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Pharmas face bribery charges in China
September 2013
by Kelsey Kaustinen  |  Email the author


A series of scandals has rocked the industry since July, when news first came to light that during a probe by authorities of its business dealings in China, pharmaceutical giant GlaxoSmithKline PLC (GSK) was facing charges of bribery. Since then, Sanofi has also had allegations leveled against it, with other companies reporting visits by authorities, though without any accusations of misconduct.
Allegations leveled against GSK are that the company transferred as much as $489 million by GSK executives through a variety of travel agencies as bribes for government officials, hospitals and doctors to open new sales channels and increase drug prices. GSK staff also allegedly used fake receipts in unspecified tax law violations. These allegations came about as the result of a probe by the Chinese Ministry of Public Security into Changsha, Shanghai and Zhengzhou. In June, GSK had announced that it had found no proof of wrongdoing in its company after investigating allegations that between the years 2004 and 2010, its sales staff in China were involved in offering bribes to doctors to prescribe GSK's drugs, occasionally for unapproved uses.
Since these allegations have come to light, four senior Chinese executives from GSK have been detained, and the company's Chinese finance chief, Steve Nechelput, was forbidden to leave China, though that restriction was later lifted. The company has appointed Herve Gisserot as new general manager in China, noting that his predecessor, Mark Reilly, will continue to "remain an active member of the senior executive team" and lead GSK's response to the investigation.
GSK has stated that it is "deeply concerned and disappointed" by the allegations, adding in a corporate statement that the company has "zero tolerance for any behavior of this nature."  
"These allegations are shameful and we regret this has occurred. We will cooperate fully with the Chinese authorities in the investigation of these new allegations. We will take all necessary action required by the outcome of this investigation," the statement read. "We are reviewing all third-party agency relationships. We have put an immediate stop on the use of travel agencies that have been identified so far in this investigation, and we are conducting a thorough review of all historic transactions related to travel agency use. We also intend to conduct a rigorous review of our compliance procedures in China. "
On July 23, GSK released a statement regarding a meeting with the Chinese Ministry of Public Security to discuss the investigation. Abbas Hussain, GSK's President International for Europe, Japan, emerging markets and Asia Pacific, said that "certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls, which breaches Chinese law."  
GSK calls China an important market, noting that it has spent more than $500 million in the country to date, creating more than 7,000 jobs.  
Sanofi is also facing allegations of bribery, being accused of having paid bribes of around $277,600 to doctors in 2007 in order to raise sales. The company announced in early August that Chinese authorities had visited 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 to cooperating with the authorities in any review they undertake regarding these allegations." At the same time, the company said that it would be "premature to comment on events that may or may not have occurred in 2007."  
The latest company to have allegations made against it is Eli Lilly & Co. Previously, the drugmaker had simply announced that one of its sites had been visited, but in late August, charges were leveled that the company had paid close to $4.9 million to doctors to promote its drugs. Lilly said it was "deeply concerned" by the allegations, and admitted facing similar charges in the same region last year, which the company investigated, but said it could not verify.  
Other companies have been embroiled in the scandal as well. Novartis has opened an internal investigation into its operations on charges of bribery from a whistleblower. Novo Nordisk announced in August that one of its China offices had been visited, though no allegations were made. UCB has reported a visit to its sites, and AstraZeneca PLC has had a site visit, in addition to one of its sales executives reportedly being detained in Shanghai, though no charges were leveled.
These allegations come at a time when Frost & Sullivan Analyst Blair Dong says the Chinese market is changing.  
"The Chinese government/regulatory authority is imposing great pressure on these companies to cut price of medicines," says Dong. "The National Development and Reform Commission announced in early July that it will implement reform in drug-pricing methods, narrowing the gap between the price of branded drugs and generics. Also, the investigations show the determination of the Chinese government in implementing healthcare reform, as well as controlling insurance fund."
Frost & Sullivan Partner Reenita Das says that with regards to the purported bribery, "I think this is happening in every country of this region, and it will not go away until some professional, ethical practices are created around price of medicines.  
"It is becoming more and more difficult for multinational corporations to do business in these countries. In fact, this has set a huge precedence and will put enormous pressure on these global companies in the future," Das adds.  
Code: E091302



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