This time last year GlaxoSmithKline (GSK) made history in America when the Justice department announced the biggest-ever settlement for fraud involving a drugs company: GSK paid $3 billion for illegally promoting its drugs.
But on July 11th the British pharmaceuticals giant found itself in hot water again, when China’s Ministry of Public Security alleged that it had committed bribery.
The ministry said the case against Britain's biggest drugmaker involved a large number of staff and a huge sum of money over an extended period of time, with bribes offered to Chinese government officials, medical associations, hospitals and doctors to illegally boost sales and to raise the price of its medicines in the country. It also accused British drug maker GSK of channeling bribes to Chinese officials and doctors through travel agencies for six years.
GSK executives used fake receipts in unspecified tax law violations, it added. Under China's legal system, the GSK executives will be formally charged after the completion of the preliminary investigations.
The security ministry did not give details on the number of executives questioned, their identities, nor when the questioning took place.
The drugs industry is eager to benefit from China’s rise, particularly as sales slow in the West, where many former top-selling medicines have lost patent protection. China’s health spending is projected to rocket from $357 billion in 2011 to $1 trillion in 2020.
Faced with such numbers, multinational drug companies are setting up research centers and deploying an army of 25,000 salesmen. But this rush to sell their medicines is happening in an industry with perfect conditions for bribery. Chinese hospitals rely on drug sales as a main source of revenue and doctors often prescribe expensive or inappropriate drugs.
China, where biomedicine is a key strategic industry, will overtake Japan as the world's second biggest drugs market behind the United States by 2016.
Since China’s government is keen to battle corruption, its top economic planning agency on cost and pricing issues is investigating GSK, Merck & Co Inc and other foreign and domestic drugmakers.
However, Chinese officials are not the only ones scrutinizing GSK’s Chinese business. The government is investigating whether GSK and other drug firms violated the Foreign Corrupt Practices Act, which forbids the bribery of foreign officials. This mess is likely to become messier.
Edited from The Economist and Reuters
