Pharmas face bribery charges in China

A series of scandals has rocked the industry since July,when news first came to light that during a probe by authorities of itsbusiness dealings in China, pharmaceutical giant GlaxoSmithKline PLC (GSK) wasfacing charges of bribery. Since then, Sanofi has also had allegations leveledagainst it, with other companies reporting visits by authorities, thoughwithout any accusations of misconduct.

Allegations leveled against GSK are that the companytransferred as much as $489 million by GSK executives through a variety oftravel agencies as bribes for government officials, hospitals and doctors toopen new sales channels and increase drug prices. GSK staff also allegedly usedfake receipts in unspecified tax law violations. These allegations came aboutas the result of a probe by the Chinese Ministry of Public Security intoChangsha, Shanghai and Zhengzhou. In June, GSK had announced that it had foundno proof of wrongdoing in its company after investigating allegations thatbetween the years 2004 and 2010, its sales staff in China were involved inoffering bribes to doctors to prescribe GSK's drugs, occasionally forunapproved uses.

Since these allegations have come to light, four seniorChinese executives from GSK have been detained, and the company's Chinesefinance chief, Steve Nechelput, was forbidden to leave China, though thatrestriction was later lifted. The company has appointed Herve Gisserot as newgeneral manager in China, noting that his predecessor, Mark Reilly, willcontinue to "remain an active member of the senior executive team" and leadGSK's response to the investigation.

GSK has stated that it is "deeply concerned anddisappointed" by the allegations, adding in a corporate statement that thecompany has "zero tolerance for any behavior of this nature."

"These allegations are shameful and we regret this hasoccurred. We will cooperate fully with the Chinese authorities in theinvestigation of these new allegations. We will take all necessary actionrequired by the outcome of this investigation," the statement read. "We arereviewing all third-party agency relationships. We have put an immediate stopon the use of travel agencies that have been identified so far in thisinvestigation, and we are conducting a thorough review of all historictransactions related to travel agency use. We also intend to conduct a rigorousreview of our compliance procedures in China."

On July 23, GSK released a statement regarding a meetingwith the Chinese Ministry of Public Security to discuss the investigation.Abbas Hussain, GSK's President International for Europe, Japan, emergingmarkets and Asia Pacific, said that "certain senior executives of GSK China whoknow our systems well appear to have acted outside of our processes andcontrols, which breaches Chinese law."

GSK calls China an important market, noting that it hasspent more than $500 million in the country to date, creating more than 7,000jobs.

Sanofi is also facing allegations of bribery, being accusedof having paid bribes of around $277,600 to doctors in 2007 in order to raisesales. The company announced in early August that Chinese authorities hadvisited one of its regional offices. Sanofi has said in a statement that it"takes any allegation of this kind very seriously. We also are committed tocooperating with the authorities in any review they undertake regarding theseallegations." At the same time, the company said that it would be "premature tocomment on events that may or may not have occurred in 2007."

The latest company to have allegations made against it isEli Lilly & Co. Previously, the drugmaker had simply announced that one ofits sites had been visited, but in late August, charges were leveled that thecompany had paid close to $4.9 million to doctors to promote its drugs. Lillysaid it was "deeply concerned" by the allegations, and admitted facing similarcharges in the same region last year, which the company investigated, but saidit could not verify.

Other companies have been embroiled in the scandal as well.Novartis has opened an internal investigation into its operations on charges ofbribery from a whistleblower. Novo Nordisk announced in August that one of itsChina offices had been visited, though no allegations were made. UCB hasreported a visit to its sites, and AstraZeneca PLC has had a site visit, inaddition to one of its sales executives reportedly being detained in Shanghai,though no charges were leveled.

These allegations come at a time when Frost & SullivanAnalyst Blair Dong says the Chinese market is changing.

"The Chinese government/regulatory authority is imposinggreat pressure on these companies to cut price of medicines," says Dong. "TheNational Development and Reform Commission announced in early July that it willimplement reform in drug-pricing methods, narrowing the gap between the priceof branded drugs and generics. Also, the investigations show the determinationof the Chinese government in implementing healthcare reform, as well ascontrolling insurance fund."

Frost & Sullivan Partner Reenita Das says that withregards to the purported bribery, "I think this is happening in every countryof this region, and it will not go away until some professional, ethicalpractices are created around price of medicines.

"It is becoming more and more difficult for multinationalcorporations to do business in these countries. In fact, this has set a hugeprecedence and will put enormous pressure on these global companies in thefuture," Das adds.