Drug Companies Under Scrutiny in China

While ill health is never good news for the sufferer, it is big business for drug companies, and both foreign and local drug companies are cashing in on markets created by China’s growing middle class who are now able to afford Western drugs to treat conditions such as depression and respiratory illnesses. The fact that China has expanded medical insurance coverage to millions of new patients under its new health care program has also made Western medicines available to a wider customer base. In 2006 only 43 percent of the population had medical insurance, but by 2011 this had increased to 95 percent. Consulting firm McKinsey & Company estimate that China’s health care spend will grow from $357 billion in 2011 to $1 trillion by 2020.

While the United States is the largest market for prescription and over-the-counter medication, it was recently reported that multinational drug companies have more sales representatives in China than in the US. It is a very competitive business, and apart from marketing products in the country, some multinational companies, such as Merck and GlaxoSmithKline have invested heavily in establishing research and development facilities in China and need to see some return on their investments, pushing the competitiveness in the market even higher.

In the past week in was reported that accusations have been made against GlaxoSmithKline that the pharmaceutical giant has been channeling payments to doctors, as well as hospital and government officials to boost sales of their drugs in the country. While in some countries this practice may be considered to be “incentives” for decision makers to buy and promote a product, Chinese officials have compared this practice to organized crime and are carrying out a full investigation. Four GSK executives, all Chinese nationals, have been detained, one of which has publicly admitted to activities that included fake conferences and kickbacks in the form of luxury travel and even cash.

China has been quite upfront about its objective of promoting the country’s domestic drug industry in competition with multinational drug manufacturers. The business practices of foreign companies need to be completely transparent as they will be carefully scrutinized by Chinese authorities in this highly regulated economic sector.