As the probe into Glaxosmithkline plc enters a new, quieter but possibly deeper phase, the investigation has highlighted the greater oversight that drug companies can expect in the future from the most powerful regulatory bodies in the country.

Authorities in China are getting more assertive. At the same time, the business of selling pharmaceuticals in China is a land mine of ethics hazards.

Sanofi China is the second international pharmaceutical to come under fire with allegations of bribery. As reported in Guangzhou's 21st Century Business Herald on Aug. 8, an anonymous whistleblower believed to have been a high-level employee, released details about bribes of ¥1.69 billion (US$276 million) that were given to at least 503 doctors in 73 hospitals. The evidence from 2007 showed that fraudulent "research fees" were used to increase sales. On Aug. 1, Sanofi's offices in Shenyang reportedly were visited by officials from the State Administration for Industry and Commerce (SAIC), though the purpose of the visit was not released.

Officials from SAIC also visited the Shanghai offices of Belgian drugmaker UCB SA in mid-July, and Danish pharma Novo Nordisk A/S's Tianjin facility was visited on Aug. 1. UCB said at the time that authorities were investigating several companies. The company did not reply to requests for additional comment.

In Novo's presentation of second quarter results, Chief Financial Officer Jesper Brandgarrd said, "We were asked to provide information regarding our operations in China."

For several weeks a sales person from multinational AstraZeneca plc has been detained. No charges have been laid. None of that comes as much as of a surprise. In mid-July, as he gave details of the widening investigation into GSK's activities in China, Gao Feng, the lead investigator for the Public Security Bureau (PSB), said more companies could be targeted based on transactions found in travel agencies also used by GSK.

"From this case, we have found clues that money was transferred from other pharma companies. If you want to find out if (there were) illegal activities, you can interview them, though they will most likely not answer – you can just ask them, 'Are you sleeping well at night?'" Gao said.

It has not been made clear whether SAIC and PSB, two of three agencies in mainland China charged with supervision of antitrust regulations, are working together. But the third agency also weighed in. The powerful National Development and Reform Commission (NDRC) announced in early July that it was launching a probe into price fixing and costs. It named a number of multinational and domestic drugmakers, including GSK, as potential targets.

For its part, the China Food and Drug Administration (CFDA) said on July 17 that it plans to launch a six-month investigation into online sales of illegal drugs.

All that oversight is part of the Chinese government's effort to reform health care, including raising standards and moving toward greater drug safety.

To date, GSK has been the only multinational firm at the heart of any full investigation. Authorities accused the company on June 15 of serious "economic crimes," including "commercial bribery and tax-related crimes."

Authorities are investigating transactions worth ¥3 billion with 700 travel agencies to determine if they were faked and how many were fronts from bribing doctors, which are technically government officials.

Senior GSK executives have flown to China to deal with the investigation and its fallout. The company has said it will cooperate fully and suggested that the certain China executives "appear to have acted outside of our processes and controls, which breaches Chinese law. We have zero tolerance for any behavior of this nature," GSK stated. (See BioWorld Today, July 31, 2013.)

On July 26, it was reported in Chinese media that police had detained another 18 GSK staff, up from four originally arrested. Former General Manager Mark Reilly reportedly was on standby to provide support in the investigations but has been replaced by former vice president in Europe, Herve Gisserot, who is now in China.

Global Impact

The investigation and its fallout may have implications for other foreign multinationals from both legal and commercial points of view.

For one, the alleged actions of a few rogue staffers would put London-based GSK in violation of both the UK 2010 Bribery Act and the U.S. Foreign Corrupt Practices Act. GSK executives reportedly have been keeping regulatory authorities in both countries informed of ongoing developments.

China and the U.S. have not announced publicly any formal cooperation, but lawyer Richard Cassin, an expert in corruption legislation with extensive experience in China, said there may be links between various agencies.

"We don't know yet what has been going on behind the scenes. China is very likely to investigate more foreign companies for bribery. That's a way to keep the playing field level for Chinese companies. And it puts real teeth into China's anticorruption campaign," Cassin said.

The lead investigator into the GSK case at PSB said during a briefing that authorities in China welcomed support from international antibribery authorities.

Chinese authorities have a certain amount of expertise investigating allegations of domestic corruption but are less experienced in large corporate investigations, particularly involving foreign multinationals.

But that is changing.

"The agencies enforcing the PRC Criminal Law, the Public Security Bureau and the People's Procuratorate, historically have focused on demand-side enforcement [by] targeting government officials and other recipients of improper payments," said Eric Carlson, a Beijing-based lawyer at Covington & Burling who specializes in anticorruption compliance and investigations. Companies have rarely been investigated or prosecuted for improper payments under the PRC Criminal Law.

Transparency International puts China in 80th place worldwide on its Corruption Perception Index, more corrupt than Brazil and South Korea.