Bloomberg News

China Travel Agency in Glaxo Probe Used by Other Drugmakers (3)

July 23, 2013

China Travel Agency in Glaxo Probe Worked With Other Drugmakers

A GlaxoSmithKline Plc logo sits on glass windows at the company's headquarters in London. Glaxo’s executives “violated China’s laws and damaged markets by engaging in bribery to raise drug prices, expand sales and reap inappropriate profits,” the Public Security Ministry said in a statement posted on its website yesterday. Photographer: Simon Dawson/Bloomberg

Sanofi (SAN), Novartis AG, Merck (MRK:US) & Co. and Roche Holding AG worked with the same travel agency under investigation by Chinese authorities as part of a probe of GlaxoSmithKline Plc (GSK) over allegations of bribery and corruption.

Sanofi, based in Paris, and Roche and Novartis of Basel, Switzerland, stopped using the travel agency, called Shanghai Linjiang, once the allegations of wrongdoing surfaced, the three drugmakers said yesterday. Merck also has stopped doing business with the agency, a spokeswoman said. Separately, AstraZeneca Plc said yesterday that police had visited its offices in Shanghai related to “a local police matter focused on a sales representative” and there is no reason to believe the case is related to any other probes.

Glaxo’s head of emerging markets said yesterday after meeting with government officials in Beijing some employees may have broken China’s laws and pledged corporate changes that will deliver cheaper medicines. Glaxo faces allegations of economic crimes involving 3 billion yuan ($489 million) of spurious travel and meeting expenses as well as trade in sexual favors, the ministry said last week.

“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,” Abbas Hussain, the Glaxo executive who was sent to China to help with the probe, said in a statement after a “very constructive meeting” with officials from the Ministry of Public Security. “We have zero tolerance for any behavior of this nature.”

Earlier Probe

The London-based company, which made about 1 billion pounds ($1.5 billion) of revenue in China last year, had said in June that it found “no evidence of corruption or bribery” there after a four-month internal investigation.

Glaxo fell 1.3 percent to 1,672.50 pence at the close of London trading. The stock has gained 26 percent this year. AstraZeneca (AZN) rose 0.4 percent to 3,290.50 pence.

AstraZeneca said today that two line managers were taken in by police in Shanghai for questioning on July 19. The Public Security Bureau is describing its inquiry as an individual case, the company said.

“AstraZeneca adheres to high ethical standards in the pharmaceutical industry, and does not tolerate any illegal or unethical conduct in our business activities,” the company said in a separate statement. “All AstraZeneca China employees and third parties on AstraZeneca’s behalf are required to strictly comply with these guidelines in the conduct of business.”

Six Drugmakers

All drugmakers are receiving visits to their Chinese operations, according to UCB SA, the Belgian drugmaker that said last week that authorities came to its offices in the country.

Merck used the Shanghai Linjiang travel agency “in the past, but no longer does so,” Kelley Dougherty, a spokeswoman for the Whitehouse Station, New Jersey-based drugmaker, said yesterday. Dougherty declined to comment on details of the work or when the business relationship ended.

In addition to Glaxo, at least six other global drugmakers also used the travel agency, the New York Times reported yesterday, citing documents it obtained.

Novartis spokesman Eric Althoff said the Swiss company hasn’t been contacted by Chinese authorities on the matter. Novartis is reviewing travel systems and processes as part of its continuous compliance efforts, Althoff said in an e-mail.

Executives Detained

China detained four senior Glaxo executives on suspicion of economic crimes, the ministry said July 15. Its finance chief in China, Steve Nechelput, has been unable to leave the country since the end of June because of the investigation, though he hasn’t been arrested or questioned, Simon Steel, a Glaxo spokesman in London, said July 18.

A U.S. citizen was detained in Shanghai, said Nolan Barkhouse, a U.S. embassy spokesman. Barkhouse didn’t provide the person’s age or gender or the reason for the detention. The Wall Street Journal reported today that the person was detained in connection with China’s probe of the pharmaceutical industry.

Glaxo’s executives “violated China’s laws and damaged markets by engaging in bribery to raise drug prices, expand sales and reap inappropriate profits,” the Public Security Ministry said in a statement posted on its website yesterday. Hussain apologized on behalf of Glaxo and pledged to cooperate with the investigation, the ministry said, citing a recent meeting with the executive and his colleagues.

Glaxo’s Review

Glaxo is reviewing how it operates in China, according to Hussain. “Savings made as a result of proposed changes to our operational model will be passed on in the form of price reductions, ensuring our medicines are more affordable to Chinese patients,” he said.

Glaxo had been warned two years ago about the way it conducted research in China, the New York Times reported today, citing a 2011 internal audit document. The auditing process worked as intended, with a follow-up audit showing the issues raised in 2011 had been addressed, Glaxo said in a statement.

“Glaxo is firmly committed to the process of conducting robust audits into its business practices,” the company said. The follow-up audit “gave the organization in China the highest possible rating. Patient safety is paramount and the audit reports do not show that this was compromised.”

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at dloo7@bloomberg.net; Allison Connolly in London at aconnolly4@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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