China anti-graft watchdog visits Roche amid pharma crackdown

[May 22, 2014] By Adam Jourdan and Caroline Copley

SHANGHAI/ZURICH (Reuters) - Swiss drugmaker Roche Holding AG ROG.VX said it had been visited by a unit of China's anti-trust regulator, apart of a widening crackdown on corruption and high prices in the country's pharmaceutical sector.

It was not immediately clear what was behind the visit.

Roche said its offices in the eastern city of Hangzhou had been visited by a unit of the State Administration for Industry and Commerce (SAIC). The SAIC usually takes the lead in cases of bribery and corruption.

"We understand that a local government unit in Hangzhou visited Roche's offices on May 21, but the specific details are not yet clear. We will cooperate fully with the work of the relevant government department," Roche said in a statement emailed to Reuters on Thursday.

A spokeswoman for the local office of the SAIC told Reuters the visit was for a range of issues, but declined to elaborate. She said the office had yet to reach a conclusion about the issue.

Roche's shares were trading down 0.5 percent at 264.7 francs by 1019 GMT compared to a 0.4 percent weaker European healthcare sector index .SXDP
 

Last week Chinese authorities charged executives at British drugmaker GlaxoSmithKline GSK.L over bribery and corruption, and legal and industry sources have said the crackdown on the pharmaceuticals sector is likely to intensify.

"More and more firms have been visited by the SAIC in the wake of the GSK case," John Huang, Shanghai-based managing partner at law firm MWE China, told Reuters.

In 2013, Chinese authorities visited large international drug manufacturers that included Novartis AG NOVN.VX, AstraZeneca Plc AZN.L, Sanofi SA SASY.PA, Eli Lilly & Co LLY.N and Bayer AG BAYGn.DE as part of a broad investigation into the sector.

HUGE MARKET

China has become a magnet for global drugmakers and medical device markets, with its pharmaceutical market set to become the world's second-biggest behind the United States within three years according to consultancy IMS Health.

It is a key growth market for Roche; sales of its drugs in the country rose by 21 percent last year. Roche, which is the world's largest maker of cancer drugs, does not give absolute sales numbers for China.

A corruption inquiry in China can have a serious impact.

Official Chinese media said on Friday that GSK might have suffered "irreparable damage" in the Chinese market from the investigation, and that the charge was a warning to other foreign firms in the country.

GSK's revenues in China plunged 61 percent in the third quarter last year and were down 20 percent in the first quarter of 2014 from a year earlier.

The British drugmaker has said it wants "to reach a resolution that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens".

Corruption is rife in China's healthcare sector, driven by high targets for sales staff and low salaries for doctors. Lawyers have estimated that around half of all pharmaceutical firms in China were being investigated in some capacity.

(Reporting by Adam Jourdan in SHANGHAI and Caroline Copley in ZURICH; Editing by Kazunori Takada and Edwina Gibbs)

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