AVON PRODUCTS, INC. MEETING WITH DOJ & SEC OCTOBER 19, 2009

Global Compliance Case Studies: Third Party Liability

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International Pharmaceutical Compliance Congress and

Best Practices Forum May 2011

Keith Korenchuk

Arnold & Porter LLP Washington DC

Third Party Liability—Case Study

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Lumet et Frere, S.A. (“Lumet”) is a Swiss bioengineering firm that manufacturers a surgical screw known as FIXALL. Lumet also manufacturers a bone cement putty called SURESTICK. FIXALL is made of a new polymer (rather than metal) and has been cleared in the U.S. through an FDA Pre-Market Approval and in the E.U. through a Design Dossier Approval for use in long bone fractures. SURESTICK has been cleared in the U.S. through a 510(k) and a Technical File review is pending in the E.U. In 2010, Dutch surgeons conducted a small scale study on the use of FIXALL and SURESTICK together on long bone fractures in 20 patients. Unfortunately 4 of the 20 patients had severe adverse effects and had to undergo an emergency operation to remove the FIXALL screws after the SURESTICK putty reacted with the polymer used in FIXALL. The Dutch study was published in Lancet. Lumet, Inc. has been in discussions with the U.S. FDA over whether a label change will be necessary in light of this data.

Lumet distributes FIXALL through its publicly-traded U.S. subsidiary, Lumet, Inc. as well as through third-party distribution agents in Latin America, Eastern Europe, Middle East/North Africa, and Southeast Asia. Maxine Van Dorn is the Regional Compliance Director for Middle East/North African Operations at Lumet et Frere. Ms. Van Dorn previously worked as a corporate lawyer at Freshfields in London before accepting her position at Lumet’s Zurich headquarters. Lumet maintains an anonymous compliance hotline and encourages employees worldwide to report potential issues. Ms. Van Dorn checks the “Middle East/North Africa box” of the hotline on a weekly basis. This morning she received the following message via electronic fax to the hotline:

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11-April-2011

To whom it may concern,

I am a medical officer with Medicines Sans Frontiers and I am calling to report some troubling activities I witnessed at a recent meeting in the Green Zone in Iraq. MSF, the United Nations, and representatives from the Iraqi Provisional Authority were meeting with several U.S. State Department Officials and representatives from a number of medical product companies. One of the attendees was called John Azad. After the U.S. officials left the meeting, I witnessed Mr. Azad introducing himself to a senior Iraqi official and a purchasing officer from the U.N. as a distribution agent for Lumet et Freres. After a lengthy discussion about Lumet’s products and their application in conflict zones, Mr. Azad handed the two individuals a promotional brochure offering a special deal if FIXALL and SURESTICK were purchased together. To summarize, the brochure offers a year-end, retroactive 25% discount on SURESTICK for each FIXALL device that is purchased and implanted. The brochure contains claims which suggest that FIXALL and SURESTICK should be used together and that SURESTICK will “guarantee” better health outcomes for patients with long bone fractures.

Both the Iraqi diplomat and the U.N. official ask whether Lumet is willing to extend the terms of his consulting agreement with Azad Medical through 2012 if they bring the FIXALL/SURESTICK deal before the Provisional Authority’s medical purchasing committee at an upcoming meeting. Mr. Azad agrees, and the men shake hands. I’ve attached a copy of the brochure, as well as Mr. Azad’s business card which notes his company -- Azad Medical -- is an authorized distributor of Lumet products in Iraq. As a physician, I am very concerned about this behavior, especially in light of the recent article in Lancet published by the Dutch surgeons, and I plan to report this to the Inspector General of the Iraqi Provisional Authority if such behavior continues. Please contact me if you have any questions about this incident.

Regards,

Francis Shen, F.R.C.S.

Third Party Liability—Case Study (continued)

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Ms. Van Dorn reads the message and reviews the attached business card and sales brochure carefully. She has never heard of Mr. Azad or Azad Medical, but she recalls reviewing the sales brochure at a meeting a few months ago. According to her notes, the brochure was in use for a few weeks but both she and the Regional Counsel for Middle East/North Africa had concerns with the piece. Eventually, with the consent of the General Manager, Ms. Van Dorn and the Regional Counsel agreed that the piece should not longer be used, and sent emails to all their distributors asking them to cease use of the piece and to return or destroy any copies in their possession. After reviewing her emails she notices that one of the recipients was a “jazad@azadmedical.ru.”

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Discussion