China detains 18 more GSK staff as probe continues to grow

The list of detainees in China is lengthening as authorities dig deeper into the GlaxoSmithKline ($GSK) bribery investigation, with 18 more of the pharma giant's employees now being held. And GSK's former China head Mark Reilly--replaced just last week--will soon be back in the country to help police with the probe.

According to Bloomberg, government radio reported the detentions of the GSK staffers and some medical personnel in Zhengzhou, while a company spokeswoman based in Melbourne told the news service Reilly would be "returning to China shortly." The former China chief, who has since turned the reins over to Herve Gisserot, left China last month after four colleagues were detained in response to bribery allegations amounting to $489 million. 

The broadening investigation has opened a window into the world of drug sales practices in China. The allegations, as China's Xinhua news agency has reported, include GSK salespeople offering money or sexual favors to Chinese doctors, and the latest news stories cite local sales reps for details of how the company's money changed hands. While Glaxo CEO Andrew Witty called the allegations "shameful" and "deeply disappointing," he has not denied them, and one Chinese Glaxo manager has already confessed on state television. Now, with the probe moving out toward other Big Pharma players, Chinese media outlets are beginning to scrutinize underlying problems in the country's medical system that may be prompting illicit behavior from drugmakers.

As an article in the Shanghai Daily points out, hospitals are the "dominant channel" for drug sales in the country, responsible for 74% of pharmaceutical sales, a research report says. Hospital heads and doctors are considered "gate-keepers" in the pharma business, and one drug company agent told the Daily that paying for them to attend industry forums and take business trips is "very common." He also noted the occurrence of drugmakers paying lecture fees to medical practitioners to endorse use of particular drugs and of doctors grabbing cash kickbacks tied to the number of drugs they prescribe.

While the GSK probe may result in stricter controls over multinational companies, in the long run, the article notes, drugmakers in a hypercompetitive sphere will still hunt China's sales potential, which has been forecast by IMS Health to become the world's second-largest market by 2016. And as long as sales channels in the cutthroat landscape are controlled by state-owned hospitals, things are unlikely to change. "This has been a widespread practice among drug companies and Glaxo's practice is not uncommon," the drug company agent told the newspaper.

Just how widespread the practice actually is remains to be seen as the probe unfolds. Chinese officials are said to be investigating other multinational drugmakers in addition to GSK. And back home in the U.K., Glaxo is looking at possible charges under the country's anticorruption laws. The U.S. could potentially pursue allegations under the Foreign Corrupt Practices Act as well.

Some of the Chinese allegations are quite familiar to anyone who follows pharma marketing. They resemble those Glaxo and other Big Pharma companies have resolved with fines and civil penalties in the United States. GSK itself agreed to pay $3 billion in criminal and civil penalties to wrap up a Justice Department probe into off-label marketing and kickbacks related to the marketing of a list of its drugs, including the diabetes pill Avandia and the antidepressants Paxil and Wellbutrin. Though it's the largest settlement to date, others have topped $1 billion, and Pfizer's ($PFE) $2.3 billion deal included a criminal fine even larger than Glaxo's.

- get more from Bloomberg
- read the Shanghai Daily piece
- see Reuters' take

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