By John Miller
ZURICH (Reuters) - Novartis (S:NOVN) General Counsel Felix Ehrat will leave the Swiss drugmaker over his role in a $1.2 million contract it struck with the personal lawyer for U.S. President Donald Trump, saying on Wednesday the pact was legal but an error.
The $100,000-per-month contract with Trump attorney Michael Cohen's Essential Consultants, the same firm used to pay porn star Stormy Daniels $130,000 to hush up an alleged affair with Trump, has distracted Novartis's efforts to improve its image after a series of bribery scandals.
Trump has denied the affair. Novartis ended the contract this year.
The contract was approved in early 2017 under the former Novartis chief executive Joe Jimenez and was part of its efforts to learn more about how the new Trump administration might approach certain U.S. healthcare policy matters.
U.S. lawmakers have demanded Novartis as well as AT&T (N:T), which also made payments to Cohen's firm, provide details about their contracts. Ron Wyden, the top Democrat on the Senate Finance Committee, has called the transactions part of a "pay-to-play scheme" and initiated an investigation.
In a company statement ahead of an investor day on Wednesday, Ehrat acknowledged that he signed the contract along with Joe Jimenez, who stepped down on Feb. 1 and was replaced by Vas Narasimhan.
"Although the contract was legally in order, it was an error," Ehrat said. "As a co-signatory with our former CEO, I take personal responsibility to bring the public debate on this matter to an end."
Novartis has sought to distance Narasimhan from the contract, saying he had nothing to do with it. It said on Wednesday that the board was not aware of the contract with Cohen.
"We also have made mistakes recently and the world rightly expects more from a leading healthcare company," Narasimhan said. "Our new executive team and I have a deep commitment to ensure we always operate with the highest integrity and sound judgment and will work hard to rebuild lasting trust with society."
Since 2015, Novartis has paid out hundreds of millions in settlements and fines as a result of kickback allegations in South Korea, the United States and China and faces an investigation of alleged bribery in Greece. A trial for another bribery case has been scheduled for 2019 in the United States.
Novartis shareholders have urged Narasimhan and other executives to exert more "moral influence" over perceived ethical shortcomings that Jimenez in 2016 blamed on a "results-oriented" sales culture and some bad actors. [https://reut.rs/2Ipdn83]
Ehrat will be replaced by Shannon Klinger, who is currently chief ethics officer. Narasimhan elevated Klinger to the executive committee this year as he made cultural change a priority.
At the meeting with investors, Narasimhan highlighted an extensive pipeline of new medicines that it believes have $1-billion-plus annual sales potential, placing it on track to grow sales and expand profit margins through 2022.
At the same time, the company will consider pruning non-core operations, including its U.S. generic pills business, while weighing further bolt-on acquisitions to strengthen its drug portfolio in key areas.
Priority areas for additional deals include cancer medicine, cell and gene therapies, and digital and data science.
Last month Narasimhan placed a big bet on gene therapy with an $8.7 billion deal to acquire AveXis (O:AVXS).