GlaxoSmithKline ($GSK) is again scrambling to put out fires, as The Wall Street Journal has published new allegations suggesting that GSK employees paid Chinese doctors bribes to prescribe drugs, Botox in particular--allegations the company denies. Even if the company runs afoul of Chinese authorities over the matter, one analyst said any financial fallout would be too small to matter for its bottom line.
"China is really not a big needle mover in terms of earnings for Glaxo, even if emerging markets as a whole are an important sales growth driver," Deutsche Bank analyst Mark Clark told Bloomberg. Glaxo brings in less than 3.5% of its revenue from China, and those sales return less to the bottom line than its business in the West, he pointed out.
The Wall Street Journal describes a recent marketing plan, named after Russian sniper Vasily Zaytsev, that targeted certain doctors. It says GSK employees were warned to use their personal email accounts to discuss the results of sales quotas for Botox. Glaxo markets the Allergan ($AGN) drug in China. The newspaper said it could not confirm that any doctors actually received payments, but documents it received from a whistleblower indicated they could get cash payments of $245 to $490 and other rewards. The newspaper earlier reported that between 2006 and 2010, GSK used speaking fees and other rewards to get doctors in China to prescribe its drugs.
GlaxoSmithKline spokesman Simon Steel told FiercePharma in an email today that "We can confirm we have received allegations relating to our sales and marketing of therapeutic Botox in China. We believe they come from the same source who has made previous claims of alleged corruption and bribery in our China business. After a thorough investigation, we found no evidence to support these previous allegations." He said the company is investigating the new allegations and has investigated the "so-called Vasily" program and found that it was never implemented and didn't involve anything "untoward" if it had been.
Other reports have said GSK employees are under investigation by Chinese authorities for "economic crimes," but it is not clear whether that probe is focused on the same allegations made by the whistleblower. According to Bloomberg, a top Glaxo financial exec in Shanghai and some GSK employees in Beijing have been "detained" as part of the probe. Steel said GSK will cooperate with authorities in that probe but that it is unclear "what the precise nature of the investigation is."
China is known as a place where doctors often supplement meager salaries with gratuities from drugmakers, a practice the government has tried to rein in. Drugmakers are putting more resources into emerging markets but often find that healthcare officials expect some kind of incentive for prescribing specific drugs. But countries like the U.S. won't tolerate bribing foreign officials because it perpetuates corruption in those countries, and so drugmakers sometimes find themselves the targets of investigations for any practices that look suspicious. Pfizer ($PFE) and Johnson & Johnson ($JNJ) have settled charges for doing that. AstraZeneca ($AZN), Sanofi and ($SNY) Actavis ($ACT) last year were indicted for allegedly paying bribes in Serbia.
Any fines that China might impose, if it decides GSK has done anything wrong, are not likely to be large enough to matter to its financial picture, Kepler Cheuvreux analyst Fabian Wenner told Bloomberg. "To have an impact on the share price, you'd have to speak about several hundred million dollars or pounds in fines, and I doubt that that will be the case," he said.