Corruption and Research Fraud Send Big Chill Through Big Pharma in China

In Reports

The widening bribery investigation engulfing the Chinese branch of drug giant GlaxoSmithKline (GSK) focuses on the tactics of its sales people. But it also adds to a perfect storm of scandals involving multiple companies that could jeopardize China’s rise as a center for global pharmaceutical R&D.

On 11 July, the Chinese government accused executives at GSK China of bribing officials, hospital employees, and doctors to promote or sell GSK drugs. Four Chinese GSK executives, along with at least 18 other employees and medical personnel, have been taken into custody, according to state press reports. Last week, GSK replaced its general manager for China and acknowledged in a statement that “Certain senior executives … appear to have acted outside of our processes and controls.” The company also pledged to lower its prices in China.

The accusations come as China—particularly Shanghai—is emerging as a research hotspot for big pharma. Helping propel China’s rise as a global research hub, officials encourage R&D investment in return for market access. With the corruption probe at GSK coming on the heels of other scandals directly connected to research, observers say that the industry should brace for harsh consequences. “Whatever happens to GSK will have a huge impact on pharmaceutical industry investment in China, on Chinese scientists’ reputation, and on the future development of medicine,” says a scientist familiar with R&D at GSK who did not wish to be named. Companies may consider stricter controls on big pharma’s R&D operations in China. But no one expects companies to turn tail. “Exiting China is not in the cards,” says Benjamin Shobert, director of the Rubicon Strategy Group in Seattle, Washington. “And China knows this.”

Patent boom.

Favorable policies have fueled a surge in resident patent filings, many by pharmaceutical or biotechnology firms.


The nature of the allegations against GSK, which involve funneling bribes through a Shanghai travel agency, surprised few in the industry. GSK is “certainly not an isolated case,” says Yanzhong Huang, a global health fellow at the Council on Foreign Relations in New York City. Last December, the U.S. Securities and Exchange Commission charged Eli Lilly with violating the Foreign Corrupt Practices Act by bribing doctors on the Chinese state payroll with spa treatments, jewelry, and money. Industry insiders say that multinationals simply take cues from domestic counterparts, and lavish drug-sales inducements are a familiar practice in Western countries, such as the United States.

But other scandals have directly hit the growing drug R&D business in China. As big pharma closes or scales back research facilities in the United States and Europe, many companies are opening up shop in Shanghai or Beijing, attracted by an ample scientific labor force and a large patient pool for clinical trials (Science, 27 July 2007, p.436). GSK is a giant on the Chinese scene, having spent more than $163 million on R&D in China in the past 2 decades. Its Shanghai center, launched in 2007, focuses on neurodegeneration. Other big players include Pfizer, which has invested more than $150 million in its Shanghai center, and Merck, which in 2011 pledged to spend $1.5 billion on R&D in China over 5 years (see table).

In both Chinese and multinational outfits, an emphasis on quick results may tempt researchers to cut corners. “We spend a lot of time teaching people how to follow the guidelines,” says Zhai Yifan, CEO of Health-Quest Pharma, a biotech startup in Guangzhou. The potential for negligence was thrust into the spotlight in June, when GSK fired its R&D head here for misrepresenting data in a preclinical study on an experimental drug for multiple sclerosis. The company halted phase I clinical trials of the drug and has asked Nature Medicine to retract a 2010 study. An internal audit leaked to The New York Times last week suggests that problems with research conducted by GSK’s Shanghai center may have extended to other drugs. Then last month, media reports based on U.S. Food and Drug Administration (FDA) documents alleged that clinical trial data from China for the drug Eliquis, a blood thinner developed by Bristol-Myers Squibb and Pfizer, were marred by errors and fraud. The errors resulted in a 9-month delay for FDA approval, which was granted last December.

Observers say that the incidents could give ammunition to skeptics of China’s R&D potential. “There are people in the U.K. and the U.S. who will say ‘See? I told you,'” says the unnamed scientist. But Chinabased R&D is critical to big pharma’s future business. Chronic diseases such as diabetes and hypertension are on the rise in China’s large, rapidly aging, and increasingly affluent population. Drug companies emphasize diseases common in Asia in their China research operations: Novartis’s Shanghai center focuses on hepatitis B and C, while Astra Zeneca’s Shanghai shop studies liver and gastric cancers. An army of eff icient contract research organizations in China eases the path for drug development. Moreover, Chinese law demands a presence: To register new drugs in China, companies must first conduct trials with local patients. The R&D operations are propelled by burgeoning revenue in China, which grew from $4 billion in 2006 to $10 billion in 2011 for the top 10 pharmaceutical multinationals, according to the consulting firm McKinsey.

That growth may be about to flatten. As part of its healthcare reforms, the central government has mandated price cuts on hundreds of drugs, many produced by big pharma. And revised regulations now allow for compulsory licensing, which would allow domestic manufacturers to make generic versions of patented drugs on a case-by-case basis—a tactic the government has not yet invoked.

At the same time, the government has been aggressively promoting domestic drug R&D (Science, 3 July 2009, p. 21).The Major New Drug Innovation Program, launched in 2009 to boost drug development by establishing innovation bases around China, enjoys more than $1.5 billion in central government funding, along with $3 billion from local governments and industry, according to Lux Research. And the government subsidizes patent fees for domestic companies, fueling a rapid increase in filings (seegraph. Multinationals “have to prepare for the prospect that one day they will compete with their Chinese counterparts as equals,” Huang says.

Some of China’s hopes for its domestic drug companies may be unrealistic. The central government has set a goal of developing 30 innovative drugs by 2015, and another 70 by 2020. “It’s unlikely that we will see a great drug” by 2015, says Hu Zhuohan, president of the Research Institute for Liver Diseases here who has served on China’s State Food and Drug Administration committees considering new drug applications. While the injection of cash should eventually yield results, Hu says, “what drugs come out is not directly correlated with how much money is put in.”

Meanwhile big pharma, chastened by the corruption probes, is cleaning up its operations. Most clinical centers now scrupulously follow FDA Good Clinical Practices regulations, says Zhai, the Healthquest CEO: “The early days of making up data” are over, she insists. Zhai believes that the scandals have delivered a “wakeup call” to improve oversight and management in China. “In the long run,” she says, “it’s a good thing.”

First published in Science Magazine.


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Mara Hvistendahl
Mara Hvistendahl is a contributing correspondent at Science magazine and the author of Unnatural Selection, a finalist for the Pulitzer Prize and the Los Angeles Times Book Prize. Mara has written for The Atlantic, Harper’s, Scientific American, Popular Science, The Wall Street Journal, and Foreign Policy. A longtime correspondent in China, she now lives in Minneapolis.

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