GlaxoSmithKline exec admits 'breaches,' promises price cuts in China

GlaxoSmithKline ($GSK) is scrambling to contain the damage from the high-profile corruption scandal in China. Sent to deal with the developing case personally, emerging markets chief Abbas Hussain met with ministry officials--and reportedly apologized to them. Afterward, Hussain admitted that top execs had probably breached Chinese law. And then, adding a sweetener to his mea culpa, Hussain promised changes that would cut the prices of his company's drugs in China.

Meanwhile, CEO Andrew Witty is reportedly planning to address China's charges as the company announces second-quarter results on Wednesday. The four local executives detained by Chinese law enforcement earlier this month are apparently still in custody, and GSK's local finance chief is still confined to the country's borders.

Chinese officials allege that Glaxo used at least one travel agency to rack up about $489 million in bogus travel and events expenses as part of a scheme to bribe doctors and healthcare officials to use the company's products. The company also faces allegations of trading in sexual favors, Bloomberg reports.

Without naming names, Hussain said GSK employees apparently broke the company's rules. "Certain senior executives of GSK China who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law," Hussain said in a statement. "We have zero tolerance for any behavior of this nature."

Indeed, at least some of Glaxo's Chinese staffers have already faced that zero-tolerance policy. As the Financial Times reports, Glaxo has sacked more than 100 Chinese sales reps since the beginning of last year, and some of the dismissals related to concerns about potential bribes to doctors. The company has also introduced new compliance codes and conducted a series of internal audits over the past several months, the FT says.

How the detained local executives--one of whom confessed on Chinese television--escaped notice in those audits isn't clear. Glaxo has sent Ernst & Young auditors to China to conduct their own investigation of the situation. And as Reuters reports, on Wednesday Witty is set to reveal the actions Glaxo is taking in response to the bribery investigation.

We already know that one of those actions is price cuts. Chinese officials have said that GSK's alleged bribes were partly aimed at hiking the prices of its drugs. After his meeting with China's Ministry of Public Security, Hussain pledged to cut the cost of GSK products in the country. "Savings made as a result of proposed changes to our operational model will be passed on in the form of price reductions, ensuring our medicines are more affordable to Chinese patients," he said.

Another action? An apology, according to the public security ministry. In a statement, the ministry said Hussain had apologized during his meeting with officials there. Will other pharma execs be joining him? Stay tuned.

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