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China widens drug industry probe, visits Belgium's UCB

The logo of Belgian drug, chemical, and plastics group UCB is seen at the entrance of the company's headquarters in Brussels March 2, 2010.
The logo of Belgian drug, chemical, and plastics group UCB is seen at the entrance of the company's headquarters in Brussels March 2, 2010.

By Ben Deighton and Ben Hirschler

BRUSSELS/LONDON (Reuters) - Belgian drugmaker UCB has been visited by Chinese authorities as the country widens investigations into bribery by drugmakers, following allegations against Britain's GlaxoSmithKline.

A spokesman for UCB said on Thursday that officials were also investigating other drug companies with operations in the country, although he did not identify them.

A number of international firms - including Novartis, Roche, Johnson & Johnson and AstraZeneca - denied any knowledge of being investigated following the UCB news.

Chinese police have accused GSK of bribing officials and doctors to boost sales and raise the price of its medicines, marking a hardening stance against malpractice by multinationals operating in the country.

"They've been launching inspections with several pharma companies active in the country, both Chinese and foreign companies such as ours, and as part of the process our Shanghai office was visited by the agency in the last 48 hours," the UCB spokesman said.

UCB is a medium-sized pharmaceuticals company with a particular strength in epilepsy treatment.

The officials visiting the group's office were from the State Administration for Industry and Commerce (SAIC) and were seeking information on compliance, he said.

The SAIC is one of China's main three anti-trust regulators in charge of market supervision.

Its investigations often overlap with the country's top watchdog, the National Development and Reform Commission, which has recently launched a pricing investigation into local and international drugmakers, including GSK, Merck and Astellas Pharma.

China on Monday accused GSK of transferring up to 3 billion yuan ($489 million) to 700 travel agencies and consultancies to facilitate bribes - an allegation Britain's top drugmaker said it was deeply concerned about and which it called "shameful".

The official Xinhua news agency said on Thursday that authorities in Shanghai had suspended the business of the Shanghai Linjiang International Travel Agency, one of the businesses linked to GSK.

The tough Chinese action against GSK, including the detention of four senior Chinese executives and a ban on a top British executive leaving the country, has sent a chill through the wider pharmaceutical sector.

There has been widespread speculation that other multinational companies would be drawn into the corruption investigations.

"This is bigger. This is not just GSK. The entire industry is on a journey here," one European drug industry executive said.

CORPORATES UNDER FIRE

The GSK investigation is the highest-profile corporate probe in China since four executives from mining giant Rio Tinto were jailed in March 2010 for taking bribes and stealing commercial secrets. Three of those executives were Chinese while the fourth was a Chinese-born Australian.

Beijing has targeted corporations on multiple fronts in the past few months, including over alleged price-fixing, quality controls and consumer rights.

European food groups Nestle and Danone said they would cut infant milk formula prices in China after Beijing launched an inquiry into the industry.

And on Friday the official People's Daily newspaper reported the Chow Tai Fook Jewellery Group, the world's biggest jewellery retailer by market value, was among a number of gold shops being probed for price fixing.

Past improper payouts in China have also landed other Western drugmakers in trouble - although with U.S. rather than Chinese authorities.

In the last year Pfizer and Eli Lilly have both settled with Washington, without admitting wrongdoing, over alleged corrupt payments in foreign markets, including China. More cases under the U.S. Foreign Corrupt Practices Act are pending.

China is increasingly important for big drugmakers, which rely on growth in emerging markets to offset slower sales in Western markets. 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.

(Additional reporting by Adam Jourdan, Caroline Copley and Ransdell Pierson; Editing by Elaine Hardcastle and Erica Billingham)

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