Novartis opens internal China probe after former rep demanded $800K

Novartis has shed some light on the goings-on in China: The sales rep who went to the media with bribery allegations has filed a 5-million-yuan compensation claim against the company. That's $817,000. According to previous media reports, the rep had worked for Novartis ($NVS) since January.

Meanwhile, the pain spread to domestic drugmakers--though it's not likely to spread far, experts say. As Chinese authorities promised to intensify their investigation into corruption and pricing in the industry, Jiangsu Hengrui Medicine Co. and Beijing SL Pharmaceutical saw their shares drop almost 6%, Bloomberg reports. The only drug companies publicly tagged with bribery allegations so far are foreign multinationals. 

Authorities haven't announced an official probe at Novartis; the allegations are limited to the anonymous whistleblower. The company wouldn't comment further on the woman's compensation claim, citing an internal investigation by its Business Practices Office. "Novartis takes allegations of misconduct seriously and will take appropriate actions depending on the findings once the investigation is concluded," the company said in a statement.

The former employee had claimed that her manager urged her to offer kickbacks to doctors to increase use of the cancer drug Sandostatin LAR. She had a 50,000-yuan budget for payments to doctors who prescribed at least 5 doses, aiming for 50 doses in all. She filed the compensation claim after resigning, the company said.

The government of Shanghai yesterday ordered hospitals to look for corruption in drug prescribing and pricing, the Financial Times reports. The corruption investigation has spooked some hospitals into barring pharma sales reps, sources tell the newspaper. The National Development and Reform Commission, for its part, says it's investigating pricing policies at 60 pharma companies--including domestic drugmakers--as well as companies in other industries. The NDRC's recent investigation into baby-formula pricing ended in fines for 5 multinationals.

Stock movements notwithstanding, market experts say that foreign firms are likely to remain at the center of the corruption probe, despite the sins of domestic drugmakers. In fact in terms of payments to doctors and hospitals, said Patrick Chovanec, chief strategist with Silvercrest Asset Management: "The worst offenders are certainly Chinese companies."

But for political reasons, it's easier to target foreign drugmakers, Chovanec told Pakistan's Daily Times. "It's much riskier to go after a Chinese company, especially if it is a state-owned company; it could have significant power and it is well-connected," Chovanec said.

- here's Novartis' statement
- see the Bloomberg story
- check out the FT article (sub. req.)
- read the Daily Times piece