Bribery by GSK China was coordinated at company level: Xinhua

SHANGHAI Tue Sep 3, 2013 7:35am EDT

A general view of a GlaxoSmithKline company factory is seen at Pudong district in Shanghai July 11, 2013. REUTERS/Carlos Barria

A general view of a GlaxoSmithKline company factory is seen at Pudong district in Shanghai July 11, 2013.

Credit: Reuters/Carlos Barria

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SHANGHAI (Reuters) - A Chinese police investigation into drugmaker GlaxoSmithKline has discovered that alleged bribery of doctors in China was coordinated by the British company and was not the work of individual employees, state media reported on Tuesday.

Police in July detained four senior Chinese executives at GSK over allegations the company funneled up to 3 billion yuan ($490 million) to travel agencies to facilitate bribes to doctors and officials to boost the sale of its medicines.

"It is becoming clear that it is organized by GSK China rather than ... sales people's individual behavior," the official Xinhua news agency reported.

GSK said the issues identified in the Xinhua report would be a "clear breach of our corporate values" and it shared the desire of the Chinese authorities to root out corruption.

"We remain deeply concerned by the allegations of fraudulent behavior and ethical misconduct in our China business," a company spokesman said.

The company has said previously that some of its senior Chinese executives appear to have broken the law, and that it has zero tolerance for bribery.

The GSK investigation is one of several into China's pharmaceutical sector. Others have focused on how drugmakers price their medicines in the world's second-largest economy.

Xinhua quoted Huang Hong, general manager for GSK's business operations in China and one of the detained executives, as saying the company had set goals for annual sales growth as high as 25 percent. That rate was 7 to 8 percentage points above the average growth rate for the industry, Huang said.

GSK implemented salary policies based on sales volumes and such goals could not be achieved without "dubious corporate behavior", Huang said.

Official media routinely get access to detainees in China. Other detained GSK executives have been interviewed on state TV.

China accounts for just 3.5 percent of GSK's global drug sales but demand is growing fast - up 17 percent last year - and the company is investing heavily, with more than 7,000 staff in China, as well as five factories and a research center.

Guo Jianhua, head of recruitment at GSK China, was quoted by the official People's Daily newspaper as saying the company had turned a blind eye to illegal behavior.

"When the problems were exposed, the company pushed all responsibilities to individual employees," Guo said.

It was unclear which problems Guo was referring to or if he was one of the detained executives.

Corruption in China's pharmaceutical industry is widespread, fuelled in part by low base salaries for doctors at the country's 13,500 public hospitals.

Industry executives say ties to doctors at hospitals are key to sales, with pharmaceutical companies as well as medical device makers often sponsoring research conferences to win their favor.

The People's Daily quoted Huang as saying GSK had set up a special team dedicated to maintaining relationships with key hospital officials, with an annual budget of nearly 10 million yuan.

Since the GSK scandal broke, whistleblowers from other foreign drugmakers have come forward to make accusations of bribery against their companies in China.

($1 = 6.1196 Chinese yuan)

(Reporting by Kazunori Takada; Additional reporting by Samuel Shen and Ben Hirschler; Editing by Dean Yates and Anthony Barker)

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