[Ip-health] Wall Street Journal: China Steps Up Pressure on Glaxo

Thiru Balasubramaniam thiru at keionline.org
Wed Jul 17 01:21:41 PDT 2013


   - HEALTH INDUSTRY<http://online.wsj.com/public/page/news-health-industry.html>
   - Updated July 16, 2013, 6:41 p.m. ET

China Steps Up Pressure on Glaxo

   - By LAURIE BURKITT <http://topics.wsj.com/person/A/biography/7382> in
   Beijing and CHRISTOPHER M.
MATTHEWS<http://topics.wsj.com/person/A/biography/7452>in Washington

A high-level Chinese
executive appeared to back allegations of bribery in an interview on
state-controlled television in China on Tuesday, as Beijing ratcheted up
pressure on the U.K. drug maker.

China's powerful state-run broadcaster on late Monday and Tuesday aired an
interview with Liang Hong, Glaxo's China vice president and operations
manager, who is one of four Chinese executives detained as part of a
Chinese bribery probe into the company. Mr. Liang described for viewers of
China Central Television how staffers would allegedly organize conferences
that never happened and divert the money to bribe government officials,
hospitals and medical personnel to get them to use Glaxo's products.

"Dealing with some government departments requires some money that couldn't
be claimed normally under company expenses," Mr. Liang told a CCTV reporter
in a broadcast late Tuesday night, CCTV's fullest account of the
allegations by Chinese authorities. The Wall Street Journal translated Mr.
Liang's comments.

He added, "We would have some plans for holding some small-scale meetings.
Those meetings might not actually happen in the end, but we'd collude with
our travel agency and pretend that those meetings happened; then we'd be
able to falsify reports for money."

It wasn't clear under what circumstances Mr. Liang spoke. He couldn't be
reached for comment. Glaxo declined to comment on the interview.

The broadcast follows detailed allegations by China's Ministry of Public
Security on Monday accusing Glaxo of using travel agencies as vehicles to
bribe hospitals, officials and medical personnel to sell more drugs at
inflated prices. Officials also alleged the travel agencies offered what
the officials called sexual bribes to Glaxo executives to keep company

Glaxo has declined to comment on the specifics of the allegations made
against it in China. In a statement Monday, the company said it is deeply
"concerned and disappointed by these serious allegations of fraudulent
behavior and ethical misconduct."

It added that "GSK has zero tolerance for any behavior of this nature" and
that the alleged behavior would be a breach of the company's standards.
Glaxo said it has stopped using travel agencies identified in the
investigation and is conducting a thorough review of past travel-agency

Chinese authorities detained Glaxo's four employees sometime after
investigators visited Glaxo offices and seized documents in late June. A
person familiar with the matter said Glaxo is uncertain about the
conditions under which Mr. Liang and the other employees are being held.

In the CCTV report Tuesday night, entitled "Uncovering the Dark Side of
GSK," Mr. Liang said his conduct led to higher drug prices. "It costs to
hold those conferences. Actually, to do anything. Those costs are all
included in the price of the medicine. In my recent self-examination, I
believe the operational fees occupy a higher proportion than they are
supposed to."

"How much to do you think?" a CCTV reporter asked.

"The operation cost is about 20% to 30% of the price" of the drug, Mr.
Liang said of the conferences.

The program also featured an executive from Shanghai Linjiang International
Travel Agency, which authorities had accused of helping Glaxo. Staffers at
Linjiang's Shanghai office declined to answer questions on Tuesday.

China watchers say the move against Glaxo could signal that a new
anticorruption push in China could also include foreign companies. In the
past, said James Zimmerman, the managing partner of the Beijing office of
Sheppard Mullin Richter & Hampton LLP and former chairman of the American
Chamber of Commerce China, Beijing focused its efforts instead on
prosecuting its own officials.

Yet this time the hard line on alleged bribery is broadening, Mr. Zimmerman
said. "The government is clearly going to make an example out of GSK," he

China has taken strong action at times, such as in 2010 when a Chinese
court handed a 10-year prison sentence to an Australian employee of mining
company Rio Tinto, Stern Hu, finding him guilty of accepting around
$935,000 in bribes. But experts say the Glaxo allegations are the first
major example since China enacted new anticorruption laws two years ago, so
the current push offers a hint of potential hits to come.

Experts say bribery and other forms of corruption are endemic in China—an
issue that China's leadership has been increasingly pressed to address. A
Pew Research Center poll last year showed a rise in Chinese public concern
about corrupt officials between 2008 and 2012. The anticorruption group
Transparency International last year ranked China No. 80 out of 174
countries in terms of perceptions of corruption in the public sector,
trailing Liberia, Italy and South Africa.

Underscoring the sensitivity of the issue, Transparency International last
week said China was excluded from its latest survey on corruption because
local polling survey firms said they didn't believe the survey would be
possible to conduct without omitting some questions.

The concerns have prompted an anticorruption drive in China that so far has
mostly focused on Chinese officials and executives at China's big state-run
companies. Last week, Chinese authorities sentenced the nation's former
railways minister to a de facto sentence of life in prison for bribery. New
President Xi Jinping has spearheaded the austerity drive, using state media
to show him sharing modest meals with soldiers and citizens.

Chinese officials have said they were prompted to act by their own
investigation into Glaxo, but it isn't clear what specifically about the
allegations sparked the push. U.S. investigators in recent years have
publicly identified two previous instances of alleged bribery in China's
pharmaceutical industry.

The U.S. Securities and Exchange Commission said Eli
Co. plied government-employed doctors in China with giftsof wine and
jewelry and paid for meals and entertainment to induce them to prescribe
the company's products. Lilly agreed to pay $29 million in 2012 to settle
the accusations, which also involved improper payments in Brazil, Poland
and Russia. In 2012,
agreed to pay $60.2 million to resolve allegations it bribed doctors
and government officials in several countries in Europe and Asia, including
China. Lilly and Pfizer neither admitted nor denied the allegations about
their China operations.

Current and former U.S. officials said that the U.S. has prodded China to
ramp up its corruption enforcement, but that prosecutors have received few
requests to share case information.

—Yang Jie in Beijing and Jeanne Whalen in London contributed to this

*Write to *Laurie Burkitt at laurie.burkitt at wsj.com and Christopher M.
Matthewsatchristopher.matthews at dowjones.com

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