Drugmakers see safeguards in elevating Chinese executives

PUBLISHED : Thursday, 12 June, 2014, 1:10am
UPDATED : Thursday, 12 June, 2014, 1:10am

Drugmakers are putting more Chinese nationals in important positions in the country to avoid the kind of bribery scandal plaguing GlaxoSmithKline, according to the head of Europe's pharmaceutical industry group.

Chinese police handed a case against Glaxo's China unit to prosecutors last month, alleging that Mark Reilly, a British national who previously led the group, helped set up and expand sales departments that offered bribes to doctors in return for prescribing drugs.

We … have to learn how to make sure we know how to do business there

"Some companies are having more Chinese people in key positions," said Richard Bergstroem, director general of the Brussels-based European Federation of Pharmaceutical Industries and Associations. "In order to do audits further down in the organisation, and in order to understand what's going on, they need people on the ground. Preferably you have someone who speaks the local language."

While companies were taking steps to ensure they did not harbour improper practices in their Chinese divisions, reforms to the health system were needed to remove incentives for corruption, Bergstroem said.

Some Chinese hospitals gained as much as half of their revenue from prescribing drugs and procedures, leading to over-prescription, he said.

"This has not been fixed yet in China," Bergstroem said. "Despite years of attempts and numerous reports, they've not been able to take out these strange incentives in the system. For a Western company coming in with its rules and hopefully its values, it is very difficult to operate in an environment where the other side is not governed properly."

An investigation of sales practices in China that began last year has resulted in the arrests of doctors, hospital administrators and pharmaceutical executives. Roche, the biggest maker of cancer drugs, and Novo Nordisk, the largest insulin producer, are among manufacturers that have been visited by Chinese authorities.

Roche said last month it was co-operating and had few details about the visit. Novo Nordisk said in May that inspections "are not uncommon" and that a visit last year did not have "any significant impact on our business."

Bergstroem said industry leaders had told him they plan to have more Chinese or Chinese-speaking workers in key positions, and declined to comment on actions by particular companies or on the Glaxo allegations. Foreign companies are also reviewing the way they compensate Chinese doctors for attending medical meetings, he said.

"Instead of filling an Airbus with doctors going to Macau, maybe there's a different way of having them take part in a scientific discussion," he said.

Drugmakers have poured resources into China over the past decade as rising incomes make health care more affordable, and as the government spends billions of dollars to expand basic care. President Xi Jinping has made affordable care a key tenet of his agenda, along with a crackdown on corruption.

Sanofi, France's second-largest company by market value, was not sending fewer non-Chinese to work in the country, chief executive Chris Viehbacher said.

"We are just all going to have to learn how to make sure we know how to do business there," he said. "Stamping out corruption makes it a level playing field."