Bloomberg News

Sino Biopharma Investigates Bribery Allegations at Chia Tai Unit

September 12, 2013

Sino Biopharmaceutical Ltd. (1177), a Chinese drug developer and producer, said it’s investigating mainland media reports of bribery at a unit and said neither board members nor senior managers were involved.

The company’s statement is in response to a broadcast by state-run Chinese Central Television on Sept. 11 that claimed two groups of doctors attended 50-minute meetings organized by the company in China and then left on sponsored trips.

The broadcast is the latest to claim malfeasance involving physicians amid China’s crackdown on corruption in its $350 billion health-care market. China has extended the probe to multiple drug companies and hospitals after it said it was investigating GlaxoSmithKline Plc (GSK) over claims employees used cash and sexual favors to bribe doctors and health officials.

Neither the board nor senior management were involved with or authorized “the incident” at unit Chia Tai-Tianqing Pharmaceutical Holdings Co., according to a Hong Kong stock exchange filing yesterday. The board is investigating whether certain Chia Tai employees were involved in the incident and will publish a further announcement when the investigation is complete.

The news reports prompted the company’s shares to plunge 16 percent to HK$4.76 before trading was suspended at 11:49 a.m. yesterday, the biggest drop since Oct. 9, 2000. Trading will resume in Hong Kong today.

Apart from media reports, including others on financial websites and local newspapers which it didn’t identify, the company said there is no news to account for its share-price fluctuation.

Compliance Control

“Sino Biopharm is now mostly exposed to policy headwinds,” Iris Wang, a health-care analyst at Credit Suisse Group AG, wrote in a note yesterday, before the company statement. “We believe this event will force Sino Biopharm to strengthen its compliance control and largely affect top-line growth.”

Wang cut her rating on the company to underperform from neutral.

Sino Biopharma provides all employees with a work manual and expects them to comply with it, according to the filing. The company said it will step up communication with workers about the rulebook and continue to enforce rules and take disciplinary measures.

‘Beautiful Memories’

CCTV’s broadcast showed an invitation printed on Chia Tai-Tianqing’s letterhead for a meeting on Aug. 21 at Airport Hotel Shanghai. The text said: “After the meeting, Chia Tai Tianqing’s Tiance products group has prepared an exciting and comfortable trip for you to Chiang Mai, Thailand. We believe this medical meeting will leave you with deep and beautiful memories.”

The report also said another group of doctors attended a meeting in Nanjing in eastern China and then went to Taipei.

In July, China accused Glaxo of crimes involving 3 billion yuan ($490 million) of deceptive travel and meeting expenses as well as trade in sexual favors. Authorities detained four senior executives in China at Glaxo, the U.K.’s biggest drugmaker.

Sanofi and Eli Lilly & Co. were among drugmakers that subsequently said they had received visits from Chinese regulators. Separately, two units of Johnson & Johnson, the world’s biggest maker of health-care products, were fined by Chinese authorities for monopolistic practices.

China’s crackdown on possible misbehavior by companies has extended to industries ranging from formula milk to gold. In August, Mead Johnson Nutrition Co. (MJN:US) and Danone were among six dairy companies ordered to pay a combined 669 million yuan for fixing minimum resale prices of their products. Five gold retailers in Shanghai and a local trade association were fined in the same month for manipulating jewelry prices.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net


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