Danone’s Baby-Food Brand Probes Report of China Doctor Payments

Danone’s Baby-Food Brand Probes Report of China Doctor Payments

Danone’s (BN) Dumex said it will immediately start an investigation into a Chinese media report that alleged the brand made payments to hospital doctors and nurses to sell its baby formula products. Dumex paid hundreds of thousands of yuan annually to doctors and nurses at hospitals in the northern Chinese city of Tianjin amid “fierce competition” among baby-formula makers, the state-owned China Central Television reported yesterday, citing an unidentified former sales manager from the brand.“Dumex China pays great attention to and is extremely shocked by the CCTV report” on the promotion of infant milk-formula products in hospitals in Tianjin, according to a Dumex statement forwarded by Danone spokeswoman Charlotte Pasternak. Dumex “will immediately launch the investigation on it.”

The allegations are the latest to claim doctors’ involvement in malfeasance amid China’s crackdown on corruption in the country’s $350 billion health-care market. China extended the probe to multiple drug companies and hospitals after saying it was investigating GlaxoSmithKline Plc (GSK) over claims employees used cash and sexual favors to bribe doctors and health officials to promote sales of its medicines.

Dumex made payments ranging from several hundred yuan to about 10,000 yuan ($1,634) in the various forms of “sponsorship fees” to hospital staff for product sales, according to the CCTV report, which cited interviews and documents provided by an unidentified former sales manager from the brand.

Danone rose 0.4 percent to 56.26 euros at the close of trading in Paris, after earlier gaining as much as 1.1 percent.

Continuing Troubles

Dumex adheres to Chinese laws and regulations and it has set up a “strict management system, including severe punitive measures” for activities which violate Chinese laws and regulations, Pasternak said.

The accusations are the latest in a string of troubles for the French company in China. In August, Danone was fined 172 million yuan by the nation’s top economic planning body for fixing prices of milk powder. That prompted it to cut prices for its products in the Asian nation by as much as 20 percent.

The French maker of Activia Yogurt and Evian water also issued a precautionary recall of its milk formula products last month after Fonterra Cooperative Group Ltd. said the items might have been affected by a contaminated whey protein ingredient.

‘Significant’ Impact

Danone’s baby-nutrition sales will fall in the third quarter because the recalls had a “significant” impact on sales in Asia, it said last month.

The company is the third-largest baby formula company in China, with 9.2 percent market share last year, according to industry researcher Euromonitor International. Mead Johnson Nutrition Co. (MJN) ranked first with a 14 percent share and Hangzhou Beingmate Group Co. was No. 2 with 10 percent, it said.

China is cracking down on possible misbehavior by companies. In July, China accused four senior Glaxo executives of crimes involving 3 billion yuan of spurious travel and meeting expenses as well as trade in sexual favors.

Sanofi and Eli Lilly & Co. were among drugmakers that subsequently said they had received visits from Chinese regulators. Separately, two units of Johnson & Johnson, the world’s biggest maker of health-care products, were fined by Chinese authorities for monopolistic practices.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

Updated September 16, 2013, 11:23 a.m. ET

Danone’s Dumex Probes Its Infant-Formula Marketing in China

Dumex Says It ‘Strictly Adheres to Chinese Laws’

LAURIE BURKITT

BEIJING—Dumex Baby Food Co., a subsidiary of France’s Danone SA,BN.FR +0.37% is launching a probe of its infant- formula marketing after China’s state broadcaster alleged the formula maker pays hospital staff to use its products and influence sales.

In a 20-minute broadcast Monday—under the headline “The First Drink of Milk” —China Central Television said formula makers are paying hospital staff across the nation to feed newborns infant formula before their mothers have an opportunity to breast-feed them. The report said that the practice undermined breast-feeding, saying that a newborn who tastes infant formula first is more likely to reject breast milk.

The report spoke broadly about formula companies but named Danone’s Dumex, alleging that the company gives cash to doctors and nurses in hospital maternity wards so that it can increase its sales and market share in China.

A spokeswoman for Danone said the company is “shocked by the CCTV report” and is investigating the situation. Dumex “strictly adheres to Chinese laws and regulations,” the spokeswoman said, noting that the company has a strict code of conduct, including severe punishment for employees who violate company regulations and Chinese law.

Infant-formula makers have been under scrutiny in China, where regulators cracked down this summer on milk-powder companies, launching probes into the sales of mostly foreign companies and ultimately fining makers such as Mead Johnson Nutrition Co.’s MJN +0.62% China unit, Abbott Laboratories ABT +0.40% and Danone for alleged anticompetitive practices.

Danone and other companies responded by reducing prices of some products sold in China. The country is an important market for infant-formula makers, with sales having hit 77.86 billion yuan ($12.72 billion) in 2012, up 26% from a year earlier, according to market-research firm Euromonitor International.

Chinese state-run media has in recent months ramped up criticism of foreign baby formula, particularly after New Zealand’s Fonterra Cooperative Group Ltd.,FCG.NZ -0.14% the world’s largest dairy exporter, warned in August that some of its products, including infant formula, may have contained hazardous bacteria. The company said later that testing revealed that the products in question were safe for consumption.

China’s leaders are aiming to turn around the country’s dairy industry, which has floundered since 2008, when domestically produced milk powder tainted with an industrial chemical killed six infants and sickened 300,000 others.

The scandal sparked a surge in demand for foreign baby formula. Last year China imported $1.05 billion in food ingredients for infants, more than four times the amount imported in 2007, according to the Global Trade Atlas database.

Many within the country are also trying to promote breast-feeding in China, which has rates far lower than those in many other countries. Globally, nearly 40% of infants younger than six months are breast-fed, while in China that figure is just 28%, according China’s Ministry of Health. Rates in India and the U.S. are about 46%, while the U.K. is among the highest at 84%, according to Unicef and the U.S. Centers for Disease Control and Prevention.

CCTV’s report said hospital workers don’t ask for parental consent before feeding formula to the newborns. The report said that companies such as Dumex directly deposits cash rewards into individual doctors’ and nurses’ accounts. Sales representatives are prompted to pay hospitals because of intense competition in the market, the report said.

Chinese law prohibits infant-formula makers from marketing products in hospitals or providing payment to hospital employees.

The report likened the practices of infant-formula makers to authorities’ allegations that pharmaceutical company GlaxoSmithKline GSK -0.21% PLC paid doctors to boost sales of its drugs. China’s Ministry of Public Affairs launched this summer an investigation of Glaxo’s operations in China. Glaxo says it is cooperating with authorities in the investigation.