The UK-based pharmaceutical giant GlaxoSmithKline (GSK) has issued a statement that some of its executive employees have acted “outside of Chinese law.” The company gave the announcement after a meeting with Chinese police officers who were investigating accusations of corruption.
China’s Ministry of Public Security has been looking into claims that four executives working for GSK in China have been “using a network of more than 700 travel agencies and other firms to channel bribes to hospitals, doctors and government officials since 2007,” according to a report from Hong Kong by CNN Money.
Meanwhile, three employees of another British-headquartered drugs giant, AstraZeneca, have also been investigated by Chinese police.
Abbas Hussain, GSK’s president for Europe, Japan, emerging markets and Asia Pacific, said in a company statement:
“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. We have zero tolerance for any behavior of this nature.”
“I want to make it very clear that we share the desire of the Chinese authorities to root out corruption wherever it exists.”
The Chinese police have detained the four Chinese executives from GSK after “accusing the firm of bribing officials and doctors to boost sales and raise drug prices by funneling up to 3 billion yuan ($489 million) to travel agencies,” reports Reuters, which says GSK has called the allegations “shameful.”
The Reuters report also cites sources who claim Sir Andrew Witty, GSK’s chief executive, will use a quarterly financial results presentation tomorrow, Wednesday, to outline the drug developer’s action in response to the alleged bribery, which could include price cuts for drugs sold in China.
GSK is not the only drugs company to have been rocked by China’s clampdown on the pharmaceutical industry. Another drugs giant, AstraZeneca, confirmed that a sales representative had been questioned by police in a separate investigation in Shanghai, according to a Bloomberg report.
A later news report published by The Telegraph says the AstraZeneca sales rep has since been released but that “two more” AstraZeneca workers have been “detained” in China. They are said to be line managers of the original detainee.
Chinese state media has aired claims that travel agencies were used by the GSK employees to set up sometimes non-existent conferences to “allocate money for bribes.” State media has implicated Shanghai Linjiang International Travel Agency in the alleged scandal.
The New York Times says it has documents showing this same travel agency arranged events and conferences with at least six other global pharmaceutical firms in the past 3 years, including Merck, Novartis, Roche and Sanofi. The Times report stresses that the documents “contain no indication of wrongdoing” at these other firms.
But with China’s fast-growing market for pharmaceutical products, its government is widening its investigation into fraud and corruption, and these documents suggest big drugmakers other than GSK could come under the scrutiny of Chinese authorities, the Times report adds.
Global companies that develop, make and sell innovative medicines have come under fire in other fast-growing markets.
India’s courts, for example, have taken a number of decisions that have opened the way for generic makers of new branded drugs to sell their copies of the originals even before patents have expired.
Worries about the high cost of branded new drugs in emerging markets have driven such moves to allow the cheaper copies. In India, making generic alternatives of drugs is also big business for the country. The developers of new drugs, meanwhile, argue that driving down drug prices will reduce innovation.