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China drug sector probe widens as Novo site visited

Eric Piermont | AFP | Getty Images

Chinese authorities have visited a site operated by Danish drugmaker Novo Nordisk, the world's biggest maker of insulin, the latest evidence of a widening investigation into Western drugmakers.

A Chinese newspaper also reported an allegation from an unnamed person that Sanofi of France had paid around 1.7 million yuan ($276,200) in bribes to hundreds of doctors in China in 2007, a claim Sanofi said it took "very seriously".

The latest developments suggest Chinese investigations into bribery and over-pricing, which have so far centred on Britain's GlaxoSmithKline (GSK), may have a wide impact across the pharmaceuticals industry.

Novo said on Thursday that local Administration for Industry and Commerce (AIC) officials visited a production facility in Tianjin on Aug. 1, adding there had been no visit at the company's head office in the country.

(Read more: GlaxoSmithKline admits execs breached Chinese law)

"We were asked to provide information regarding our operations in China," Chief Financial Officer Jesper Brandgaard told reporters as he presented second-quarter results.

"Whether this was a routine check or triggered by the (GSK) case reported recently in the media is not completely clear to us. However, the local AIC hasn't accused Novo Nordisk of any wrongdoing."

Chinese police have detained four Chinese executives of GSK and questioned at least 18 other staff amid allegations the drugmaker funneled up to 3 billion yuan ($489 million) to travel agencies to facilitate bribes to doctors and officials.

At the same time, the powerful National Development and Reform Commission is examining pricing by 60 local and international pharmaceutical companies.

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

AstraZeneca, meanwhile, has had a sales executive detained in Shanghai, while Eli Lilly & Co <LLY.N> and Belgium's UCB have also had visits to premises in China.

Industry analysts at Wells Fargo Securities, citing the views of a China expert with law firm Ropes & Gray, said the knock-on effect would be to crimp growth for multinational pharma companies in China, where the authorities are expected to push for harsher price controls.

As a result, the rate of growth for drug sales in the country could fall to around 10 percent a year from an historical 20 percent, they wrote in a research note.

Novo raises outlook

For Novo investors, the potential problems in China were offset by the company's decision to raise its full-year guidance for a third time in six months, after double-digit sales growth in diabetes drug Victoza and modern insulin helped lift second-quarter operating profit above forecasts.

It now expects 2013 sales growth in local currencies of between 11 and 13 percent, compared with 9 to 11 percent previously. Its forecast for operating profit growth was increased to between 12 and 15 percent from around 10 percent.

"Given the tendency of management to beat and raise throughout the year, we expect consensus to move 1 to 2 percent upwards to the higher end of the new guidance range," said Deutsche Bank analyst Tim Race.

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

Shares in Novo rose 1.6 percent by 0815 GMT.

Profit growth was driven by a 12 percent increase in sales of modern insulins compared with the same quarter a year ago and a 25 percent rise in sales of diabetes drug Victoza.

Group sales rose 10 percent to 21.38 billion crowns, against an average 21.26 billion forecast in a Reuters poll.

The company said that based on feedback from the United States Food and Drug Administration (FDA) regarding the design of a cardiovascular outcomes trial for its new long-acting insulin Tresiba, it now expected to start the trial before the end of the year.

The additional trials for the drug follow a blow in the United States in February when the FDA refused to approve Tresiba and instead asked for extra tests to assess potential heart risks.

Earnings before interest and tax (EBIT) rose to 8.59 billion Danish crowns ($1.5 billion) in April-June from 7.65 billion in the second quarter last year, above an average 8.27 billion crowns forecast in a Reuters poll of analysts.

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