Undercover agents employed by GlaxoSmithKline (GSK) posed as traders in fake medicines to help to close down a global pharmaceutical counterfeiting racket based in China.

Britain’s largest drugs company will receive official recognition today for its sting operation in the form of an award from China’s Quality Brands Protection Committee, China’s leading anti-counterfeiting organisation.

GSK reported a 4 per cent slide in first-quarter turnover yesterday and a 1 per cent fall in pretax profits to £2.14 billion.

The company’s investigation began in October 2004 when a counterfeiting operation making a range of fake GSK products was identified at the Xing Tai Ming Shen pharmaceutical company in Xing Tai City, Hebei province, northeastern China. A sophisticated distribution network was supplying the drugs, including antibiotics and pain relievers, to customers in Africa, Asia, the Middle East and South America.

Background

• GSK plan to beat fakes may be scrapped

• Why Ribena has got a new squeeze

• US Panel allows Glaxo to keep selling Avandia

• US rule on Avandia, with £1.2bn at stake for GSK

• GSK doubles buyback

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During the investigation, Chinese GSK security agents posed as traders and attracted counterfeit manufacturers by posting messages on online trade bulletin boards. Then they arranged for samples to be delivered before ordering a large consignment of a counterfeit pain relief medicine on the pretext that it was to be shipped on to Felixstowe.

GSK went on to brief Chinese authorities before launching a sting operation with the Public Security Ministry and Chinese police. After the delivery of a container of illicit GSK product, the gang was arrested in August 2005, the Xing Tai factory raided and counterfeit products worth more than £5 million were seized.

The privately owned factory was also manufacturing legitimate, local brand pharmaceuticals for the local market.

The ringleader, Wang Fu Gang, also known as Michael Wang, was imprisoned last year. Later the Chinese police raided a printing factory that had been making fake GSK packaging.

A GSK spokesman said that although the counterfeits did contain active ingredients, they were in improper quantities that in some cases could have been dangerous.

GSK, which conducts 200 investigations globally every year, loses more than £30 million a year to drug counterfeiters. Last year, the company made 57 seizures of counterfeits in raids that led to the arrests of 94 people. The seizures included one million tablets of a medicine to combat hepatitis C, one million pain relief tablets, 18,000 tubes of steroidal skin cream and 1,000 cartons of a flu relief remedy.

Counterfeit pharmaceuticals are a growing problem globally, although tight controls in Europe make them extremely rare in Britain. However, in some countries in Africa and Latin America as much as 30 per cent of available medicines may be counterfeit.

Some drug companies, including AstraZeneca and Pfizer, have cited counterfeiting as a reason for wanting to tighten their supply chains by selecting just a handful of pharmaceutical wholesalers.

Critics have argued that the real reason is to gain greater control of drug pricing.

Taking a pounding

–– The expiry of patents on three key medicines and a strong pound cut into first-quarter profits at GlaxoSmithKline
–– Pretax profits slipped 1 per cent to £2.14 billion for the first three months of 2007, down from £2.17 billion last year. Sales fell 4 per cent to £5.59 billion
–– JP Garnier, GSK’s chief executive, also blamed the downturn on the strong pound, which weakens GSK’s earnings in the United States However, he thought that it was likely to prove a temporary influence
–– GSK has no plans to reverse its policy of avoiding hedging strategies to cope with adverse currency movements
–– Dr Garnier said that the company is preparing for a string of product launches later this year, including Tykerb for breast cancer, the migraine treatment Trexima and the cervical cancer vaccine Cervarix

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