'Terrified' Western execs face inquisition-style grilling in China

Pharma may not have expected a Chinese Inquisition, but that's what pharma is getting. As the Wall Street Journal reports, China's anti-corruption drive is taking a page not only from Mao's book, but from medieval church enforcers.

We've seen the televised confessions and apologies from detainees wearing prison smocks, including an early one from a GlaxoSmithKline ($GSK) executive. We've heard government officials praise companies that admit guilt and--to use language quoted by the WSJ--that "carried out active self-rectification." That's quite an echo from the country's communist-party history--and from the Spanish Inquisition, though self-rectification in the latter tended to be much more severe, even fatal.

According to the WSJ's sources, China's latest corruption crackdown has a theatrical edge not only in public, but behind the scenes. Foreign executives who've been interrogated are "terrified," one lawyer told the newspaper.

Several of this lawyer's drug-company clients have suffered through the same scenario: Top managers show up at a meeting with regulators, who present incriminating company documents. If you confess, the officials say, we'll be lenient.

And then, the executives are told that they must "acknowledge" their guilt by cutting their prices, the lawyer told the WSJ. To twist their arms further, the authorities use the old safety-in-numbers trick: Your competitors have confessed and cut their prices, so you should, too.

GlaxoSmithKline knows all this firsthand. The U.K.-based company has been through the process. Authorities alleged that the company had been the "godfather" of a $490 million bribery scheme and took more than 20 employees into custody. GSK quickly dispatched emerging markets chief Abbas Hussain to Beijing, where he admitted that local executives may have breached Chinese law, apologized to the government and offered price cuts.

Where this will all go next is murky business. GlaxoSmithKline is still working with authorities on its probe. Sanofi ($SNY), Novartis ($NVS), Eli Lilly ($LLY), Bayer and others are still cooperating as officials look into claims that they bribed doctors, too. And a laundry list of other drugmakers have hosted drop-by visits from government officials, including Lundbeck, UCB, AstraZeneca ($AZN) and Novo Nordisk ($NVO). One thing is pretty clear, though--China will come out on the other side with some lower drug prices.

- read the WSJ piece (sub. req.)

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