China drug sector probe widens as officials visit Novo site

An employee walks into an office of French drugmaker Sanofi in Shanghai on August 2, 2013. Chinese authorities visited a Sanofi regional office in Shenyang this week in the latest sign of a widening investigation into Western drugmakers. -- PHOTO: RE
An employee walks into an office of French drugmaker Sanofi in Shanghai on August 2, 2013. Chinese authorities visited a Sanofi regional office in Shenyang this week in the latest sign of a widening investigation into Western drugmakers. -- PHOTO: REUTERS

COPENHAGEN/LONDON (REUTERS) - Chinese authorities have visited a site operated by Danish drugmaker Novo Nordisk A/S, the world's biggest maker of insulin, the latest evidence of a widening investigation into Western drugmakers.

A Chinese newspaper also reported an allegation from an unnamed person that Sanofi SA of France had paid around 1.7 million yuan (S$351,475) in bribes to hundreds of doctors in China in 2007, a claim Sanofi said it took "very seriously".

The latest developments suggest Chinese investigations into bribery and over-pricing, which have so far centred on Britain's GlaxoSmithKline Plc (GSK), may have a wide impact across the pharmaceuticals industry.

Novo said on Thursday that local Administration for Industry and Commerce (AIC) officials visited a production facility in Tianjin on Aug 1, adding that there had been no visit at the company's head office in the country.

"We were asked to provide information regarding our operations in China," Chief Financial Officer Jesper Brandgaard told reporters as he presented second-quarter results.

"Whether this was a routine check or triggered by the (GSK) case reported recently in the media is not completely clear to us. However, the local AIC hasn't accused Novo Nordisk of any wrongdoing."

Chinese police have detained four Chinese executives of GSK and questioned at least 18 other staff amid allegations the drugmaker funnelled up to 3 billion yuan to travel agencies to facilitate bribes to doctors and officials.

At the same time, the powerful National Development and Reform Commission is examining pricing by 60 local and international pharmaceutical companies.

AstraZeneca Plc, meanwhile, has had a sales executive detained in Shanghai, while Eli Lilly & Co and Belgium's UCB SA have also had visits to premises in China.

Industry analysts at Wells Fargo Securities, citing the views of a China expert with law firm Ropes & Gray, said the knock-on effect would be to crimp growth for multinational pharmaceutical companies in China, where the authorities are expected to push for harsher price controls.

As a result, the rate of growth for drug sales in the country could fall to around 10 per cent a year from an historical 20 per cent, they wrote in a research note.

For Novo investors, the potential problems in China were offset by the company's decision to raise its full-year guidance for a third time in six months, after double-digit sales growth in diabetes drug Victoza and modern insulin helped lift second-quarter operating profit above forecasts.

It now expects 2013 sales growth in local currencies of between 11 and 13 per cent, compared with 9 to 11 per cent previously. Its forecast for operating profit growth was increased to between 12 and 15 per cent from around 10 per cent.

"Given the tendency of management to beat and raise throughout the year, we expect consensus to move 1 to 2 per cent upwards to the higher end of the new guidance range," said Deutsche Bank analyst Tim Race.

Profit growth was driven by a 12 per cent increase in sales of modern insulins compared with the same quarter a year ago and a 25 per cent rise in sales of diabetes drug Victoza.

The company said that based on feedback from the United States Food and Drug Administration (FDA) regarding the design of a cardiovascular outcomes trial for its new long-acting insulin Tresiba, it now expected to start the trial before the end of the year.

The additional trials for the drug follow a blow in the United States in February when the FDA refused to approve Tresiba and instead asked for extra tests to assess potential heart risks.