Emboldened by their GSK probe, Chinese officials step up pharma snooping

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Chinese police may have handed over their investigation of GlaxoSmithKline ($GSK) to prosecutors last week, but pharma industry probes in the country are far from over, China-based professionals say. And with the country trying desperately to drive down healthcare costs for its population of close to 1.4 billion, Big Pharma had best be careful. Local officials are making it clear that Big Brother is watching.

After the $489 million Glaxo bribery scandal last summer ignited a wave of investigations into multinational and local pharma companies alike, lawyers now estimate that more than half of all drugmakers operating in China, big and small, are being investigated in some capacity, Reuters reports.

In addition, a number of government bodies--including the state planning agency, local commerce bureaus and the health ministry--are keeping a close watch on foreign healthcare firms, making frequent and sometimes unannounced spot-checks, risk consultants and lawyers told the news service. Authorities, led by the State Administration for Industry and Commerce and China's public security bureau, are dropping by more often as well.

"We have certainly been made aware from clients that inspection visits by various government agencies have increased and these visits are now more focused," Bob Youill, the Shanghai-based managing director at FTI Consulting, told Reuters. Probes in the pharma sector "are becoming a weekly occurrence," an unnamed sales rep for a Big Pharma company's China unit added, with both Merck ($MRK) and Pfizer ($PFE) telling the news service they are in regular contact concerning their operations with governmental agencies.

And while Reuters' sources say the industry likely won't be seeing another case as serious as GSK's--the company's former China head, Mark Reilly, now faces prison time after a whistleblower accused the pharma giant of using travel agencies to funnel bribes to healthcare providers--the recent charges against Glaxo could pave the way for a number of smaller probes. One partner at law firm MWE China last week told Reuters it was kicking off three new compliance investigations.

Their warnings echo an editorial published by the state news agency Xinhua on Friday. The piece, understood to reflect the government's views, cautioned drugmakers that the GSK case "is a warning to other multinationals in China that ethics matter" and advised that they "learn to respect the Chinese market."

And if companies, both local and foreign, don't find their way away from the corruption said to be endemic in China's drug marketing culture, the penalties could be damaging. Last year, pharma experienced a sectorwide sales chill as probes spooked doctors and reps alike out of logging their usual facetime; Glaxo still hasn't recovered, with Q1 pharma and vaccines sales this year plunging 20%. And on Monday, the CEO of China's Sanjing Pharmaceutical, under investigation on suspicion of taking bribes, jumped to his death from a third-floor window, the AP reports.

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Special Reports: Top 10 drugmakers in emerging markets - GSK | Top 10 pharma companies by 2013 revenue - GlaxoSmithKline

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