After a court recently upheld a suspended prison sentence for CEO Shin Young-seop of JW Pharmaceutical, a long-running rebate controversy surrounding the company has resurfaced.
The Criminal Appeals Division 1 of the Seoul Western District Court said on the 26th that it dismissed all appeals filed by prosecutors and the defendants against JW Pharmaceutical, CEO Shin, a Head of Team surnamed Park, and four medical institution workers including a doctor surnamed Park, who were indicted on charges of violating the Pharmaceutical Affairs Act and the Medical Service Act, and that it would uphold the first-instance judgment as is.
In the first trial in Aug. last year, the court sentenced CEO Shin to 10 months in prison suspended for two years and the Head of Team surnamed Park to four months in prison suspended for one year. It imposed a fine of 30 million won on the corporate entity JW Pharmaceutical. Of the 10 medical institution workers indicted, nine were sentenced to fines ranging from 5 million won to 20 million won and confiscations from 3.66 million won to 48 million won, and one was found not guilty.
The case will now await a final ruling by the Supreme Court after three people, including the Head of Team surnamed Park and the doctor surnamed Park, filed appeals.
◇ Cash, meals, golf… a "promotion plan" orchestrated by headquarters
It began with large-scale sanctions imposed in 2023 by the Korea Fair Trade Commission.
According to the Korea Fair Trade Commission (FTC), JW Pharmaceutical provided economic benefits worth about 7 billion won to roughly 1,500 hospitals and clinics nationwide from 2014 to 2023 to maintain or increase prescriptions of its drugs. The 62 targeted products included Livaro, Actemra, Ferinject, and Encover.
The FTC concluded the company pursued a coordinated promotion strategy. The investigation found that from 2014 to 2018, JW Pharmaceutical drew up annual promotion plans targeting hospitals and clinics nationwide around 18 major products, and used an internal document dubbed a "treasure map," which shortlisted targets based on each hospital's prescription performance.
The FTC assessed the document as "a list to single out medical professionals with a high likelihood of increasing prescriptions."
The company was found to have run customized programs that combined cash payments, academic society support, and clinical research funding tailored to physician preferences, and even operated a "bundle program" that packaged multiple products together for support.
The support was across the board. From 2014 to 2018, JW Pharmaceutical spent 2 billion won to pay cash to hospitals and clinics that promised prescriptions or to provide money and valuables in exchange for passing drug formulary reviews. Some medical institutions also received goods.
It spent 600 million won on meals and entertainment under the pretext of product briefings, and 1.8 billion won to hold overseas symposiums for medical staff, including companions. It was also caught pre-selecting certain medical professionals to fund their participation in overseas academic conferences. Golf entertainment and support for academic society events were no exception.
The FTC determined these acts constituted promotions prohibited by fair competition regulations.
◇ Clinical research used as a "means"… signs of accounting manipulation and internal cover-up
The FTC particularly took issue with clinical and observational studies being effectively used as marketing tools. Since 2014, JW Pharmaceutical funded 700 million won for 21 clinical studies and 1.3 billion won under the banner of observational research. Sales activity logs also contained internal notes that prescription volumes increased after studies began.
The FTC assessed that "the marketing department led the studies, and support was executed on the premise of expanding prescriptions."
There were also signs of disguising accounting treatment and attempting to conceal matters internally during the execution of rebates. Sales staff provided meals or cash to medical professionals and then recorded them as staff dinners and the like, and the compliance department issued guidance to change phrases such as "promised prescriptions" to "product promotion."
The FTC determined this to be "evidence of organizational concealment while recognizing illegality."
At the time, the FTC deemed the case an unfair trade practice under the Monopoly Regulation and Fair Trade Act, ordering JW Pharmaceutical to cease such conduct and imposing a penalty surcharge of 29.8 billion won. It referred the corporate entity and CEO Shin to prosecutors. It was the first major pharmaceutical rebate case to apply stricter standards after amendments to the Fair Trade Act.
JW Pharmaceutical said, "This ruling concerns certain sales activities before 2018, and we respect the court's judgment," adding, "Since the case, we have significantly strengthened companywide compliance programs and have continuously overhauled internal controls, training, and pre- and post-review systems across sales and marketing."
It added, "We now have a transparent and responsible sales culture embedded across the organization, and we continue to review our management and oversight systems to prevent similar issues from recurring."
◇ Additional indictments of the corporation and CEO Shin on tax evasion charges… "Double burden" for JW Pharmaceutical
Meanwhile, one more hurdle remains for JW Pharmaceutical. In Mar. last year, prosecutors additionally indicted the corporation and CEO Shin on charges of evading about 1.5 billion won in corporate taxes by booking rebate funds as welfare expenses.
According to prosecutors, the company is suspected of having treated about 7.8 billion won, including funds for physician rebates, as deductible expenses and thereby evading about 1.5 billion won in corporate taxes for 2016 to 2018. Allegations were also raised that it fabricated welfare expenses using canceled credit card receipts or receipts from third parties who were not employees.
At the first hearing in Jun. last year, the corporation and CEO Shin denied all charges.