May 16 (Bloomberg) -- A Chinese probe into GlaxoSmithKline Plc.’s local sales practices should send a warning to other foreign companies doing business in the country that “ethics matter,” the official news agency Xinhua said in an editorial.
“GSK’s practices in China tainted both the company’s reputation and its credibility worldwide,” the editorial said. It appeared two days after Chinese police handed a case to prosecutors alleging that the former head of Glaxo’s China unit, British national Mark Reilly, ordered sales teams to bribe hospitals and doctors to boost drug sales.
The allegations against Reilly further demonstrated the government’s intent to take tough action against foreign companies it suspects of wrongdoing after fining six infant formula companies including Mead Johnson Nutrition Co. 669 million yuan ($107 million) in August for price fixing. Four Rio Tinto Plc executives were sentenced to jail in 2010 for taking bribes and infringing on commercial secrets.
Foreign investors “should learn to respect the Chinese market, at the very least by providing quality products at reasonable prices, abandoning discrimination and honoring their due social responsibilities,” the editorial said.
Glaxo didn’t immediately reply to an e-mail and a voice message left at its U.K. media line seeking response to today’s Xinhua editorial. In an e-mailed statement May 14, Glaxo said it will fully cooperate with the authorities.
“We are keeping in regular contact with Mr. Reilly and providing consular assistance,” said Mark Logan, head of communications at the British Consulate in Shanghai. He declined to say whether Reilly is still in Shanghai or has been arrested, citing consular confidentiality.
Using heptodin -- a hepatitis B drug -- as an example, Xinhua said Glaxo “manipulated prices to disguise real costs.” The editorial detailed that heptodin is declared as 73 yuan to customs in China even though the actual cost is 15.7 yuan and is sold at 26 yuan in Canada or 30 yuan in the U.K.
Glaxo charged prices in China that in some cases were seven times as high as in other countries, and used the extra money to pay bribes, a Ministry of Public Security official said at a briefing May 14.
In June, Chinese authorities began investigating allegations that Glaxo had funneled money through local travel agencies to pay bribes to doctors in return for prescribing its drugs. They last year detained some executives on suspicion of economic crimes involving 3 billion yuan of spurious expenses and trading in sexual favors.
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