Wall Street Journal - China Bust

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Wall Street Journal - China Bust

China Government
Cited in Medicine Probe
By NICHOLAS ZAMISKA
February 9, 2007; Page A4

HONG KONG -- An investigation into corruption at China's drug-watchdog agency has exposed the government's role in allowing shoddy medicines to thrive and is threatening to slow the drug-approval process in the country's fast-growing pharmaceutical market.

For years, China's pharmacies and hospitals have been plagued by low-quality and fake medicines made by local drug companies. Just last fall, an antibiotic made by a pharmaceutical company in Anhui province sickened dozens of people across China and killed at least 10, according to China's state-run Xinhua news agency.

Blame often falls on small drug makers that the government says skirt laws to turn a profit. Now, the man who ran China's State Food and Drug Administration until he stepped down in 2005 is at the center of a widening corruption scandal. The State Council, the country's cabinet, alleges that Zheng Xiaoyu, the agency's former head, accepted bribes from drug companies and abused his power, according to Xinhua. The fear is that lax government oversight is allowing drug companies to cut corners or circumvent safety procedures.

The accusations against Mr. Zheng cast a spotlight on a problem that has become a threat to China's public health. He also is the latest official to get caught in a series of high-profile corruption investigations in China. Last fall, Chen Liangyu, a member of China's ruling Politburo and the Communist Party's top official in Shanghai, was dismissed after authorities accused him of mismanagement, influence peddling and theft at a city pension fund.

Mr. Zheng couldn't be reached for comment. Zhao Xiaomei, who works in the news office of the State Food and Drug Administration, declined to comment and referred questions to the Central Commission for Discipline Inspection, which is investigating Mr. Zheng. The drug administration's Web site says the agency supports the investigation into Mr. Zheng and that all levels of the administration should strengthen supervision in order to reduce the number of harmful drug scandals.

The impact of the continuing corruption probe could be substantial for the industry, which is dominated by Chinese manufacturers. In late January, the watchdog agency announced that the production licenses for nearly 170,000 medicines -- which included some drugs registered during Mr. Zheng's term -- would be reviewed, according to Xinhua.

Approval for new-drug applications already is slowing, said one pharmaceutical consultant who works mainly for foreign drug companies in China. He said that some multinational drug companies are "seriously unhappy" with the heightened scrutiny. "It's a huge deal, there's no doubt about it," he said, adding that "it's going to impact the product launches for quite a few people, even for companies with good products."

Still, the corruption crackdown is an encouraging development that will ultimately lead to safer drugs, some people in the industry said. Allan Gabor, Asia regional vice president for New York-based Pfizer Inc., said he believes "there is a trend toward more transparency and accountability, which is positive."

Pfizer and other foreign companies have been battling counterfeit medications manufactured in China that exploit popular brands such as the erectile-dysfunction drug Viagra. But the low-quality generic medicines churned out by Chinese companies may be the larger public-health concern. Drug executives in China say the bribery alleged to have taken place with Mr. Zheng and others in his staff could we widespread.

"The corruption situation is quite severe, otherwise these officials wouldn't have been arrested," said Zhu Changhao, vice chairman of the China Association of Pharmaceutical Commerce, a nongovernmental industry association in Beijing.

The problem isn't necessarily confined to Chinese companies. "It is easy to lay the blame only on local Chinese companies for any unethical practice in China, but certainly multinational companies have deep pockets," said Robert W. Pollard, director in China for the health-care arm of Synovate, a global market-research concern. He said instead of overt cash payments, a donation to some "area of interest" for the right officials or a paid-for trip abroad "can also help turn the wheels."

In China, where drugs are subject to government price controls, drug approvals can be used to boost profits. Henk Bekedam, the World Health Organization's chief representative in China, says drug companies sometimes modify a medicine slightly by adding a new ingredient or changing the dosage. They then apply to register the modified drug as a new medication that can command a higher price.

Gao Chun, a former researcher at a pharmaceutical company, has been working for years to expose what he calls blatant corruption among drug-industry executives and government officials, including Mr. Zheng.

Mr. Gao used to work at Tonglian Medicine Co., a drug maker in Hunan province that used to be called Zhongxiang Kangshen Medicine Co. In 1995, Mr. Gao said, Tonglian was in the process of developing its own version of clarithromycin, a popular antibiotic used mainly to treat respiratory infections. Mr. Gao alleged that Luo Yongqing, the former director of Tonglian's research department, asked the company's scientists to use samples of a similar drug made by Abbott Laboratories, the American drug firm based in Illinois, in place of their own in their application for approval from drug regulator.

Mr. Gao said he refused to pass Abbott's pills off as their own. "I thought it was immoral and against the law," he said. Jennifer Smoter, a spokeswoman for Abbott in the U.S., had no comment because "we had no knowledge of this company's activities with regards to clarithromycin."

Mr. Luo declined to comment on the accusations. "I wouldn't like to comment on this," he said, reached by telephone Tuesday. Mr. Gao, he added, "likes to talk, let him talk."

Mr. Gao said he took his complaints to local food-and-drug regulators in Hunan, and then to the central government, where he met with Mr. Zheng after spending 10 days camped outside the drug administration building's entrance. Mr. Gao said Mr. Zheng promised that he "will definitely investigate and punish" any officials found having taken bribes.

But Mr. Gao said nothing happened. Today, Tonglian is producing its own version of the antibiotic -- with what Mr. Gao said was a fraudulent approval. The drug administration in Beijing didn't respond to written questions about the accusations. An official from the drug agency's office in Hunan said his office was unable to investigate the alleged incident given that it was so long ago.

Frustrated with the lack of action, Mr. Gao said he filed a lawsuit in 2003 against the drug administration in Beijing for not taking action against Tonglian. The suit was dismissed by the Beijing No. 1 People's Intermediate Court, and later, on appeal, also by the country's Supreme Court, according to Mr. Gao.

Liu Jianyun, the current manager of Tonglian, said he isn't clear about the details of the company's drug application in the mid-1990s, but doesn't think the company did anything wrong. "As far as I know, we didn't do anything wrong when applying for clarithromycin," he said. But he said that in a separate case, involving the high-blood-pressure drug terazosin hydrochloride, the company probably used another sample from outside the company in applying for government approval because the application process is "time consuming." He added, "For a company, time is just money." That application, however, was rejected, he said.

In June 2005, Mr. Zheng stepped down. Last year, two scandals involving shoddy medicines broke that put problems in the pharmaceutical industry on the national agenda.

Last spring, at least 11 people fell ill after taking injections of Armillarisni A -- used to treat inflammation of the gallbladder -- made by Qiqihar No. 2 Pharmaceutical Co. in China's northeast Heilongjiang Province. Five people died.

A government inquiry found that Qiqihar had used a harmful chemical in making the drug to save money. The deaths caused a national outcry and prompted the government to shut down Qiqihar.

"Those directly responsible for the incident and those who fail to fulfill their supervisory duties will be punished," Chinese Premier Wen Jiabao said last May, according to Xinhua. "The pharmaceutical market is in disorder," he added. Officials from the now-defunct company couldn't be reached for comment.

Following the incident, the government has cracked down on alleged corruption in the industry. One official, a former deputy to Mr. Zheng, was sentenced in November to 15 years in prison for accepting around $100,000 in bribes between 2002 and 2004 and illegal possession of firearms, according to Xinhua. Last month, the Ministry of Health said it was revoking the manufacturing license of a subsidiary of a Hangzhou-based drug company.

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