GSK China scandal resolved with $500M fine and suspended jail sentence

GlaxoSmithKline CEO Sir Andrew Witty

Chinese justice came swift and in secret for GlaxoSmithKline ($GSK) today. A top executive narrowly escaped prison, and the company was convicted and will pay a fine of nearly $500 million for bribery in a country known for its corruption. The outcome leaves other drugmakers to wonder what is yet in store for them.

"It's very hard to do business in the Chinese healthcare and pharmaceutical sectors without doing payoffs," David Zweig, the director of the Center on China's Transnational Relations at the Hong Kong University of Science and Technology, told The New York Times. "Everyone else pays bribes. Glaxo just got caught."

And getting caught led to more than a yearlong ordeal for the British drugmaker and a widening investigation that has dragged in other companies.

The trial was held in secret, and many were surprised to learn it had happened already. The fine of £297 million pounds ($489 million) was almost exactly the $488 million amount that GSK was accused of paying in bribes. Mark Reilly's exact fate is fuzzy. The top GSK exec in China was considered the mastermind behind a scheme to route travel and training money into bribes to doctors and hospitals. Reports indicated he was given a three-year suspended sentence and would be deported, but one said he was given a four-year "reprieve." It said that means he would be watched and if he met criteria, he would then be deported. Four other Chinese national executives for GSK were also given "lenient sentences," for confessing their crimes, the NYT reported, citing a news report by China's official news agency, Xinhua.

GSK apologized for the event and said it remained committed to China: "GSK plc fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK plc sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese Government and the Chinese people."

CEO Andrew Witty said, "We have and will continue to learn from this. GSK has been in China for close to 100 years and we remain fully committed to the country and its people. We will continue to expand access to innovative medicines and vaccines to improve their health and well-being."

According to the New York Times, the Xinhua report said the matter is now resolved for GSK. "This means that a final full stop has been put on this case of commercial bribery by the GlaxoSmithKline China investment company that drew intense social interest," it said.

But it does not indicate what comes next for other drugmakers and other companies in China being investigated. Early on, many other companies, like Sanofi ($SNY), were cited in Chinese news reports as being looked into. And lots of drugmakers said they had been visited by investigators, including Belgian drugmaker UCB, Eli Lilly ($LLY), AstraZeneca ($AZN), Lundbeck and Novo Nordisk ($NVO). But little has been said for some months about the other probes.

But China does much of its work behind closed doors, and some business observers in China think the crackdowns will continue as part of a way to help Chinese companies better compete and for the government to extract price cuts from foreign companies. GSK discounted prices as part of its ordeal. Two antitrust lawyers told the NYT that cases against companies have been hurried by courts, giving companies little time to prepare. In some cases, officials have not even been allowed to bring their attorneys to meetings with regulators.

- here's the GSK announcement
- and GSK's apology (PDF)
- read the New York Times story (sub. req.)
- get more from Reuters
- and more from Bloomberg

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