DealBook: Glaxo to Sell Drink Brands for $2.1 Billion

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White Collar Watch: Lessons From the Glaxo Case in China

Business Briefing | Legal News: Glaxo to Pay $45 Million to State Over Drug Marketing

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China Details Allegations Against Glaxo

The company also late Thursday named Hervé Gisserot, one of the company’s top executives in Europe, to succeed Mark Reilly as the head of its operations in China. Mr. Reilly left the country for London after the company’s offices were raided by the police in late June.

The company said Mr. Reilly was not a target of the bribery and corruption investigation and would remain at the company to help conduct an internal review of the China operation.

On Friday, new details in the case were presented in interviews published by Xinhua, the official state-run news agency in China.

According to those reports, several Glaxo employees have confessed to bribing doctors with gifts, travel, lecture fees and cash bonuses to persuade them to prescribe more of the company’s drugs. In some cases, the Glaxo employees reportedly said, doctors were compensated for conferences or lectures that never took place.

One 35-year-old Glaxo employee told Xinhua she regularly visited doctors’ offices to offer assistance and even “to meet their sexual desires,” according to the report.

The government has said it has detained four Chinese-born senior executives from Glaxo’s China operations. Xinhua reported Friday that 18 more Glaxo employees have been held in the city of Zhengzhou, in Henan Province in eastern China.

Although no formal charges have yet been filed against Glaxo or its employees, the scandal has been a huge embarrassment for the company in one of its fastest-growing markets.

Glaxo’s top executives in London have apologized and pledged to cooperate with Chinese investigators.

In a conference call after the company released its earnings on Wednesday, its chief executive, Andrew P. Witty, called the accusations against his company’s China operations “deeply disappointing.”

Glaxo also said on Friday that Steve Nechelput, a British national and the company’s head of finance in China, was no longer being barred by the authorities from leaving the country.

The scandal appears to be part of a broader crackdown on bribery and corruption in China. The Chinese government has sent investigators to other global pharmaceutical companies operating in the country. Officials have also begun to review drug pricing policies and question doctors and hospital employees about whether they have accepted bribes.

In Glaxo’s case, the government accused the company of using travel agencies to help funnel bribes to doctors, hospitals and government officials. The company was also accused of committing tax fraud and cheating consumers with artificially high drug prices.

In interviews with the state-run news media, Glaxo sales representatives said they had been trained in how to increase drug sales by bribing and entertaining doctors and that some of this was done through the use of fake invoices.

One hospital employee told Xinhua that a Glaxo representative, identified only by the surname Wang, offered bribes for business.

“After we got familiar, Wang visited me during festivals, treated me to dinner and bought me gifts,” the hospital employee said. “When our department held events, Wang also paid the bill.”

Glaxo Says Executives May Have Broken Chinese Law

GSK said its president for Asia-Pacific and emerging markets met with Chinese police officials who are investigating whether GSK employees bribed doctors and hospital administrators to prescribe its drugs.

"Certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls, which breaches Chinese law," the executive, Abbas Hussain, said in a statement.

Four employees of GSK China, including a vice president, have been detained, according to police. The company says its China finance director is barred from leaving the country but is not detained.

Also Monday, AstraZeneca said police in Shanghai visited its office there "regarding a local police matter focused on a sales representative."

"We believe that this investigation relates to an individual case," the company said in a statement. "We have no reason to believe it's related to any other investigations."

AstraZeneca "does not tolerate any illegal or unethical conduct," the company statement said.

"We have a strict global policy on ethical interactions, which all our employees and third parties acting on our behalf must follow," it said. "All AstraZeneca China employees and third parties on AstraZeneca's behalf are required to strictly comply with these guidelines in the conduct of business."

The new Chinese leadership that took power in November has promised to improve China's health system and rein in surging costs of medicine and medical care that are fueling public frustration.

Police cited by state media have said bribery by Glaxo employees might have pushed up the cost of medication for patients.

Police say the Glaxo employees funneled as much as 3 billion yuan ($490 million) through travel agencies and consulting firms to hide the source of bribes, according to Chinese news reports. Investigators have not made clear how much of that money was paid as bribes.

The official Xinhua News Agency said last week the employees appeared to have used that strategy to evade GlaxoSmithKline PLC's internal anti-bribery controls.

Hussain's statement gave no additional details of the investigation.

"I want to make it very clear that we share the desire of the Chinese authorities to root out corruption wherever it exists," said Hussain in the statement.

"We fully support the efforts of the Chinese authorities in their reforms of the medical sector and stand ready to work with them to make the changes for the benefit of patients in China," Hussain said. "We will actively look at our business model to ensure we make a significant contribution to meeting the economic, health care and environmental needs of China and its citizens."

Also Monday, The Financial Times newspaper reported Shanghai police have detained an anti-fraud investigator who worked for GSK. The newspaper identified him as Stephen Humphrey, a British national who operates a firm in Hong Kong.

The British Embassy in Beijing confirmed that a British national was detained July 10 in Shanghai but said it could give no other details. A Shanghai police spokesman, who would give only his surname, Xu, said he had no information on any detention of a Briton.

Last week, China's drug regulator launched a crackdown on misconduct in its pharmaceutical market, though it gave no indication it was linked to the GlaxoSmithKline probe.

The State Food and Drug Administration said the campaign is aimed at stamping out unauthorized drug production, improper online drug retailing and sales of fake traditional Chinese medicines.

Meanwhile, the Cabinet's planning agency is investigating production costs at 60 Chinese and foreign pharmaceutical manufacturers, according to state media, possibly a prelude to revising state-imposed price caps on key medications.

Glaxo Says Executives May Have Broken Chinese Law

GSK said its president for Asia-Pacific and emerging markets met with Chinese police officials who are investigating whether GSK employees bribed doctors and hospital administrators to prescribe its drugs.

"Certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls, which breaches Chinese law," the executive, Abbas Hussain, said in a statement.

Four employees of GSK China, including a vice president, have been detained, according to police. The company says its China finance director is barred from leaving the country but is not detained.

Also Monday, AstraZeneca said police in Shanghai visited its office there "regarding a local police matter focused on a sales representative."

"We believe that this investigation relates to an individual case," the company said in a statement. "We have no reason to believe it's related to any other investigations."

AstraZeneca "does not tolerate any illegal or unethical conduct," the company statement said.

"We have a strict global policy on ethical interactions, which all our employees and third parties acting on our behalf must follow," it said. "All AstraZeneca China employees and third parties on AstraZeneca's behalf are required to strictly comply with these guidelines in the conduct of business."

The new Chinese leadership that took power in November has promised to improve China's health system and rein in surging costs of medicine and medical care that are fueling public frustration.

Police cited by state media have said bribery by Glaxo employees might have pushed up the cost of medication for patients.

Police say the Glaxo employees funneled as much as 3 billion yuan ($490 million) through travel agencies and consulting firms to hide the source of bribes, according to Chinese news reports. Investigators have not made clear how much of that money was paid as bribes.

The official Xinhua News Agency said last week the employees appeared to have used that strategy to evade GlaxoSmithKline PLC's internal anti-bribery controls.

Hussain's statement gave no additional details of the investigation.

"I want to make it very clear that we share the desire of the Chinese authorities to root out corruption wherever it exists," said Hussain in the statement.

"We fully support the efforts of the Chinese authorities in their reforms of the medical sector and stand ready to work with them to make the changes for the benefit of patients in China," Hussain said. "We will actively look at our business model to ensure we make a significant contribution to meeting the economic, health care and environmental needs of China and its citizens."

Also Monday, The Financial Times newspaper reported Shanghai police have detained an anti-fraud investigator who worked for GSK. The newspaper identified him as Stephen Humphrey, a British national who operates a firm in Hong Kong.

The British Embassy in Beijing confirmed that a British national was detained July 10 in Shanghai but said it could give no other details. A Shanghai police spokesman, who would give only his surname, Xu, said he had no information on any detention of a Briton.

Last week, China's drug regulator launched a crackdown on misconduct in its pharmaceutical market, though it gave no indication it was linked to the GlaxoSmithKline probe.

The State Food and Drug Administration said the campaign is aimed at stamping out unauthorized drug production, improper online drug retailing and sales of fake traditional Chinese medicines.

Meanwhile, the Cabinet's planning agency is investigating production costs at 60 Chinese and foreign pharmaceutical manufacturers, according to state media, possibly a prelude to revising state-imposed price caps on key medications.