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China blocks Glaxo executive from leaving the country

Wednesday, 17 Jul 2013 | 11:31 AM ET
EIGHTFISH | The Image Bank | Getty Images

Beijing is preventing GlaxoSmithKline's head of finance for China from leaving the country, as police accuse the British drugmaker of bribing officials and doctors, a spokesman for the drugmaker said Wednesday.

The travel restriction on Steve Nechelput was imposed at the end of June, since when he has continued to carry out his work and remains free to move around the country. He has not been questioned, arrested or detained by police, the spokesman added.

Police have accused GSK of transferring up to 3 billion yuan ($489 million) to 700 travel agencies and consultancies over six years to facilitate a campaign of corruption. In response, Glaxo said it was deeply concerned by the allegations, which it called "shameful."

The action against Nechelput, a British national, underscores the pressure on GSK, which came under attack in the People's Daily newspaper on Wednesday as China launched a crackdown on the pharmaceutical sector.

A British foreign ministry spokesman said it stood ready to provide consular assistance. Asked if London was concerned about the travel restriction, he added: "If there's an inquiry underway then that's a matter for the Chinese authorities."

GSK facing allegations in China
CNBC's Eunice Yoon reports sales at the pharmaceutical giant jumped 20 percent last year but police say bribes may have spiked the gains.

Nechelput's boss Mark Reilly, GSK's general manager for China, left the country for Britain on July 5 in order to attend what a source familiar with the situation said were a series of routine meetings.

Four senior Chinese executives from GSK have been detained by police, including vice president and operations manager Liang Hong, who told state television he had funneled money through travel agencies by arranging conferences, some of which were never held.

(Read more: China police say Glaxo broke law, execs detained)

With investigations focused on malpractice by certain of GSK's Chinese employees, one industry insider said it was likely China wanted Nechelput to remain in the country to provide financial information, if needed, as inquiries progress.

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 meager salaries.

Those practices, however, are increasingly at odds with a crackdown on corruption under President Xi Jinping and Premier Li Keqiang, leaving companies struggling to toe the line while not forgoing business in a highly competitive market.

(Read more: China Says Glaxo Executives Confess to Bribing Doctors)

Gao Feng, head of the economic crimes investigation unit at China's Ministry of Public Security, said this week similar money transfers to those seen at GSK had been made by other multinational pharmaceutical companies in China.

He did not name any other foreign companies.

When asked, the following major drugmakers denied they had been contacted by Chinese authorities in connection with similar bribery allegations: Novartis, Roche, Abbott , Eli Lilly, Bayer, Novo Nordisk, Takeda and Astellas.

(Read more: China Syndrome: Crackdown on foreign firms no coincidence)

China is increasingly important for big drug groups, which rely on growth in emerging markets to offset slower sales in Western countries where many former top-selling medicines have lost patent protection.

IMS Health, which tracks pharmaceutical industry trends, expects China to overtake Japan as the world's second-biggest drugs market behind the United States by 2016.

Separately, GSK said its chief executive Andrew Witty was stepping down from his role on the board of the UK government's department for business at the end of 2013, as had always been planned. "His decision is not related in any way to the current issues the company is facing in China," GSK said.

—By Reuters.

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