Crackdown a bitter drug to herald changes

Pharmaceutical companies keen to improve transparency, analysts say

China's crackdown on medical bribery will prompt foreign drugmakers to change their practices in the country, analysts said.

"We are already seeing these pharmaceutical companies' willingness to improve transparency and adjust their practices, and I believe it will happen," said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers in London.

Bowman said the GlaxoSmithKline bribery scandal had an element of surprise due to the company's reputation for transparency, but he said it seems likely that bribery is not practiced in China exclusively by this company.

He said the police investigation of GlaxoSmithKline and other Western pharmaceutical companies in recent days has caused these companies' stock prices to drop, but he is optimistic about their long-term growth in China, citing the country's growing pharmaceutical market.

Pharmaceutical sales in China reached $69 billion in 2012, according to the Economist Intelligence Unit, which predicted sales will double to $166 billion by 2017.

By 2016, China will overtake Japan to become the world's second-largest drug market behind the US, according to IMS Health, which tracks pharmaceutical industry trends.

Carl A. Valenstein, a Washington-based partner with Bingham McCutchen LLP, said the ongoing investigation is an alert for foreign companies who target the Chinese market.

GlaxoSmithKline's chief executive Andrew Witty said on Wednesday that the company is highly committed to the Chinese market.

"We support the efforts by the Chinese government to reform the medical sector, and we are open to looking at all ideas to improve affordability and access to our medicines, including changes to our own business models to China," he said.

He said such changes could include introducing medicines at different price levels to make them more affordable.

Earlier this month, police detained four senior executives of GlaxoSmithKline.

The company was accused of funneling money to Chinese doctors, hospitals and government officials through middlemen to boost sales.

The British financial director of GlaxoSmithKline China has been banned from leaving China.

On July 19, police visited the Shanghai office of AstraZeneca and detained one sales staff member, a Chinese national, for questioning. On Tuesday, two senior employees of the company were taken away by police.

"The two employees are line managers of the individual detained on Friday. They went to assist with the police investigation on Tuesday. They are already back at work," Sun Xiaoyun, a spokeswoman for AstraZeneca, told China Daily on Thursday. The company insisted it is an individual case.

Last week, Belgian pharmaceutical company UCB said its office in Shanghai was visited by officials from the State Administration for Industry and Commerce, one of China's antitrust regulators seeking information on compliance.

Separately, Chinese police have also reportedly detained a US citizen this week in connection with investigations into the pharmaceuticals industry. A spokesman for the US embassy has confirmed that an American has been detained in Shanghai, but he declined to specify which company the individual is associated with.

China has been carrying out aggressive reforms in the country's medical sector as it tries to ensure an affordable healthcare for its population.

Drug prices have long been a subject for debate, and the GlaxoSmithKline scandal has heightened awareness on this issue. Liang Hong, one of the company's detained executives, said during the investigation that the cost of bribery makes up 20 to 30 percent of the total drug price, according to local Chinese reports.