Nov 22 Two executives of Costco Wholesale Corp
may have sought kickbacks from drug makers in violation
of Ontario law, an industry regulator in the Canadian province
has found as it advances a probe into the retailer's pharmacy
The Ontario College of Pharmacists launched an investigation
into the executives for alleged misconduct after a former sales
consultant for Ranbaxy Pharmaceuticals filed a complaint saying
the Costco executives sought illegal rebates of up to $1.3
million on drugs supplied to the retailer.
Costco has denied the allegations, saying the company and
the two executives have complied with all laws. Stuart Shamis,
an attorney for the retailer, said there had been no finding of
wrongdoing. He declined to comment on specific allegations.
The regulator's investigation into the two men found
sufficient evidence to refer the matter to its discipline
committee, according to a notice on its website last week. That
step is taken when a probe finds a person may have "been
dishonest, breached trust" or violated professional principles,
its website says. If wrongdoing is found, penalties range from a
public reprimand to revocation of an individual's certificate to
practice in the industry for a minimum of a year.
The probe into the Costco executives marks the first time an
allegation involving rebates has been escalated to the
discipline committee since Ontario law was changed in April 2013
to ban all rebates, paid directly or indirectly, to pharmacy
operators, a spokesman for the regulator said. Rebates are legal
elsewhere in Canada.
The complaint, first reported by the Toronto Star newspaper
in March, has put a spotlight on Costco's pharmacy business in
Canada, where it has 94 locations, ranking as its second largest
market after the United States.
In addition to Ranbaxy, which was acquired by India's Sun
Pharmaceutical Industries Ltd last year, the regulator
listed in its allegations units of Teva Pharmaceutical
Industries Ltd, Mylan NV and Pharmascience Inc
as other drug makers that may have paid rebates to Costco
between April 2013 and Dec. 31, 2015.
A Mylan spokeswoman said the company was not a subject of
the probe and had cooperated with requests for information. The
other drugmakers did not respond to requests for comment.
The complaint was submitted by former Ranbaxy representative
Tony Gagliese in August, 2015. As evidence, Gagliese submitted a
secretly recorded phone conversation in which Joseph Hanna, a
director of pharmacy buying at Costco, can be heard telling
Gagliese that Ranbaxy would need to provide up to $1.3 million
to the retailer to maintain its business in Ontario.
While Hanna said the money would be marked for "marketing
initiatives" he appeared to calculate the $1.3 million in the
context of Ranbaxy giving at least 60 percent of sales across
Canada, including Ontario, back to Costco. Reuters reviewed the
recording but could not independently verify its contents.
Gagliese declined to comment.
Hanna and the other Costco executive named in the
investigation, Lawrence Varga, did not respond to requests for
comment. Shamis, the attorney, said Costco was confident the two
men had acted appropriately and in accordance with regulations.
In a written rebuttal to the complaint last year, Costco
said that any rebate payments were for areas outside of Ontario.
(reporting by Nathan Layne in New York, Solarina Ho in Toronto
and Zeba Siddiqui in Mumbai; Edited by Noeleen Walder and David