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China to launch fresh pharmaceutical bribery probe - Xinhua

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai July 12, 2013. REUTERS/Aly Song
A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai July 12, 2013. REUTERS/Aly Song

By Kazunori Takada

SHANGHAI (Reuters) - China is intensifying its investigation into rampant bribery in the pharmaceutical and medical services sector with a fresh three-month probe slated to begin on Thursday, the official Xinhua news agency reported.

The investigation by the State Administration for Industry and Commerce (SAIC), a regulator in charge of market supervision, is aimed at stamping out bribery, fraud and other anti-competitive practices in various sectors, Xinhua said.

It comes as other Chinese regulators such as the National Development and Reform Commission (NDRC) and the police conduct multiple investigations into how foreign and domestic companies do business in the world's second-biggest economy.

Much of the focus has been on the pricing of items from medicine to milk powder and whether companies are violating a 2008 anti-monopoly law.

"It seems that the NDRC and SAIC have learned from their recent experience that they have the power to force companies to change their practices and bring prices down," said Sebastien Evrard, Beijing-based partner at law firm Jones Day, which specializes in anti-trust law.

"They seem to be willing to exercise their powers in even more sectors that directly concern consumers."

The SAIC would hand down severe punishment for bribery found in the bidding process for drugs and medical services as that hurt the interests of the Chinese people, Xinhua said.

Corruption in China's pharmaceutical industry is fuelled in part by the low base salaries for doctors at the country's 13,500 public hospitals.

"Commercial bribery not only leads to artificially high prices, it undermines market order in terms of fair competition and corrupts social morals and professionalism," Xinhua said.

The NDRC, which oversees pricing, is already investigating 60 foreign and domestic pharmaceutical firms over their pricing practices. This investigation has yet to conclude.

Separately, the SAIC said it wanted to prevent China's industry associations from being the "driving force", or organizers, of monopolistic behavior, an official at the SAIC, Cao Hongying, was quoted by Xinhua as saying.

Among the 12 monopoly cases that China has announced, nine of them were organized by industry associations, Xinhua said.

The investigations underline China's toughening stance on corruption and high prices in the pharmaceutical industry, as the government seeks to make healthcare access universal and faces an estimated $1 trillion healthcare bill by 2020.

Many Chinese prefer foreign brands over local drugs because of the widespread circulation of fake medicine.

NOVARTIS IN SPOTLIGHT

The latest foreign drugmaker in the spotlight is Switzerland's Novartis AG, after a Chinese newspaper reported that it bribed doctors to boost sales in June and July of this year.

The 21st Century Business Herald quoted an unidentified former employee, who had supervised sales at large Beijing hospitals, as saying her manager told her to give 50,000 yuan ($8,200) in kickbacks to doctors to guarantee 640,000 yuan in cancer drug sales over the period.

It said the employee, identified by the pseudonym Li Li, asked the company for 5 million yuan or she would take unspecified action.

Novartis said it could confirm that a former employee had filed a complaint with the local Chinese labor authority and also made a claim to the drugmaker for compensation. It said it had launched an internal investigation through its business practice 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.

Police have detained four Chinese executives of GlaxoSmithKline and questioned at least 18 other staff after allegations the British drugmaker funneled up to 3 billion yuan to travel agencies to facilitate bribes to doctors and officials.

The British firm has said some of its senior Chinese executives appear to have broken the law.

Health Ministry officials are also investigating drugmaker Sanofi SA over bribery allegations, something the French company has said it was taking "very seriously".

Chinese authorities have also visited sites operated by Danish drugmaker Novo Nordisk A/S; another Danish firm H.Lundbeck A/S; Britain's AstraZeneca Plc; Eli Lilly & Co and Belgium's UCB SA.

China is increasingly important for big drugmakers, which rely on growth in emerging markets to offset slower sales in Western markets. IMS Health, which tracks pharmaceutical industry trends, expects China to overtake Japan as the world's second-biggest drugs market behind the United States by 2016.

The SAIC investigation will also look into misleading or deceptive marketing practices used by car dealers, placement agencies and real estate agents among others, Xinhua said.

(Additional reporting by Adam Jourdan and Sui-Lee Wee in Beijing and Caroline Copley in Zurich.; Editing by Dean Yates and Robert Birsel)

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