China's yearlong crackdown on allegedly corrupt practices by pharmaceutical companies has left foreign executives there spooked--so much so that some are asking their lawyers if they should leave the country altogether.
Not so long ago, China was considered one of the world's most promising pharma growth markets. But attitudes have soured since China slapped GlaxoSmithKline ($GSK) with corruption charges that could result in jail time for Mark Reilly, the British executive who once ran the company's Chinese operation, according to Reuters.
The charges against Reilly, coupled with a wave of official visits to other Big Pharma companies, has pharma executives questioning their safety, says John Huang, a co-founder and managing partner at MWE China, a law firm in Shanghai. "Many of our clients are asking about personal liabilities and insurance, with executives asking if they are put in jail what will happen to their families and how the company will provide protection for them," Huang told Reuters.
It's no wonder they're concerned. In mid-May, China handed Reilly and two other China-based executives charges stemming from allegations that GSK funneled $489 million in bribes to healthcare workers through travel agencies. The maximum sentence for such charges is life in prison. A week later, China's State Administration for Industry and Commerce (SAIC) visited Roche's ($RHHBY) offices in Hangzhou. Chinese authorities visited a half-dozen other multinational pharmaceutical firms last year, Reuters points out, including Eli Lilly ($LLY), Sanofi ($SNY) and Novo Nordisk ($NVO).
Chinese president Xi Jinping has been quite vocal about his government's intention to continue investigating bribery and corruption. In May, just two days after Chinese police turned the GSK case over to prosecutors, the country's state media, Xinhua, ran a harshly worded editorial urging other companies to learn from GSK's experience. "GSK's practices eroded its corporate integrity and could cause irreparable damage to the company in China and elsewhere. The case is a warning to other multinationals in China that ethics matter," the article said.
The China scandal has been bad for business, too. GSK's drug and vaccine sales in China fell 18% last year and 20% in the first quarter of this year.
As pharma execs who are already in China consider abandoning the country, some companies are hiring Chinese nationals to help navigate the tricky regulatory system there. That was the word last week from Richard Bergström, director general of the European Federation of Pharmaceutical Industries and Associations, who suggested that the best way to improve sales and marketing efforts in China is to put people on the ground who speak the language and understand the country's laws and customs.
Meanwhile, some pharma executives are asking their lawyers if they should leave China temporarily, perhaps relocating to Singapore or Hong Kong, in the hopes that the scandal will blow over, according to Reuters. Others are ignoring China's crackdown and spending more time making sure they won't run afoul of the U.S. Foreign Corrupt Practices Act, says Steven Dickinson, a partner at Harris Moure in Qingdao who was interviewed by Reuters.
"Every week I write an email saying you're missing the point--you won't have time to get hit by the U.S. law because you'll be in jail in China," Dickinson says.
- here's the Reuters story