GlaxoSmithKline's China office, now under investigation for bribery and price-fixing. (Source: Reuters)
The pharmaceutical industry in China has long been a point of corruption and contention among the populace. Sham doctors and shady companies will do everything in their power to maximize profits over an increasingly wealthy-yet-sick Chinese population. However, it is corruption that is the main issue of late, with the Chinese government beginning a wide-scale investigation over possible collusion between hospitals and pharmaceutical companies through bribes and price-fixing, after allegations came to light that several drug companies used a single travel agency in Shanghai to funnel bribes. Being dragged into that net are two major drug companies, AstraZeneca and GlaxoSmithKline (GSK), who now face serious inquiries.
The investigation has already begun to net results. The Chinese Ministry of Health announced the detention of an American citizen over the brewing scandal, a situation which has been confirmed by the U.S. Embassy. This is the first American and second foreign national to be detained, followed the detention of a British consultant to GSK last week. In addition, the Ministry of Health announced the punishment of 39 hospital employees in Shanghai over taking bribes totaling nearly half a million dollars for a period of two years. These doctors were either suspended, dismissed, or had their medical licenses revoked.
These actions come on the heels of GSK acknowledging that "certain senior executives" in the company's Chinese branch had broke the law in light of the scandal. Said executives may be in reference to the four arrested by Chinese police last week, after word came down that the company may have funneled up to $489 million through travel agencies in order to boost sales and raise drug prices. The Ministry of Health, led by Li Bin, warned that any companies shown of wrongdoing would be blacklisted, and thus punished either through sanctions or license revocations. GSK will likely offer a further response on Wednesday, when CEO Andrew Witty will discuss the situation during the company's quarterly earnings call. Given that the travel agency at the center of the scandal was also used by drug companies such as Merck, Novartis, Roche, and Sanofi, it is possible that the scandal will spread, likely leading to a damaging impact on the drug industry.