Photo taken on July 12, 2013 shows the building of a vaccines company of GlaxoSmithKline (GSK), Britain's biggest drug maker, in Shanghai, east China. Image: Xinhua

The British manager of GlaxoSmithKline (GSK) China is reported to have fled the country and four senior executives from the British pharmaceutical giant and Europe's biggest drugs group, are being held by Chinese police on suspicion of having committed what the authorities term serious economic crimes. Novartis, the Swiss pharmaceutical giant has admitted this month that there was an undisclosed conflict of interest in a study of one of its drugs carried out at a Japanese university. Last April, the United States government announced its second civil fraud lawsuit against Novartis in four days, accusing a unit of the Swiss pharmaceuticals company of paying multi-million-dollar kickbacks to doctors in exchange for prescribing its drugs. Meanwhile, four pharmaceutical companies paid more than half of the $19.8bn in civil and criminal settlements over 20 years for improper billings to federal and state governments, according to a Dec 2010 report by Public Citizen’s Health Research Group. Four leading Big Pharma firms, GSK, Pfizer, Eli Lilly and Schering-Plough, accounted for $10.5bn of that amount, the report said.

A 2013 report from IMS Institute for Healthcare Informatics found that total US spending on medications dropped to $325.8bn last year from $329.2bn in 2011. In 1990, $40.3bn was spent [pdf].

Four executives of GSK (China) Investment Co., Ltd. are in custody including Liang Hong, vice president and operations manager.

In an interview with Xinhua, the official news agency, Liang, who supervises about 3,000 medical representatives across China to deal with hospitals and doctors, admitted that he had been "in contact with" senior government officials and medical experts.

He said he was authorised to approve an annual budget of up to hundreds of millions of yuan.

Xinhua said the Ministry of Public Security announced last week that some senior executives from GSK China were being investigated for suspected bribery and tax-related violations.

The suspects are believed to have offered large bribes to government officials, medical industry associations and foundations, hospitals and doctors in order to expand the company's market in China and raise the price of its medicine.

Most of the bribes are thought to have been given through travel agencies.

The police have also held and questioned the corporate representative of a travel agency suspected of being involved in the case, according to the investigation team.

During the first half of this year, police found abnormalities with the operation of the Shanghai Linjiang International Travel Agency.

"It was only keeping contact with some pharmaceutical enterprises and hardly doing ordinary tourism business. However, its annual turnover has surprisingly surged from several million yuan at its start-up period in 2006 to about a hundred times the figure at present," a police officer from the investigation team told Xinhua.

A later probe indicated that GSK China and some of its affiliated enterprises were implicated and are prime suspects in the violations.

Weng Jianyong, corporate representative of the Linjiang Travel Agency, told Xinhua that he had a tacit agreement with GSK's Liang that the latter would offer him conference service business opportunities, and some of the payment to his agency would be given to Liang as kickbacks.

Between 2010 and this year, the bills for such "patronized business" have totaled ¥30m yuan ($4.87m) and the "due" kickback for Liang was about ¥2m yuan. The ministry said Glaxo and the travel agencies exchanged ¥3bn yuan ($489m) between them since 2007.

Liang took some of the money and the rest was left to Weng to cover Liang's "non-reimbursable expenses."

Xinhua reports that GSK is also suspected of being involved in tax-related crime, including illegal cashing by falsely issuing exclusive value-added tax invoices and colluding with travel agencies to issue fake invoices in order to finance their illegal acts, according to the Ministry of Public Security.

The Wall Street Journal reports that China's health-care spending is poised to triple to $1tn by 2020, according to McKinsey & Co. Sales of pharmaceuticals in China reached $82bn in 2012, up 18.2% from a year earlier, according to risk-assessment firm Business Monitor International.

Novartis

Swissinfo, a unit of the Swiss Broadcasting Corporation reports that last Friday an unnamed researcher, reported to be an adjunct lecturer at Osaka City University, had hidden the fact that he was an employee of the Japanese unit, Novartis Pharma K.K., when he was taking part in a study of the Novartis drug Valsartan, the Japanese health minister said, describing this as “extremely regrettable”.
 
The Kyoto Prefectural University of Medicine said on Thursday that incomplete clinical data had been used in the study of the drug, marketed in Japan under the name of Diovan, which is commonly prescribed for high blood pressure.
 
It said that if the researchers had used the patients’ records in their entirety, it was “highly likely” they would have reached a different conclusion. The Kyoto heart study had already been retracted from the European Heart Journal earlier in the year
 
The university did not dispute the drug’s ability to control high blood pressure, but said it was not necessarily able to prevent strokes and angina, as the study claimed.
 
The minister, Norihisa Tamura, said he would set up a special committee to work out ways to avoid similar cases in future, and to review ethical guidelines.

Last April, US Attorney Preet Bharara in Manhattan said the government had joined a whistle-blower lawsuit filed against Novartis Pharmaceuticals Corp in January 2011 which seeks triple damages under the federal False Claims Act.
 
The government accused Novartis of causing the Medicare and Medicaid programmes to pay millions of dollars in reimbursements based on kickback-tainted claims for medication such as hypertension drugs Lotrel and Valturna and diabetes drug Starlix.
 
Twenty-seven US states, the District of Columbia and the cities of New York and Chicago also joined as plaintiffs.
 
"Novartis corrupted the prescription drug dispensing process with multi-million-dollar 'incentive programmes' that targeted doctors who, in exchange for illegal kickbacks, steered patients toward its drugs," Bharara said in a statement.
 
"For its investment, Novartis reaped dramatically increased profits on these drugs, and Medicare, Medicaid and other federal healthcare programmes were left holding the bag."

Earlier in the same week, the US government accused Novartis of inducing pharmacies to switch thousands of kidney transplant patients to its drug Myfortic in exchange for kickbacks disguised as rebates and discounts.
 
Novartis spokeswoman Julie Masow said the company disputed the claims in both lawsuits and would defend itself. Its Novartis Pharmaceuticals unit is based in East Hanover, New Jersey.
 
The original lawsuit over alleged kickbacks to doctors had been filed by a former Novartis sales representative who now lives in North Carolina. His lawyer was not immediately available for comment.
 
People who file whistle-blower lawsuits on behalf of the government under the False Claims Act share in damage recoveries. The United States does not automatically participate in such lawsuits, but often joins cases it believes have greater merit.

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