China talks about massive fines against GSK

It's never good when authorities talk openly of imposing "astronomical" fines on a drugmaker. But China officials have suggested that about GlaxoSmithKline ($GSK), even as a spray of Chinese news reports accuses former GSK China leader Mark Reilly of fostering a culture that encouraged doing whatever neccessary to hit huge sales goals.

"We should learn from the practice of other countries in imposing astronomical fines," the Ministry of Public Security said on its website Tuesday, according to the South China Morning Post.

The company has said that some of its employees may have committed violations, but GSK CEO Andrew Witty has suggested that the bribery was unknown to upper management and was the act of a few bad players. But the Ministry's website included comments attributed to GSK China-based general manager Huang Hong, who said the drugmaker set targets for as much as 25% growth in sales. "With such unreasonable targets, if we do not resort to illegal measures, it's very difficult to achieve such high sales growth. Mark Reilly changed the company's objective to sales being king," Huang is quoted as saying. Other reports accuse GSK execs of pushing the blame onto lower employees when the case broke.

Reilly left the country just as the probe was unfolding on what GSK said was a pre-planned business trip. But GSK has kept him in London to help with the investigation. It dispatched Hervé Gisserot, who had been co-head of Glaxo's pharmaceutical business in Europe, to take his place. The government has accused the company of using travel agencies to funnel $490 million in payments and gifts to doctors, hospitals and officials to snag business. There have also been allegations of sex being provided as payment and of GSK officials getting bribes from travel agencies wanting in on the action. 

A GSK spokesperson said today that, "We remain deeply concerned by the allegations of fraudulent behaviour and ethical misconduct in our China business. The reports published today relate to the ongoing investigation being conducted by the Chinese authorities. The issues identified would be a clear breach of our corporate values and we have zero tolerance for any behavior of this nature." The company reiterated its cooperation.  

Citing an interview with the Xinhua news agency, reported Huang saying that Reilly ordered a team be dedicated to court deputy heads of major hospitals and pharmacy department heads at each hospital to increase sales. She said the execs knew what was going on and that the finance and compliance departments "acquiesced in the offering of bribes to hospital chiefs and doctors."

While most of the focus has been on GSK, other companies have been wrapped up in allegations of improprieties as well, including Sanofi ($SNY), Eli Lilly ($LLY) and Novartis ($NVS). Other companies have been visited by authorities for questioning.

Even as Chinese authorities have begun talking of big fines, there is an expectation that officials in the U.S. and U.K. are collecting info to see if GSK and others have violated their own anti-bribery laws. "We expect GSK to be subject to investigations by the U.S. and U.K. authorities," Daniel Roule of Squire Sanders told the South China Morning Post. The U.S. law firm is active in pharma legal work. "If it's found by U.S. and U.K. investigators that GSK had compliance programs but didn't implement them effectively, then GSK will have a problem."

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