Will Glaxo's peers follow its anti-corruption lead in China?

GlaxoSmithKline ($GSK), post-corruption scandal, has been working hard to clean up its act in China, overhauling its sales practices to wipe out bribery--and its general manager in the country, Hervé Gisserot, has said he expects to see other companies follow suit. But with sales hanging in the balance, some might not be sure just how to do that.

As the Financial Times reports, local drugmakers are still willing to offer doctors kickbacks to prescribe their drugs--meaning companies that banish bribery sacrifice those sales. With growth in the country already down--it measured just 5% at the middle of the year, the FT notes--that's an unappealing prospect to drugmakers working to boost their China sales as markets in the U.S. and Europe stagnate.

But turning a blind eye to corrupt practices carries its own risks, too. Just ask GlaxoSmithKline, which coughed up $489 million and narrowly dodged prison time for a top exec after officials came down on the pharma giant for funneling doctor bribes through travel agents.

"If you're the general manager of a foreign pharma company in China you're under pressure from headquarters to hit your sales targets but you're also thinking, 'I really don't want to go to jail,'" one China-based consultant told the newspaper.

Glaxo, for its part, has had the "unenviable luxury of having hit a brick wall and starting again," Kent Kedl, senior managing director in China for Control Risks, told the FT. In the wake of the scandal, it's eliminated sales-based compensation incentives for reps, nixed doctor speaking fees and tripled an in-house compliance team that now checks every submitted receipt.

But its rivals "have the challenge of fixing the wing while they're still flying," he pointed out.

And some of them may not necessarily want to go GSK's route. "To stop linking pay to performance is something we do not understand," the head of one Western drugmaker recently told the Times. "We fully support that sales is not the only factor. But performance has to be one element of compensation."

GSK China general manager Hervé Gisserot

Gisserot, though, expects to eventually see them come around. "I think it will be a domino effect," he said late last month. "It will be hard for other players to explain why they are sticking to the old model."

Meanwhile, corruption isn't the only factor plaguing multinational pharma companies in China. The government's efforts to cut drug prices have taken their toll, too. New tendering processes are forcing drugmakers to offer up discounts across entire Chinese provinces, with local negotiations happening on top of that, the FT reports.

- read the FT story (sub. req.)

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