Eli Lilly Joins Tarnished Drug Maker List

By newsdoug on August 23, 2013

I thought that maybe I had accidentally opened an old news page today when I read the latest headline that US drug maker Eli Lilly (NYSE: LLY) had been accused of massive bribery in China to sell its medicines. In fact, the headline wasn’t even directly about the allegations that had come from a Chinese newspaper report, but was rather based on a Lilly executive who commented that the company was “deeply concerned” about the latest claims that it spent more than 30 million yuan ($4.8 million) to bribe Chinese doctors to use its medicines. (English article)

But it didn’t take me too long to realize that this was just the latest in a series of claims of massive bribery against a western drug maker, as local media quickly realize it’s ok to attack these firms with launch their own investigative reports. As author of a book on the Chinese media, I can say quite authoritatively that this kind of reporting pattern is quite normal for Chinese publications. Typically Xinhua, CCTV or another official source will disclose details on a sensitive topic, which will serve a signal to other media that it’s ok to report on the topic also.

In this case, we saw this happen when China’s Ministry of Public Security in July released a report saying officials at British drug maker GlaxoSmithKline (London: GSK) had admitted to economic crimes, including using third-parties such as travel agents to funnel billions of yuan in bribes to Chinese doctors. That report was widely picked up in the Chinese media, which then proceeded to uncover similar allegations at Swiss firm Novartis (Switzerland: NOVN) and France’s Sonofi (Paris: SAN).

So this latest report of similar bribery allegations against Eli Lilly doesn’t come as a surprise at all, and is quite consistent with previous patterns in the Chinese media. In this case, the 21st Century Business Herald, one of China’s most respected business newspapers, is making the latest allegations against Lilly based on a tip from a former unnamed senior company manager. (English article) The manager is quoted saying Lilly handed out the more than 30 million yuan in bribes to doctors over the course of a year in 2011 and 2012, paying them to prescribe Lilly’s drugs over rival products.

Following the same pattern as in earlier cases, Lilly has responded to the story with its statement that it takes the report very seriously, is deeply concerned, and is looking into the matter. From my perspective, what’s most interesting here isn’t the bribery itself, since it’s already clear that such practices are rampant in China’s pharmaceutical industry. Instead, the more interesting element is how long this campaign will go on, who else will fall victim, and how seriously will China punish the perpetrators.

So far all of the victims have been major foreign firms, with no major Chinese drug makers implicated. In terms of criminal actions, we’ve only seen such actions taken against GSK so far, including the detention of several company executives. I’ve said before that this current campaign seems to have some anti-foreign overtones, partly because the foreign companies are much bigger than most of their Chinese rivals.

I do think Beijing will implicate 1 or 2 major domestic companies in this current campaign as well, since I’m sure that most or all of them engage in similar practices. Since such practices are also quite common, it will be interesting to see how many people ultimately end up getting arrested and imprisoned in this campaign. At the end of the day, I suspect that GSK will become the main culprit for criminal actions, and that other companies will probably see their cases quietly resolved with large fines and promises to clean up the way they do business.

Bottom line: The current anti-bribery campaign against drug makers will continue for the next 1-2 months, with most companies ultimately fined but few criminal detentions.