GlaxoSmithKline's problems in China just got bigger with new allegations from Chinese officials. Contrary to Glaxo's official explanations, police say rogue executives didn't engineer $489 million in alleged bribes. The company itself organized the scheme, they say, and made sure internal auditors didn't uncover it.
The latest allegations not only put more pressure on Glaxo ($GSK) but also raise additional concerns for pharma companies already scrambling to deal with China's crackdown on alleged corruption and predatory pricing. Companies are stepping up compliance efforts, Reuters reports, and executives are jetting in to dig into potential "grey zone" business. Meanwhile, drugmakers' sales are suffering as worried doctors bar sales reps.
According to Xinhua, the state news service, individuals involved in the GSK case have divulged more information about the suspected bribes. "As the investigation is moving on, it is becoming clear that [the alleged bribery was] organized by GSK China rather than drug salespeople's individual behavior," Xinhua said.
The company not only facilitated the alleged bribes but also made sure they wouldn't be uncovered during routine compliance checks, officials claim. Police investigators found that GSK China merely "went through the motions" with their internal audits "so as not to discover these violations," Xinhua said. If so, that could explain why GSK officials didn't find evidence to back up a whistleblower's allegations that cropped up early this summer--but Chinese authorities apparently did.
CEO Andrew Witty has blamed "certain senior executives" at GSK China acting "outside our processes and controls." He has also said that London headquarters knew nothing of the alleged fraud. After the latest report, a company spokesman told the Telegraph that the new issues "would be a clear breach of our corporate values and we have zero tolerance for any behavior of this nature."
Other companies are checking up on their China units to make sure that "zero tolerance" really means zero tolerance. Citing executives who didn't want to be identified, Reuters reported that companies are bringing in lawyers to check for antitrust violations. One medical devices executive visited all his company's offices to make sure staffers and third-party sales agents weren't overstepping the lines.
The fallout in China has already extended to sales, Ipsen CEO Marc de Garidel said during a conference call with reporters. Some hospital doctors are refusing to meet with sales reps, and that depressed the French drugmaker's Chinese sales in July and August. "In certain cities, in certain areas, there is a toughening of the marketing conditions," Garidel said (as quoted by Bloomberg). "We are monitoring this very closely. We don't know how long it will last."
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