China Pledges Drug Sector Crackdown Amid Glaxo Bribes Probe

China’s food and drugs regulator pledged to crack down on illegal activities in the nation’s pharmaceutical industry after a GlaxoSmithKline Plc executive described on national television how he used bribes to boost the company’s sales.

The Food and Drug Administration is conducting a six-month probe targeting fake drugs, unauthorized medicine sales and forged receipts, Yan Jiangying, a spokeswoman for the agency, told reporters in Beijing today. Regulators will also target bribery, she said, without specifically commenting on Glaxo, which Chinese police have accused of funneling payments to government officials and doctors to boost its drug sales.

Apple Inc. and Yum! Brands Inc. are among companies that have been forced to apologize to Chinese consumers this year as Chinese authorities seek to assuage public anger prompted by scandals including contaminated milk powder and the sale of rat meat as mutton. State media have also used the case involving Glaxo as evidence for the need to rein in corporate misbehavior.

State-owned broadcaster China Central Television aired a prime-time segment yesterday detailing how executives at the U.K. drugmaker used a travel agency to funnel bribes to government officials. The CCTV report featured Liang Hong, operations manager for Glaxo China, explaining how executives passed bribes to drug regulators, pricing officials at the National Development and Reform Commission and hospital officials. Chinese police detained four of Glaxo’s executives, including Liang, as part of their investigation that began last month.

Greater Scrutiny

China’s Communist Party called for greater scrutiny of foreign companies operating in the world’s second-largest economy. A commentary in today’s People’s Daily, the party’s official newspaper, said cracking down on commercial bribery by foreign companies “has great meaning for protecting economic market order and maintaining a fair, competitive environment.”

The commentary was attributed to Zhong Sheng, who wasn’t identified further. The name in Chinese is a homonym for “voice of China.”

China is investigating at least four multinational drugmakers as it widens its probe of Glaxo, according to Wendy Wysong, the head of anti-corruption practice in Asia-Pacific at law firm Clifford Chance.

Novartis AG hasn’t been contacted by Chinese authorities with regards to the bribery probe, Joe Jimenez, the Basel, Switzerland-based drugmaker’s chief executive officer, said in an earnings call with reporters today. Neither Novartis, nor any other foreign drug companies apart from Glaxo, has been named so far by Chinese authorities in connection with the investigation.

Medical Bribery

It’s time to put medical bribery “to the knife,” said a separate commentary in today’s People’s Daily. Now is the time to act as China deepens reform of the nation’s medical industry, according to the article attributed to Wang Zhuoming, who wasn’t further identified.

The China Daily newspaper said in an editorial today that Glaxo’s case should serve as a warning to foreign and Chinese companies that they must obey the law. The “bad apples” involved in the allegations should “receive the punishment they deserve,” the newspaper said.

The London-based drugmaker said earlier this week that it’s cooperating with Chinese authorities and reviewing all historic transactions with travel agencies. Glaxo said it was “deeply concerned and disappointed” by the allegations.

— With assistance by Regina Tan, and Daryl Loo

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