Chinese corruption probe expands as officials detain a former Sinopharm exec

Back in September, EU leaders slammed China for targeting foreign drugmakers in its crackdown on pharma corruption. Since then, Chinese officials have widened their investigations, and now they've moved in on their latest in a series of domestic targets: Shanghai authorities have detained a former vice president of Sinopharm, the country's biggest drug distributor, as part of a corruption probe.

As Bloomberg reports, authorities on Jan. 10 took in Shi Jinming, a former vice president who resigned last month for personal reasons. Xu Yizhong, former general manager of a Sinopharm distribution unit, is also involved. China Business News says a whistleblower accused the two of misappropriating company money and creating illegal personal accounts, according to Bloomberg.

Sinopharm shares dropped as much as 3.7% on the news, but the probe could actually be good for sharees in the long term, Guotai Junan analyst Johnson Sun told Bloomberg. "Illegal moving of funds is quite common among state-owned enterprises as they lack monitoring of senior executives … It's actually good for something like this to be exposed at Sinopharm as it will benefit shareholders," he said.

China has doubled down on pharma corruption since a GlaxoSmithKline ($GSK) bribery scandal broke in July. While authorities first leveled allegations against large international companies, this fall local companies like Gan & Lee and Sino Biopharm came into the spotlight. In December, Shanghai Pharma, one of the country's largest drug companies, said it was investigating a whistleblower claim that one of its subsidiaries spent over $126,000 on bribes.

As multinational companies have noted, the probe has spooked doctors and sales reps, putting a chill on drug sales; Glaxo's China revenues took a 61% hit in the third quarter, and the crackdown has even affected the sales of companies that aren't involved. Drugmakers also could soon face a newly announced punishment if they're found bribing doctors and health authorities: China will bar guilty drugmakers from selling their products regionally, with national restrictions to follow in the event of a second offense.

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