GlaxoSmithKline has become the ‘poster child for scandal’ (From Ed Silverman at the WSJ)


9:45 am ET
Sep 19, 2014

EMERGING MARKETS

Glaxo Found Guilty of Bribery in China: Can Witty Rehabilitate the Drug Maker?

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After months of anticipation, a Chinese court found the GlaxoSmithKline GSK.LN +0.90% subsidiary in China guilty of bribing doctors, hospital officials and other non-government personnel, and fined the drug maker more than $490 million, The Wall Street Journal reports. This becomes the largest such penalty levied on a company in China.

At the same time, Mark Reilly, the former head of the Glaxo unit in China, pleaded guilty to bribery-related charges and was given a three-year suspended sentence. There are varying reports, however, whether he will be deported or required to remain in China during that time. Four other senior Glaxo managers in China also received suspended sentences of between two and four years.

As we have noted previously, the drug maker had been accused of running a bribery network in China that was designed to boost drug sales. As part of the scheme, Glaxo employees allegedly bribed physicians and hospital staff members, while channeling kickbacks through travel agencies and trade groups, among others.

The court decisions cap a tumultuous episode for Glaxo, which was already struggling to restore its image and revamp business practices in the wake of a $3 billion settlement with U.S. authorities two years ago. The drug maker had been accused of failing to disclose clinical trial data for certain medicines and improperly marketing drugs, among other things.

Andrew Witty, the Glaxo chief executive, issued a brief statement: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people.” (here is the official apology, too).

Despite the contrition, pressure may be mounting on Witty, who has repeatedly emphasized the China and other so-called emerging markets are key to Glaxo growth. As the Journal points out, some investors are starting to question his overall performance and whether the scandal in China may represent a systemic problem.

Indeed, Glaxo previously acknowledged investigating claims employees bribed doctors in Poland, Iraq, Syria, Jordan and Lebanon. Meanwhile, the FBI and the U.S. Securities and Exchange Commission are probing its activities in China. As part of a probe into the pharmaceutical industry, U.S. authorities have been eyeing its overseas dealings since 2010 for possible violations of the Foreign Corrupt Practices Act.

It is worth noting that Witty has now spent half of his six-year tenure trying to overhaul business practices, and has still more fines and investigations to show for his efforts. Granted, cultural differences require varying approaches to success around the world, and Glaxo is not the only drug maker facing this challenge. But Glaxo is now something of a poster child for scandal.

Witty has made headway in other areas. In particular, he has won kudos for his push to make clinical trial data more readily accessible to researchers, a move that has helped Glaxo deflect much of the criticism leveled at the pharmaceutical industry otherwise. In trying to resolve this highly contentious issue, he placed himself and Glaxo in a leadership position.

Whether he emerges unscathed by the latest developments in China – and unfolding events elsewhere – remains to be seen, of course. But Witty may need to have Glaxo executives practice some of the self-criticism that Chinese Communist Party leaders preach as a path toward rehabilitation.

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