Dongsung raided in crackdown on kickbacks

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Dongsung raided in crackdown on kickbacks

Stock prices of mid-sized pharmaceutical companies tumbled on Tuesday after authorities raided Dongsung Pharmaceutical for allegedly giving kickbacks amid plans to widen the investigation to other suspected drug companies.

An investigation team from the Ministry of Food and Drug Safety conducted a search and seizure operation at the headquarters of Dongsung Pharmaceutical in Banghak-dong, northern Seoul, on Monday.

The ministry alleges that the drug maker, best known for its digestive medicine Jeongrohwan, dished out 10 billion won ($8.9 million) worth of gifts or cash to doctors and pharmacists in exchange for prescribing the company’s products.

The move came after the ministry was given the results of an investigation by the Board of Audit and Inspection.

The Board of Audit and Inspection said that five pharmaceutical companies, including Dongsung, Boryung Pharmaceutical, Reyon Pharmaceutical and Hana Pharmaceutical, are involved in under-the-table deals worth 27 billion won ($23 million) intended to boost sales of their drugs.

The share prices of the suspected companies all nosedived on Tuesday, with Dongsung Pharmaceutical sinking 23.18 percent.

The share price of Boryung Pharmaceutical also contracted 5.07 percent, while Reyon declined 7.54 percent.

Hana Pharmaceutical dropped 4.19 percent.

While the rest of the companies have kept quiet about the charges, Hana released a statement defending itself.

“We have received a flood of inquiries from our investors,” the company said. “This issue was already settled and [Hana Pharmaceutical] was cleared of the charges.”

The revelation deals a blow to the pharmaceutical industry, which is already struggling with scandals.

After being accused of accounting fraud, Kyung Nam Pharm, most famous for its Lemona vitamin C supplements, is in the process of delisting from the country’s secondary Kosdaq exchange after a decision from KRX on Sunday.

The final decision on the company’s delisting will be made by the Kosdaq market committee by Jan. 8.

Before the Kyung Nam incident, bigger bio pharmaceutical companies - Samsung BioLogics and Celltrion Healthcare - were accused of accounting fraud.

Bribery and kickbacks have long been considered chronic problems plaguing the medical and pharmaceutical industry in Korea, prompting the government to impose harsher punishments on the practices.

Back in 2010, the Ministry of Health and Welfare announced its plan to criminally punish both those who give and those who receive rebates and extend license suspensions to one year.

The government also adopted a stricter measure in 2014 to make medicine manufactured by companies that have been caught giving kickbacks more than once unavailable on national health insurance subsidies.

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