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GSK faces new China allegations

Published on 04/09/13 at 07:31am
GSK China image

GlaxoSmithKline is facing a potential worsening of its already embarrassing situation in China, where the UK-based group has been accused of bribery.

Chinese police have upped the ante by suggesting that - contrary to GSK’s often-stated position - the company knew about the alleged use of travel agencies, which Chinese authorities say were used by GSK to launder around £320 million worth of sweeteners to doctors.

“As the investigation is moving on, it is becoming clear that it is organized by GSK China rather than drug salespeople’s individual behaviour,” the state news agency Xinhua has reported.

GSK says it would have ‘zero tolerance’ for such behaviour if it were proved to be true and has already promised an independent review by US law firm Ropes & Gray into the affair.

GSK has admitted that these ‘shameful’ allegations involved senior Chinese staff, four of whom have been detained in the country with others barred from leaving.

But the firm, while pledging to co-operate fully with China’s authorities, has insisted that those people worked around its systems, defrauding the company as well as the Chinese healthcare system.

The group’s chief executive Sir Andrew Witty has previously said that he and head office staff ‘had no knowledge’ of the situation. “This looks like a number of individuals that have worked outside our systems,” he has stated. “It would have been difficult to find using our controls.”

But the Chinese authorities are now taking a different view. “When investigated, the company passed the buck to sales force,” the Xinhua report went on. “But the police investigation has found that GSK China went through the motions in internal auditing so as not to discover these violations.”

It reports that one of the detained senior executives, business development manager Huang Hong, had said GSK “had assigned annual growth goals as high as 25% in recent years, 7 to 8 percentage points more than the average growth rate of the industry”.

“The company employed a salary policy closely linked to sales volume,” Xinhua added.

This apparent escalation of the situation will be unwelcome for GSK. While its sales in China represent only around 3% of global turnover, the country’s economy is seen as crucial in the medium term to pharma.

GSK supplies products such as vaccines in China, as well as drugs for lung disease and cancer and has begun building medium-sized manufacturing and production sites there.

Analysts and pharma executives believe China has decided to crack down on behaviour such as bribery in an attempt to lower its healthcare bill - a reflection perhaps of the more difficult economic times that the country is facing.

Adam Hill

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