AstraZeneca Ups China Investment as Rivals Face Scrutiny

AstraZeneca Plc (AZN) is increasing its investment in China, where sales rose 21 percent in the second quarter, as the country continues its crackdown on malfeasance in the health-care industry.

The U.K.’s second-biggest drugmaker has added more sales people in China as the country’s medical coverage expands, even as prices have declined, AstraZeneca Chief Executive Officer Pascal Soriot told journalists yesterday on a conference call to discuss earnings.

Chinese authorities are investigating AstraZeneca’s larger U.K. rival, GlaxoSmithKline Plc (GSK), over allegations of 3 billion yuan ($489 million) in spurious travel and meeting expenses. Sanofi (SAN) and Eli Lilly & Co. (LLY) said yesterday they had received visits from Chinese regulators. An AstraZeneca sales representative remains detained in Shanghai as police examine an individual case, Soriot said.

“Our organization in China is very focused on doing business in China the right way,” Soriot said. “Our focus is on science and developing medicines that help patients. There are 1.2 billion patients in China, so we are very focused on growing in China.”

AstraZeneca has no reason to believe the investigation of the sales representative will expand, and no charges have been brought, he said. Two other employees were questioned in relation to the case and were immediately released, Soriot said.

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AstraZeneca Plc's company flags fly next to a Chinese flag outside its headquarters in the Zhangjiang district of Shanghai. Close

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Source: AFP/Getty Images

AstraZeneca Plc's company flags fly next to a Chinese flag outside its headquarters in the Zhangjiang district of Shanghai.

Closer Checks

The regional manager for China and the company’s compliance organization gives Soriot regular updates, the CEO said. The company does regular compliance checks, and was conducting one as the Glaxo investigation became public, he said.

“We suddenly are looking at routine processes more closely than we would have otherwise,” Soriot said. “We’re not complacent at all.”

Johnson & Johnson (JNJ), the world’s biggest maker of health-care products, was fined by Chinese authorities for monopolistic practices.

Two of New Brunswick, New Jersey-based J&J’s units were ordered to compensate 530,000 yuan ($86,500) to a distributor after a court in Shanghai ruled yesterday that their setting of minimum resale prices constituted monopolistic conduct, according to a report posted to chinacourt.org, a website controlled by the nation’s Supreme Court.

J&J Ruling

The ruling resolves a case brought by J&J in 2008 against a distributor that the company said was selling products outside of its covered sales area. While J&J won a lower court ruling, the distributor appealed and countersued, charging the U.S. company was engaging in monopolistic behavior, said Ernie Knewitz, a spokesman for Johnson & Johnson.

“While we are disappointed with the ruling by the Higher People’s Court of Shanghai, we are pleased to have put this matter behind us, and look forward to continuing to provide our high quality products and services to health-care institutions and patients in China,” Knewitz said in a statement.

Chinese authorities have accused Glaxo of economic crimes amounting to 3 billion yuan in spurious travel and meeting expenses as well as trade in sexual favors undertaken to boost sales.

Regulators will “severely crack down” on fake medications, forged documents and bribery, the China Food and Drug Administration said last month.

Glaxo’s head of emerging markets, Abbas Hussain, said last month after meeting with government officials in Beijing that some employees may have broken China’s laws.

Local Agencies

In China, every province and city has local agencies that regulate commercial activity. These units, formally known as the Administration for Industry and Commerce, hold broad powers to investigate possible malfeasance, seize evidence without a warrant and impose financial penalties, according to a note from consulting firm Control Risks.

Baxter International Inc. (BAX) discovered expense violations following an internal investigation at a joint venture in China last year, the Wall Street Journal reported today. Baxter disciplined the venture’s leadership, conducted new training and enhanced its controls and monitoring of interactions with Chinese health-care professionals, the report said, citing people familiar with the matter.

Calls to the office and mobile telephone numbers of Baxter’s Shanghai-based spokeswoman Seok Lin Hong weren’t answered. There was no immediate response to an e-mail seeking comment on the report.

Sanofi Visit

Sanofi said yesterday one of its regional offices was visited by authorities from the Shenyang Administration for Industry and Commerce. The Paris-based company didn’t know the purpose of the inspection, Chief Executive Officer Chris Viehbacher said on a call with reporters, and its China headquarters in Shanghai haven’t been checked.

Lilly was also visited by Shenyang authorities in a review “early this year,” the company said in an e-mailed response to questions, without elaborating on the date. The Indianapolis-based company said it hadn’t received any notice of the results of the investigation.

In China, Lilly is “one of the first companies in the industry to enforce compliance in a strict manner,” according to the company. “Lilly has not and is not being investigated by the Chinese Public Security Bureau,” its Beijing-based spokeswoman Connie Li said in the e-mailed statement.

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at dloo7@bloomberg.net; Natasha Khan in Hong Kong at nkhan51@bloomberg.net

To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net; Jason Gale at j.gale@bloomberg.net

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