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Big Pharma Bribing Doctors, Hospitals, Government Officials in China

By Calliope, Jul 22, 2013 | | |
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  1. Calliope
    SHANGHAI — A few weeks ago, when Chinese investigators raided a small travel agency in this fast-growing city, they came upon something startling.

    The agency appeared to be using fake contracts and travel invoices to help executives at the British pharmaceutical giant GlaxoSmithKline bribe doctors, hospitals, foundations and government officials, Chinese authorities said.


    Soon after, the police shut Shanghai Linjiang International Travel Agency and detained its boss, Weng Jianyong. Four Chinese-born Glaxo executives were also held on suspicions of bribery and tax fraud.

    But documents obtained by The New York Times show that in the last three years at least six other global pharmaceutical companies, including Merck, Novartis, Roche and Sanofi, used the same travel agency to make arrangements for events and conferences.

    The records included invoices for hotel bookings, travel visas and airline tickets to Chinese cities, and to Australia, Italy, Japan, Korea and the United States. One of the drug companies appears to have used the travel agency to make a $2,500 grant to the Cancer Foundation of China.

    The documents contain no indication of wrongdoing. But they suggest that big drug makers other than Glaxo could come under scrutiny as the Chinese government widens its investigation into fraud and corruption in the nation’s fast-growing market for pharmaceutical products. Chinese authorities did not respond to requests for interviews.

    Over the weekend, Merck and Roche acknowledged using Shanghai Linjiang International Travel Agency. But they gave few other details about the nature of the relationship.

    A spokeswoman in China for Merck would say only that the American company stopped using the travel agency in 2011, when Merck introduced a new procurement system.

    Roche said it had worked with various agencies in China for business travel or organizing events, including Shanghai Linjiang International Travel Agency.

    “Once allegations of illegal behavior by this agency on behalf of other parties were made public, we made an internal decision to immediately stop working with this agency, and we have begun to review the documentation of our previous interactions with them,” Roche said in a statement on Saturday. “This review is currently ongoing.”

    A spokesman for Novartis said by e-mail that the company could not confirm or deny whether it had used the agency. Sanofi did not respond to repeated requests for an interview.

    The scandal has battered the reputation of GlaxoSmithKline, which is also known as GSK. At a news conference last week, investigators likened the British drug maker to a boss in a criminal organization. They said it used the travel agency to bribe officials in hopes of illegally increasing drug sales and raising the prices of its products in China.

    GlaxoSmithKline has said that what the government says its staff engaged in was “shameful,” and at odds with its policies. It pledged to cooperate with investigators. Over the weekend, the company’s chief executive, Andrew Witty, who is based in London, dispatched three top executives to China to deal with the scandal. On Sunday, one of the Glaxo executives met with investigators and apologized, according to Xinhua, the state-run news agency.

    Meanwhile, the company’s China finance chief, Steve Nechelput, a British national, has been barred by Chinese authorities from leaving the country, though a person familiar with his case says he is not a target of the investigation.

    According to the authorities, Glaxo has used 700 travel and consulting firms and spent nearly $500 million on conferences since 2007. Some travel agencies helped Glaxo executives commit fraud, the government asserts. But investigators have named just one: Shanghai Linjiang International Travel Agency.

    The government said the Linjiang agency did very little booking on its own and mostly acted as a “money platform” that allowed Glaxo to create a huge slush fund.

    According to the government, the travel agency was handling about $16 million worth of Glaxo business a year, but seemed to be doing very little work. The government also said Mr. Weng had said that several other foreign drug companies were also “involved” in such actions, though he did not elaborate.

    Corporate fraud specialists say using travel agencies, and marketing or consulting firms, to launder money, embezzle or create slush funds to bribe officials is common in China, even at multinational corporations operating in the country.

    “People don’t realize there’s an active market for fake receipts and that shell companies are used to make bribe payments,” said Violet Ho, head of greater China operations at Kroll Advisory Solutions.

    On Thursday, a handful of employees could be seen at the office of Shanghai Linjiang International Travel Agency in a modest building in Shanghai, but they declined to talk to visitors. Neighbors said they noticed the Linjiang staff was busy shredding documents, some of which could be seen piling up in hallway trash bags.

    Reached by telephone Saturday, one Linjiang manager said: “Our main business was organizing conferences. Everything we did was standard practice.” He declined to say much more.

    How the small agency secured business with many of the world’s biggest drug makers remains a mystery.

    According to corporate records, the agency was formed in 2006 by Shanghai Linjiang Holdings, a local property company, the former Chinese soccer star Wu Chenying and the family of the company’s current manager, Mr. Weng. In a telephone interview on Sunday, Tan Yidao, the chairman of Shanghai Linjiang Holdings, said he sold his stake and surrendered control to Mr. Weng and his wife six years ago, after trouble occurred when some tourists died while traveling to Thailand with the agency.

    “I sold because I didn’t think the travel business would do well,” Mr. Tan said.

    He said he did not know that Mr. Weng or his wife had contacts in the pharmaceutical business. Mr. Weng, he said, had been in the restaurant business and his wife had worked at a travel agency before forming Linjiang Travel. According to the Chinese government, Linjiang’s business with Glaxo took off in about 2010. Rather than organize tours, the government said, the travel agency created fake invoices for Glaxo, and that helped touch off an investigation. Records reviewed by The Times include invoices listing payments to other travel agencies to book hotels and flights, suggesting that Linjiang acted as a liaison in the deals. Some large Chinese pharmaceutical companies and other multinationals were also listed in the records.

    The government says Mr. Weng and the GSK executives have confessed to faking invoices and bribing doctors and officials.

    In an interview seen last week on China Central Television, the big state-run broadcaster, Mr. Weng said he schemed with a senior GSK executive named Liang Hong, who is among the four who have been detained.

    “Liang would tell me he is going to visit some experts, or some government officials and he needs to send some gifts,” Mr. Weng said in the interview. “Gifts approved by the company are about $15 to $30. That won’t be enough. Liang would say, ‘Mr. Weng, please arrange some cash for me.’ That’s basically how it was done.”


    NYTimes
    By DAVID BARBOZA
    Lynn Zhang and Yiyi Dong contributed research

    http://www.nytimes.com/2013/07/22/b...suggest-a-graft-case-in-china-may-expand.html

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  1. Calliope
    Drug Research in China Falls Under a Cloud
    A follow-up story, as things look worse for GlaxoSmithKline in China

    [IMGR="white"]http://www.drugs-forum.com/forum/attachment.php?attachmentid=34099&stc=1&d=1374615689[/IMGR]Executives at the British drug maker GlaxoSmithKline were warned nearly two years ago about critical problems with the way the company conducted research at its drug development center in China, exposing it to potential financial risk and regulatory action, an internal audit found.

    The confidential document from November 2011, obtained by The New York Times, suggests that Glaxo’s problems may go beyond the sales practices that are currently at the center of a bribery and corruption scandal in China. They may extend to its Shanghai research and development center, which develops neurology drugs for Glaxo.

    The failings, some experts said, underscore the problems that can arise when major drug companies export their scientific development to emerging markets like China.

    Since 2006, 13 of the top 20 global drug makers have set up research and development centers in China, according to a report by McKinsey & Company. “It’s cheaper to do research there,” said Eric G. Campbell, a professor of health care policy at Harvard Medical School. However, “I have absolutely no doubt that with cheaper research comes greater risk.”

    Auditors found that researchers did not report the results of animal studies in a drug that was already being tested in humans, a breach that one medical ethicist described as a “mortal sin” in the world of drug research. They also concluded that workers at the research center did not properly monitor clinical trials and paid hospitals in ways that could be seen as bribery.

    Last year, Glaxo said, a more favorable audit found the concerns had been addressed. But several outside experts said the problems outlined in the initial audit were grave and painted a picture of an organization that failed to keep tabs on a crucial research center as it expanded both in size and scope. And it indicates that the problems there were more extensive than were reported in June, when the company fired the head of research and development in China after discovering that an article he helped write in the journal Nature Medicine contained misrepresented data.

    In a statement, Glaxo said it was committed to conducting “robust” audits of its business practices, and in this instance, “the process worked exactly as intended.” It added, “Patient safety is paramount and the audit reports do not show that this was compromised.”

    Glaxo’s research and development center opened in 2007 with lofty ambitions not only to help the company’s drugs get approved in China, but also to serve as one of its primary research hubs. The center grew quickly, expanding from one employee in 2007 to 460 in 2011, according to the audit. But as it grew, supervisors did not always ensure that the work done there was of high quality, auditors found.

    One of the most troubling lapses — a problem the report labeled “critical” — involved a drug known as ozanezumab, which was being developed to treat patients with multiple sclerosis and Lou Gehrig’s disease.

    The report revealed that the drug’s project leader belatedly learned the results of three studies of ozanezumab in mice. During their investigation, auditors came across six studies whose results had not been reported, even though early trials in humans were already under way.

    Reporting such information is crucial, ethicists said, because animal studies can identify safety risks and are among the main factors drug companies use to decide whether to pursue human trials.

    “If that’s true, it’s a mortal sin in research requirements,” said Arthur L. Caplan, the head of the division of medical ethics at NYU Langone Medical Center. He served as the chairman of an advisory committee on bioethics at Glaxo from 2005 to 2008. “No one could approve human trials without having that information available, scientifically or ethically. That’s kind of a Rock-of-Gibraltar-sized ethics violation.”

    The auditors said the results did not affect patient safety, but warned of the high stakes involved, saying participants could be exposed “to unnecessary risk or no benefit to the disease state.”

    Glaxo said that “when the full range of data from all the studies was reviewed, GSK determined that the efficacy would not be strong enough to continue,” and it terminated a trial of ozanezumab in multiple sclerosis patients. It is still studying the drug in people with Lou Gehrig’s disease, or amyotrophic lateral sclerosis, according to the company.

    In the follow-up audit, auditors said senior managers at the Chinese research unit had “embedded a compliance culture that was not evident during the prior audit,” and did not find any issues of concern, according to an executive summary of the report that was provided by Glaxo.

    Outside ethics experts said the report raised questions about whether patient safety was adequately protected.

    Auditors found that Glaxo employees failed to record whether research participants had signed new consent forms during the course of clinical trials. They also did not document whether participants were taking the planned dosage of drugs, or whether they followed up when they learned that participants were not following a clinical trial’s protocol.

    In the statement, Glaxo said that employees were properly monitoring trials but acknowledged that they were not adequately documenting their work. The company said it had corrected the problem, and the later audit found that practices had improved.

    The 2011 audit report also raised alarms about the way the Shanghai office was paying the people who were overseeing the company’s trials at outside hospitals or clinics. According to auditors, Glaxo was paying many sites a flat fee for the cost of a full-time coordinator, regardless of the number of participants enrolled in the trial.

    The report warned of “reputational, financial and/or regulatory action risk where payments made to investigators regardless of actual work completed are perceived as bribery or corruption.”

    Chinese investigators have said that Glaxo participated in a widespread bribery and corruption scheme in which the company used travel agencies to funnel illegal payments to doctors and government officials to bolster drug sales, and authorities have said they are also looking into the practices of other pharmaceutical companies.

    On Monday, Glaxo said that some of its executives might have broken the law.

    Outside experts said the payment of doctors and other hospital employees where trials were being conducted was tricky, because paying a fee based on the number of people enrolled in a study could also be seen as inappropriate.

    “I’m much more concerned about people who are paid by the head to recruit,” said Dr. Campbell. Still, he said, if large payments were being made for little work, that could raise eyebrows. “It could be seen as simply another way to put money in people’s hands,” he said.

    Glaxo said it had since tightened the payment procedures for clinical research coordinators. Referring to the current bribery investigation, the company said, “we have zero tolerance for any kind of corrupt behavior among our employees, suppliers and business partners and will take action wherever and whenever we find it.”

    In all, company officials said that appropriate steps were taken to address the issues outlined in the audit. And in 2011, auditors noted that leaders at the research center had recently tried to address the “significant issues” there.

    Dr. Jerry Avorn, a professor at Harvard Medical School, and others gave credit to Glaxo for investigating one of its own research centers.

    “It is good that they detected these problems and vowed to fix them,” Dr. Avorn said, “but this report shows what can happen when a drug company rapidly expands its clinical research programs overseas without adequate quality controls.”

    NYTimes
    By KATIE THOMAS
    David Barboza contributed reporting.

    http://www.nytimes.com/2013/07/23/business/global/drug-research-in-china-falls-under-a-cloud.html
  2. Calliope
    Glaxo Chief Executive Addresses China Inquiry

    [IMGL="white"]http://www.drugs-forum.com/forum/attachment.php?attachmentid=34119&stc=1&d=1374756397[/IMGL]Andrew Witty, chief executive of the drug maker GlaxoSmithKline, said on Wednesday that the accusations of bribery and corruption against his company in China were “deeply disappointing.” But he said that Glaxo’s headquarters in London had not been aware of any fraud and that the executives under scrutiny in China were working “outside of our system of controls.”

    Mr. Witty’s remarks, in a conference call on Glaxo’s second-quarter earnings, were his most extensive about the scandal in China, where authorities have accused executives of using travel agencies to funnel illegal payments to doctors and government officials.

    “I am very personally disappointed with these allegations that have been made,” Mr. Witty, speaking in London, told reporters. “Clearly they are shameful allegations if they are true.”

    He revealed few new details about the investigation, but said that Glaxo was working with the Chinese government and that it had “opened up channels” with the British and United States governments. Glaxo disclosed in 2010 that the United States was investigating it over possible violations of its laws against bribery overseas. Mr. Witty said that the investigation by China was likely to affect sales there but that it was too early to know specifics. “We continue to see the country as a key place for further investment,” he said.

    Glaxo posted second-quarter net income of £1.05 billion, or $1.67 billion, on sales of £6.62 billion. That was a decrease from net income of £1.24 billion in the quarter a year ago, but sales were up from £6.46 billion a year ago.

    The company’s stock rose 0.39 percent to close at $51.66 Wednesday on the New York Stock Exchange.

    Mr. Witty also sought to distance the company’s headquarters from the scandal, saying that it “knew nothing” about any fraud that had been alleged and that the executives accused of wrongdoing operated outside the company’s normal surveillance systems.

    Since taking over as chief executive in 2008, Mr. Witty has tried to promote Glaxo as a leader in ethical and transparent behavior. In 2012, Glaxo agreed to pay a fine of $3 billion to settle charges in the United States that it had improperly promoted its antidepressants and had not reported safety data about Avandia, a drug for diabetes.

    “To be crystal clear, we have zero tolerance for this kind of behavior,” Mr. Witty said. “I can assure you we are absolutely committed to rooting out corruption, and we are also absolutely committed to getting to the bottom of what has happened here.”

    The company’s response has evolved considerably since reports of bribery surfaced a few weeks ago. Glaxo officials initially maintained that it had not engaged in wrongdoing, saying it had investigated the claims and found them to be without merit.

    But it changed its tone after Chinese investigators raided Glaxo offices in Shanghai, detained four executives and went public with unusual detail about practices they said they had uncovered. Mr. Witty sent top management to China to meet with investigators, and he acknowledged that some executives there may have broken the law.

    The inquiry has expanded to include other drug companies. On Tuesday, AstraZeneca said some of its workers had been questioned in Shanghai, and Merck and Roche acknowledged over the weekend that they had used the same small travel agency that has been implicated in the Glaxo investigation.

    NYTimes
    By KATIE THOMAS
    http://www.nytimes.com/2013/07/25/business/global/glaxo-chief-executive-addresses-china-probe.html
  3. Calliope
    Glaxo Replaces Chief of China Unit at Center of Bribery Inquiry

    LONDON — The British pharmaceutical giant GlaxoSmithKline announced on Thursday the appointment of a new leader at its troubled Chinese division, which has been roiled by a bribery investigation by the government.

    Hervé Gisserot, who was co-head of Glaxo’s pharmaceutical business in Europe, is replacing Mark Reilly as general manager in China, a company spokesman said.

    “He’s effective immediately head of the China business, and this is part of our attempt to strengthen our China management team and ensure we can support our customers in China, as well as with the ongoing investigation,” the spokesman said.

    He added that Mr. Reilly would remain at Glaxo in London, where he will lead its response to the Chinese government’s bribery investigation.

    On Wednesday, Glaxo acknowledged that its financial performance in China would take a hit from Beijing’s investigation.

    “We are cooperating fully with the Chinese authorities in this matter,” Glaxo’s chief executive, Andrew Witty, said on Wednesday.

    Glaxo acknowledged on Monday that senior employees at its China unit appeared to have breached Chinese law, after Chinese authorities accused employees of bribing government officials, pharmaceutical industry groups, hospitals and doctors to promote sales.

    By AGENCE FRANCE-PRESSE
    http://www.nytimes.com/2013/07/26/b...-china-unit-at-center-of-bribery-inquiry.html
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