Pharma giant GSK investigated for bribery

Executives from global pharmaceutical giant GlaxoSmithKline's China branch are being investigated for suspected bribery, the Ministry of Public Security said on Thursday, signaling China's latest efforts to regulate this industry.

GlaxoSmithKline (GSK) has bribed government officials, pharmaceutical industry associations, hospitals and doctors directly or indirectly in order to increase sales or raise drug prices, the ministry said in a statement posted on its official website, adding the case is still under investigation.

Evidence shows that some senior GSK executives were involved in bribery through travel agencies, and were also involved in tax violations, according to the statement.

But the ministry didn't reveal the number or the nationality of executives involved in the investigation.

"GSK is willing to cooperate with relevant authorities in the investigation," the company said in a statement sent to the Global Times on Thursday.

The company takes seriously all reports of bribery and corruption, and will continue to supervise business activities to ensure they are compliant with GSK rules, and quickly take action in case of a breach, GSK said.

Many companies are doing the same thing but haven't been caught, an industry insider who used to work in a large multinational pharma company, told the Global Times on condition of anonymity, adding such cases are normally triggered by a whistleblower who could be an unsatisfied employee, a competitor, or even a doctor.

"The company will most likely face a large fine, and the personnel involved could even face criminal charges if convicted," he said.

"We are paying close attention to the progress of this matter," the R&D-based Pharmaceutical Association Committee, an organization of foreign pharmaceutical companies in China, said when reached by the Global Times, otherwise refusing to comment.

Multinational pharmaceutical companies usually have strict internal controls, such as limits on gift value to doctors, entertainment fees, or a number of days limit for organizing overseas trips for doctors so that gift giving or entertaining is not defined as bribery, the industry insider said.

However, practices such as kickbacks on doctor's prescriptions or gifts to officials to ensure better bargains or get their products onto the official government reimbursement list do happen due to fierce competition from domestic firms, he said.

Sometimes such practices are inevitable, "without doing the same, the company will lose sales and market share," he said, claiming that it is common practice not only in China but also in the US where the Foreign Corrupt Practices Act inflicts penalties even on companies who pay bribes overseas.

International pharmaceutical giants Eli Lilly in 2011 and Pfizer in 2012 were charged for improper or illegal payments their subsidiaries made to win business in countries including China, and paid multi-million dollar sums in settlement, according to the US Securities and Exchange Commission.

Apart from pharmaceutical companies, IBM, Avon, and Alcatel-Lucent have also been involved in bribery cases in China in recent years.

"China provides many preferential policies toward foreign companies in order to attract foreign direct investment, however, it weakened supervision of and regulation on these companies. Investigating GSK serves as a warning, which is good for regulating the industry," said Xu Lingni, a healthcare analyst at CIC Industry Research.

This case will have a major impact on the industry, and drug makers are expected to tighten control on fees and expenditures, strengthen training for sales staff, and be more legally compliant, Zhong Hongyue, a healthcare sector analyst at consulting firm Frost & Sullivan, told the Global Times.

China has seen more violations by foreign companies in recent years, partly due to the business circumstances and a lack of strict regulation, Zhang Wang, director of the Social Responsibility Research Center for Chinese Listed Companies, told the Global Times on Thursday.

International pharmaceutical companies regard China as an increasingly important market. IMS Health, a healthcare market intelligence service provider, expects China to overtake Japan as the world's second largest drug market after the US by 2016.