Tension rises in China as officials fine J&J, visit Sanofi

Drugmakers are on edge in China. Amid government probes of potential graft, corruption and opportunistic pricing, more pharma companies have seen authorities show up at their doors, which naturally ratchets up tension. But even drugmakers who say they're confident about their compliance expect fallout from the investigations.

The latest: Sanofi ($SNY) says officials visited one of its 11 regional offices, in Shenyang. "We are not really aware of the purpose of the visit," CEO Chris Viehbacher said as the company announced second-quarter earnings, adding that the company's Chinese headquarters hasn't been contacted.

Meanwhile, Eli Lilly ($LLY) confirmed that the Shenyang branch of the State Administration for Industry and Commerce also visited its offices but said that it was a routine inspection and occurred early this year, before the bribery probe news broke. "Lilly has not and is not being investigated by the Chinese Public Security Bureau," spokeswoman Connie Li told Bloomberg.

And Johnson & Johnson ($JNJ) faces a 530,000-yuan fine ($86,483) for monopolistic pricing, Bloomberg reports, citing a disclosure on a website affiliated with China's Supreme Court. A Shanghai court ruled that J&J's minimum resale prices amounted to monopolistic behavior. Officials are also looking into pricing practices of other drugmakers.

AstraZeneca ($AZN) CEO Pascal Soriot figures that the investigations will take their toll, at least in the short term. "[T]here could be some ups and downs because this issue will create turmoil," Soriot told Reuters. "It may well be that the industry experiences more intense price revisions."

One AstraZeneca sales rep has been detained by local authorities, but AstraZeneca continues to maintain that this particular event is an individual case unrelated to the corruption scandal. Plus, Soriot tells The Telegraph, AstraZeneca set up a task force as soon as news of the GlaxoSmithKline ($GSK) investigation emerged, and "double and triple checked that everything we do is complaint. So far we feel confident."

Regardless of the trouble, China remains a promising market, Soriot told Reuters; his company posted a 21% increase in sales there for the second quarter. AstraZeneca also continues to staff up there. Even if the government cuts prices further, "in the mid- to long-term, China is a growing market," he said. "There is no doubt about that in my mind."

Viehbacher, on the other hand, declined to judge the probe's consequences. "We are examining the issue closely and we are examining our business in China, but I think it's too early to draw any conclusions," he said during the company's second-quarter earnings call.

GlaxoSmithKline has already promised to lower its drug prices as it works with the authorities on the bribery probe. Some 22 of its employees have been detained so far, and its recently replaced China chief, Mark Reilly, is returning to the country to cooperate in the investigation. After apologizing to Chinese officials for the scandal, Emerging Markets head Abbas Hussain said that changes in GSK's local operations would allow it to cut prices.

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