINALS OF THE 1990's" on 23:26:10 08/04/06 Fri

11/83 PHARMACEUTICALS SAFETY TESTING--INDUSTRIAL ESPIONAGE--INDUSTRY AND GOVERNMENT---RAMPANT CORRUPTION

In the past year, the Japanese pharmaceuticals industry and the government authorities supervising it, have been revealed to have deep-rooted and insidious corruption reaching into, if not starting from, the most prestigious government institutions and corporations--not the lower level employees, but centered at the highest levels, revealing in how many ways in ever status conscious Japan. senior officials expect "to receive their due". Last year, the world-famous Green Cross Corporation (the late president of which was reportedly a senior official in Japan's biological war effort in Manchuria and conducted experiments on live humans) had its applications suspended for testing its products on patients without authorization. Nippon Chemiphar was closed down for nearly 3 months for falsifying test data. Meiji Seika was also scandalized for falsifying test data.

Now, in the article which follows, we will reveal how a senior official at Japan's oldest and most prestigious research and testing institute, the National Institute of Hygienic Sciences sold secret information on drugs to competing drug makers. In addition a senior official at the National Institute of Health issued authorizations to begin manufacturing before required safety testing was completed. in order to help manufacturers speed their sales. He also leaked secret data to competing manufacturers. (This is relevant to foreign manufacturers as the Japanese government has long required that all foreign drugs be retested completely In Japan. out of concern for "the safety of the Japanese citizenry" taking just enough time for approval for Japanese firms to come up with competing drugs. It also should draw questions concerning just how safe is top secret data filed with Japanese authorities from leaking into Japanese competitor's hands. That is precisely what happened here. (Fujisawa obtained some of Ciba-Geigy's data). In the same case a senior official of the Japan Medical Association was also arrested for the same practice of selling secret data filed with the organization in fulfilling one of its public service roles, to competing Japanese firms. A senior professor at the Japan Self Defense Forces School of Medicine was arrested for taking kick-backs from Japanese drug firms for orders for their products. Finally (really?) a senior professor at Japan's most prestigious medical school, Tokyo Medical and Dental University, was arrested on bribery charges, strongly suggesting that professorships at Japan's most prestigious institutions are up for sale to the highest bidder. These cases could be particularly revealing concerning Japanese ethics in industrial espionage.



As we mentioned in an earlier issue, it was found that some of the testing for drug approval by the National Institute of Health had not been carried out before certifications were issued. In late July 1983 the Ministry of Health and Welfare sent investigators to make further checks on the problem. They found out that Kiyoshi Suzuki, the official involved, had been doing this from September. 1980 to June, 1983. In early September, Tokyo public prosecutors arrested Mr. Suzuki. Apparently in 1982 he had issued 373 certificates without finishing procedures. They soon found that in at least 5 cases he had made no tests whatsoever. The prosecutors suspect that such approvals with no testing made may exceed 100 cases. Moreover, such approvals were concentrated in the products of just a few companies. Then the whole case exploded. A section chief st Fujisawa Pharmaceuticals, one of Japan's largest drug fins. was arrested. The president and a director of Teisan Pharmaceuticals Co.. a medium-sized firm were also arrested. Suzuki helped Teisan get information on new antibiotics of Yamanouchi Pharmaceuticals (cefotetan) and Meiji Seika (Foffomycln calsium). Yamanouchi reportedly spent 6.6 billion yen in developing its product and Meiji Seika 500 million yen. Suzuki stole information on animal and clinical testing on Yamanouchi's drug. Yamanouchi's drug took 10 years to develop and was only finally certified in May, 1983 and is still not on the market. Meiji Seika's drug was jointly developed by American and Spanish pharmaceutical firms and Meiji Seika was the importer. Mirroring previous Japanese business practice, as shown in the IBM-Hitachi case for example, Fujisawa then had a senior company official of the company deny all charges. He noted, as was the case with Hitachi, that their technological level was very high, as everyone knew, and so there was no possible need for the data. That was supposed to prove that they did not steal it. This followed the arrest of 2 more senior officials in the company's research and development section. Then 2 more officials of Fujisawa and 1 at Teisan were also arrested. The prosecutors then found that Fujisawa had obtained data on an antibiotic developed by Shionogi & Co. Shionogi had spent 4 billion yen and 8 years to develop the drug. They also found evidence that the mole, Mr. Suzuki, had gone on 4 junkets paid for by Fujisawa and Teisan. Thus two more Fujisawa executives were arrested, one for attempting to destroy evidence by burning it in Osaka. Shionogi's drug went on sale in January, 1982 and has annual sales of roughly 20 billion yen, a major product. It is a rival product to one of Fujlsawa's money making products launched In 1971 with annual sales of 45 billion yen. Although Fujlsawa is regarded as ahead in this field of cephalo-related antibiotics, it was desperate to know what its competitors were doing. A Fujisawa employee commented that his firm had a hard won reputation for being a leader in antibiotics. So he wondered why his firm had done this. (In this relation, see in our previous issue how Japanese electronics firms are trying to obtain information on Western Electric's 256k semiconductor) Then the prosecutors started to study in detail the spending at Fujisawa's research and development department. It is widely viewed that a substantial amount of research and development spending by Japanese pharmaceutical firms is spent on wining and dining influential public hospital doctors and medical college professors at exclusive bars and restaurants and or used as slush funds. Reports abound on medical college professors receiving condominiums in downtown Tokyo, foreign junkets or having the expensive weddings of their offspring paid for by drug firms. Fujisawa has Japan's second largest R&D budget at 15.6 billion yen, following the 27.6 billion yen at Takeda Chemical Industries.

Then a senior official at the National Institute of Hygienic Sciences and a member of the Central Pharmaceuticals Affairs Council was arrested. The official arrested was Akira Ejima, chief of the drugs division. He reportedly received 1.7 million yen from Teisan between June, 1982 and May, 1983 to obtain data on "Prostandin" a treatment for arterial sclerosis, made by Ono Pharmaceuticals. Council members are given documents filed by drug makers for approval which are supposed to be kept secret. Teisan was eager to obtain this data as a medium sized maker it can only really compete in generic drugs. Under the Pharmaceuticals Law, when a firm develops a new drug, it can sell it exclusively for 6 years, usually at high prices. After that generic makers can produce it as well. Teisan wanted to be ahead of other generic makers. . Ono's drug currently has a 95% market share in Japan This six year protection period is believed to be the primary reason for this desperation by the drug firms to get their data out as fast as possible and why it is important to know what competitors are doing. This case was a particular shock. The National Institute of Hygienic Sciences is Japan's oldest and most prestigious scientific research institute that is over 100 years old. All applications for authorization eventually passed through Mr. Ejima's inspection. He had access to everything. The Central Pharmaceuticals Affair Counci1 was established based on Article 3 of the Pharmaceuticals Law and Article 29 of the Ministry of Health and Welfare Establishment Law. The council must approve all applications to manufacture new drugs in Japan. This resulted in the arrest of an executive director of Fujisawa clouding the entire company's reputation. He was charged as being the official in charge of requesting the thefts of of data on drugs made by Shionogi, Yamanouchi, Takeda and Ciba-Geigy. He had also ordered a subordinate to destroy documents when the prosecutors started their investigations. Takeda and Ciba-Geigy had filed data with the National Health Institute in 1980 concerning test data on a jointly developed antibiotic on which they had spent about 5.9 billion yen. That was the data Fuji was after. Unfortunately he failed to burn the documents completely. Filing through the remnants, the prosecutors found evidence on data thefts on non-antibiotic drugs. which further alarmed the prosecutors. Mr. Suzuki, at the National Institute of Health was only in charge of antibiotics. This raised their suspicions that other officials were involved That brought the prosecutors on to the trail of a senior official at the Japan Medical Association, the chief of the insurance section, and his ultimate arrest. The medical association is entrusted with data on new drugs by the Ministry of Health and Welfare. The official reportedly provided data on a new drug developed by a pharmaceuticals company at a cost of 1 billion yen. Japan Medical Association makes the final check before the drugs can be put on sale. If they reject a drug it is not eligible for payments under national health insurance. and that is enough to kill a drug's sales. prosecutors now believe this war the main route of Fujisawa in collecting stolen data. Sankyo's drug was only put on sale in February 1983. The official is suspected of having funneled data to Fujisawa for over 10 years. . The prosecutors also arrested a senior official at Toyama Chemical for receiving stolen data from Mr. Suzuki at the National Health Institute. Only this time. Mr Suzuki was double-dealing, as he sold Fujisawa's top secret data on an antibiotic to Toyama. In view of the above problems, the Ministry Of Health has initiated thorough reviews of procedures in handling data secrets. A project team was launched in mid-September 1983 for the problem. It will examine methods of storage of data, the data checking structure and methods of returning the data. It plans to prepare a new procedure manual as well. One of the key problems in returning the data is that officials often kept old data to compare with data on new drugs in making authorizations. Thus the old data is very useful in that application. The Ministry believes that a great deal of of the problem is that the National Institute of Health is understaffed. It has only 56 regular employees for checking new drugs and several hundred temporary staff. Until now, after an authorization has been granted in theory the data was to be returned or burned. but this was never made clear in regulations. As foreign firms have often complained, just exactly what the testing authorities want is also not specifically made clear. As in all bureaucracies in Japan, the bureaucrats are given tremendous discretionary power. Thus these officials can ask for this data or that, and if they really want to, tie-up the procedures for a couple of years. As this has tremendous impact on the maker's earnings (15 year patents) the Japanese makers also spend a lot of time just trying to figure out how their competitors passed the tests. In addition, the time and costs involved in developing a new drug have also dramatically increased. from an average of 10 years and 2 billion yen per drug a few years ago to 15 years and 3-4 billion yen now. The Ministry also moved to make clear affairs on handling data at the Central Pharmaceuticals Affairs Council. The Ministry also issued an official warning to the executives of Fujisawa, Toyama Chemical and Teisan not to conduct such activities again as it would cause the public to lose faith In drug firms. It also suspended Mr. Suzuki and Mr. Ejima. The resignation of the Central Pharmaceuticals Affair Council was accepted. Moreover, in a belief that too long a term on the Council was too tempting for members to become intimate with drug firms, the Ministry adopted a new policy to not reappoint members of the Council who have served more than 4 terms for 8 year. Thus about 20% of the 56 members will not be reappointed.

In an interesting sidelight, the Nihon Keizai, Japan's leading business daily, just as it did on the Hitachl case (See article, industrial property section, this issue), forecasted that the industrial espionage scandal would not damage Fujisawa's earnings as it does not not depend so much on large. reputation conscious hospitals.

In addition, and perhaps explaining the strong desires held by many to become professors in Japan, as shown by the bribery case in the paragraph below. a professor at the National Self Defense Forces Medical College was arrested for demanding kick-backs from such famous drug firms as Green Cross and Chugai Seiyaku. The prosecutors believe he received at least 1.4 million yen but could have received as much as 10 million yen. As this is a prestigious national university, the shock was greater than usual.

At the same time that the Fujisawa scandal was developing. a scandal was also appearing at Japan's most prestigious medical school, the Tokyo Medical and Dental University's medical school. The scandal makes it appear that professorships at the school are for sale to the highest bidder. A professor was retiring and the selection (auction?) process to replace him was beginning. The candidates had been narrowed down to 3. A Mr.Sakai paid a professor Ikezono 4 million yen in a cake box. The professor later returned 3 million of this when it became clear that Sakai had little chance of being selected, but kept 1 million yen for "advisory fees." Mr. Sakai allegedly tried to give money to other professors as well, but was reportedly turned down. The front-running candidate also paid the professor 1 million yen. Both candidates were arrested. The professor was also arrested on additional charges of having taken 900,000 yen from medical instruments companies, for helping them sell their machine's to the University. The company's directors were his wife and his two teenage children. However, the company is registered at his home, and has no indications that it is involved in business. but was rather a paper company. In Japan, in sales of medical equipment, there are often "brokers" between medical equipment makers and hospitals and universities, that are usually paper companies to collect commissions, often resulting in kickbacks to professors after successful equipment sales. The professor was arrested on those charges together with 4 businessmen, including some from Nihon Kohden Kogyo, a major firm listed on the first section of the Tokyo Stock Exchange. It was reported that Sakai knew he faced extreme difficulties in becoming a professor as he had spent many years studying abroad. This made him somewhat of an outsider and put him at a severe disadvantage to others who had stayed In Japan to build up their network. (Where does that put foreigners trying to break into the Japanese market? If a Japanese "polluted" by foreign contacts feels he must pay millions of yen in bribes to get ahead In Japan, what can a foreigner expect?) One medical authority said that this university was not the only one where money bought positions. But the repercussion were far greater. as this is the most prestigious school in the field in Japan. The prosecutors then found that Hatano, the leading candidate had raised 10 million yen in his effort to win designation and had given professor Ikezono another 1 million yen. Thus the prosecutors moved to investigate the other professors as well. This was particularly suspicious as all the professors, unanimously, and suddenly. switched their support behind Hatano. He would have been appointed at that point, but Sakai. the loser, blew the whistle to the police. It was also revealed that another professor at the same school was having a pharmaceuticals firm, Kyowa Hakko Kogyo, pay 1 million yen per year as salary for his secretary. The firm sells 88 million yen in drugs per year to the university and 20 million to the professor's department. That's today's lesson on DOING BUSINESS IN JAPAN.

THE JAPAN LAWLETTER, Nov-December, 1983. By Roderick Seeman
Website - http://www.japanlaw.info/lawletter/novdec83/bbw.htm

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