A Chinese bribery investigation into British drugmaker Glaxo Smith Kline has sent tremors through multinational pharmaceutical firms in China, prompting at least one to review how they do business in the country.
Experts said foreign companies across the spectrum were watching closely to see what happened to GSK and its four detained Chinese executives given bribery and business go hand-in-hand in the world's second biggest economy.
Chinese police on Monday accused Glaxo Smith Kline of bribing officials and doctors to boost sales and raise the price of its medicines. They said GSK transferred up to 3 billion yuan ($489 million) to 700 travel agencies and consultancies over six years to facilitate the bribes.
Britain's biggest drug maker said it was deeply concerned by the developments, which it called "shameful".
On the same day police announced their revelations, senior managers from another multinational pharmaceutical firm in China were telling staff to make sure they complied with Chinese regulations governing the industry, one employee said.
"The message from the top is that if I have to choose between compliance and winning business, I would rather lose the business," the employee told Reuters, requesting anonymity because of the sensitivity of the matter.
Bribes to government officials, underfunded hospitals and poorly paid doctors have long facilitated the regulatory approval, distribution and the pricing of medicines in China.
Experts said it was too soon to tell if the GSK investigation would change such practices.
On top of the police probe, China's National Development and Reform Commission is examining prices charged by 60 local and international drugmakers including units of GSK, Merck & Co Inc and Astellas Pharma Inc.
"All the other players in the industry will be taking a look at their procedures, whether they face any active investigations or not," said John McFarland, head of fraud prevention at Hill & Associates, based in Singapore.
CORPORATE BRIBERY RIFE
The GSK investigation is the highest profile corporate probe in China since four executives from mining giant Rio Tinto were jailed in March 2010 for taking bribes and stealing commercial secrets. Three of those executives were Chinese while the fourth was a Chinese-born Australian.
Past improper payouts in China have also landed other Western drugmakers in trouble - although with U.S. rather than Chinese authorities.
Pfizer Inc and Eli Lilly & Co have both settled with Washington in the past 11 months over alleged corrupt payments in foreign markets, including China, and more cases under the U.S.