* Emerging markets head apologises for bribery scandal
* GSK promises changes to bring down China drug prices
* AstraZeneca also visited by Chinese police
* GSK forced to drop scheme to raise stake in Nigerian unit
By Ben Hirschler and Kazunori Takada
LONDON/SHANGHAI, July 22 British drugmaker
GlaxoSmithKline said on Monday some of its executives in
China appeared to have broken the law in a bribery scandal, as
it promised changes in its business model that would lower the
cost of medicine in the country.
GSK is the latest in a string of multinationals to be
targeted by Chinese authorities over alleged corruption,
price-fixing and quality controls.
Chinese police visited the Shanghai office of another
British drugmaker, AstraZeneca, a company spokeswoman
said on Monday. They arrived on Friday and took away a sales
representative for questioning, she said.
Health Minister Li Bin maintained the pressure on the drugs
industry by stating that her department would place people and
companies guilty of bribery on a black list and punish them.
GSK's head of emerging markets, Abbas Hussain, said his
company had zero tolerance for employees who broke the law.
"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," he said in a statement.
Hussain, sent to China last week to lead GSK's response to
the crisis, held a meeting with the Ministry of Public Security
at which he also promised to review GSK's business model.
"Savings made as a result of proposed changes to our
operational model will be passed on in the form of price
reductions, ensuring our medicines are more affordable to
Chinese patients," Hussain added.
Britain's biggest drugmaker gave no details on the changes
or the extent of price cuts - but the move addresses a key issue
for Beijing, which launched a probe into pricing at 60 local and
international drug firms earlier this month.
GSK supplies key products such as vaccines in China, as well
as drugs for lung disease and cancer.
Chinese police, who have detained four Chinese executives
from GSK, last week accused the firm of bribing officials and
doctors to boost sales and raise drug prices by funnelling up to
3 billion yuan ($489 million) to travel agencies.
GSK has called the allegations "shameful".
Last week, Chinese officials also visited the Shanghai
office of Belgian drugmaker UCB. The latest visit to
AstraZeneca shows authorities are spreading the net, although
AstraZeneca described the case as a local police matter.
"We believe that this investigation relates to an individual
case and while we have not yet received an update from the
Public Security Bureau, we have no reason to believe it's
related to any other investigations," the spokeswoman said.
CHIEF EXECUTIVE TO SPEAK ON WEDNESDAY
In a statement, China's Ministry of Public Security said
GSK's Hussain, who was dispatched to China last week by CEO
Andrew Witty, apologised for the scandal during the meeting.
Witty will detail what action the drugmaker is taking in
response to the bribery allegations when he presents quarterly
results on Wednesday, sources said.
GSK's intention to cut the price of its medicines in China
would be in line with how other foreign companies have responded
to pressure from Beijing.
European food groups Nestle and Danone
said they would cut infant milk formula prices in China after
Beijing launched an inquiry into the industry.
"In China, when the government criticises people, they tend
to bow down and apologise very quickly because they are scared
of the authority of the central government to do tremendous harm
to their business - whether it be for arresting executives very
quickly or through auditing," said Shaun Rein, managing director
of the Shanghai-based China Market Research Group.
Separately, GSK had a setback in another important emerging
market on Monday when it abandoned a scheme to increase its
stake in GSK Consumer Nigeria, its consumer
healthcare business in the country, following opposition from
CULTURE OF PAYMENTS
China has long been known for a culture in which drug
companies make payments to doctors, since physicians rely on
rewards for writing prescriptions to offset meagre salaries.
Those practices, however, are increasingly at odds with a
crackdown on corruption under President Xi Jinping, leaving
companies struggling to toe the line while not losing business
in a highly competitive market.
Chinese state media has aired interviews with one of the
detained GSK executives who has said travel agencies were used
to arrange conferences, some of which were never held, to
allocate money that could then be used for bribes.
One of the agencies at the centre of the scandal has been
identified by state media as Shanghai Linjiang International
The New York Times said documents it obtained showed that in
the last three years at least six other global pharmaceutical
firms, including Merck, Novartis, Roche
and Sanofi, had used that agency to make
arrangements for events and conferences.
Roche, Merck and Sanofi told Reuters they had used the
Linjiang agency in the past. Novartis had no immediate comment.
The travel agency's business has now been suspended, China's
official Xinhua news agency reported last Thursday.