[Ip-health] Bloomberg News - Police Say Sexual Favors Spur $1.5 Billion Glaxo China Sales
Riaz K Tayob
riaz.tayob at gmail.com
Wed Jul 17 04:55:52 PDT 2013
[With this kind of behaviour one would expect WHO to treat BigPharma
differently... seems unlike Chan's claims, they do behave very much like
Tobacco companies (who incidently are engaged in controversial
issues/practices in UK and Europe around plain packaging)... of course
if BigPharma knows your perversion, then enough said, or is this too
Police Say Sexual Favors Spur $1.5 Billion Glaxo China Sales
By Bloomberg News - Jul 16, 2013 12:57 PM GMT+0200
China Widens Probe of Sexual Bribes and Glaxo Execs
GlaxoSmithKline Plc (GSK) <http://www.bloomberg.com/quote/GSK:LN>'s
(GSK) sales in China jumped 20 percent to about 1 billion pounds ($1.5
billion) last year, almost quadruple the pace of growth across its
emerging markets. Police say bribes and sexual favors spurred the gain.
An employee of GlaxoSmithKline Plc (GSK) enters the company's
headquarters in Shanghai. Photographer: Peter Parks/AFP/Getty Images
The drugmaker now faces allegations of economic crimes involving 3
billion yuan <http://topics.bloomberg.com/yuan/> ($489 million) of
spurious travel and meeting expenses, and trade in sexual favors, the
Public Security Ministry said yesterday. The allegations are "shameful"
and would be a breach of the company's systems and values, Glaxo said in
Prior to a police probe that began last month, Glaxo embarked on a
strategy that tripled its Chinese sales force to more than 4,000 people
in three years as the U.K.'s largest drugmaker sought a bigger share of
the market. As that expansion was ramping up, Chief Executive Officer
Andrew Witty told analysts on a February 2010 conference call that
controlling Glaxo's operations in China
<http://topics.bloomberg.com/china/> was "not a trivial proposition."
Bribes paid to hospitals, doctors and health officials contributed to
the resulting gains in revenue, according to the ministry, which
controls China's police. If found guilty, Glaxo could be ordered to pay
a penalty of $5 million to $10 million, according to estimates by Kepler
Capital Markets based on fines paid in China for similar violations.
That'd be a fraction of its sales in China, the world's fastest-growing
major pharmaceutical market, said Fabian Wenner, a Kepler Capital
health-care analyst in Zurich.
"While being involved in criminal offenses and associated with illegal
actions is clearly damaging for GSK's reputation, I doubt that this will
be of material impact for the company," Wenner said in an interview
yesterday. "I haven't spoken to any investor who is concerned about this
Glaxo fell 0.9 percent <http://www.bloomberg.com/quote/GSK:LN> to
1,728.50 pence as of 11:50 a.m. in London trading. The stock has risen
29 percent this year, compared with a 17 percent gain in the Bloomberg
Europe Pharmaceutical Index.
In a December 2009 business strategy briefing, Mark Reilly, head of
Glaxo's China pharmaceuticals business since 2009, described a vision to
"deliver growth consistently above the market growth rate" in the country.
Glaxo would expand into hospitals in smaller Chinese cities and rural
areas, build on its lead in respiratory drugs and vaccines, and
"aggressively grow" its diabetes franchise, according to slides of
Julian Heslop, who retired as Glaxo's chief financial officer in 2011,
explained on a March 2010 conference call that the company had realized
it needed more salesmen after examining the operations of other drugmakers.
"I looked at China and I looked at the competitors and I plotted sales
force size with market share and there's an amazing correlation," Heslop
told analysts during the call. "The more salesmen, the more penetration
of the country, the bigger the market share."
Heslop said the analysis led Glaxo to realize it had made a "mistake"
when it focused more on increasing profits in China than on increasing
China's accusations against Glaxo come a year after the company agreed
to plead guilty and pay $3 billion to resolve U.S. criminal and civil
allegation that it illegally promoted prescription drugs and failed to
report safety data.
Eli Lilly & Co. (LLY) <http://www.bloomberg.com/quote/LLY:US> in
December agreed to pay $29.4 million to settle U.S. Securities and
Exchange Commission allegations that employees gave cash and gifts to
officials in China, Brazil <http://topics.bloomberg.com/brazil/>, Russia
<http://topics.bloomberg.com/russia/> and Poland
<http://topics.bloomberg.com/poland/> to win millions of dollars in
business. Pfizer Inc. (PFE) <http://www.bloomberg.com/quote/PFE:US>, the
world's biggest drugmaker, agreed last August to pay $60.2 million to
settle foreign bribery cases it disclosed to U.S. authorities involving
alleged payments paid by employees and agents of subsidiaries, including
"As GSK supplies a range of important drugs for public health, we doubt
that there will be an enduring impact on its business in China," wrote
Deutsche Bank AG's London-based analyst Mark Clark in a June 12 note to
Glaxo and rivals face a potentially greater threat in China from a
pricing investigation announced this month by China's National
Development and Reform Commission, the top economic planning agency,
"There have been suggestions that this could result in large price cuts
for those products that are available more cheaply in reference
countries abroad," Clark said.
Glaxo's revenue in China last year equate to about 3.8 percent of the
company's total, Chief Financial Officer Simon Dingemans said in an
interview in May. The company's emerging markets
<http://topics.bloomberg.com/emerging-markets/> sales grew 5.6 percent
in the period to 1.56 billion pounds, according to data compiled by
Pharmaceuticals sales in China are projected to expand 15-to-18 percent
annually through 2016, IMS Institute for Healthcare Informatics said in
July last year.
The heritage of GlaxoSmithKline in China dates from 1908, the company
said in a 2007 press release
It was one of the first foreign pharmaceutical companies to establish a
joint venture in China, with six manufacturing sites there and
investment of more than $500 million, according to its website.
"To boost the prices and sales volume of their drugs, the company has
taken some illegal actions," Gao Feng, head of the economic crimes
investigations unit at the Public Security Ministry, told reporters in
Beijing yesterday. "GSK's marketing strategy includes many things that
allow and even encourage bribery activities."
The use of kickbacks is a key reason why drug prices are higher in China
than they ought to be, Gao said.
"GSK takes a large portion of the profits from its drug sales in China
to bribe government officials, medical associations, hospitals and
doctors," he said. "Expenses for bribery are ultimately being covered by
Glaxo will cooperate fully with the Chinese authorities in their
investigation and take all necessary action required, the drugmaker said
in yesterday's statement
"GSK shares the desire of the Chinese authorities to root out
corruption," the company said. "These allegations are shameful and we
regret this has occurred."
Four senior Glaxo executives -- all Chinese nationals -- have been
detained as part of the investigation, Gao said. Enforcement measures
haven't extended to expatriate staff, though "we can't promise
anything," he said, adding that Reilly left the country on June 27 after
his colleagues were detained.
Reilly returned to the U.K. on a routine, planned business trip and has
been working from company headquarters on the response to the
investigation, according to a person with knowledge of the matter who
asked not to be identified because he wasn't authorized to speak on the
subject. The person declined to say when or if Reilly will return to China.
The drugmaker has been boosting its research and development presence in
China. For example, it opened an innovation center to develop consumer
drugs, and set up a unit testing botanicals, compounds extracted from
herbs used in traditional Chinese medicine, to treat immune disorders.
Those efforts hit a snag last month, when the company announced that it
its head of Chinese research and development. It was discovered that a
paper the scientist helped write for the journal Nature Medicine
contained data that had been misrepresented. A second individual
resigned and three others were placed on administrative leave pending a
final review, and the company requested the paper be retracted.
"If something like the scientific retraction had occurred in the U.S. or
Europe, the company involved would just have said that a researcher made
an error," said Greg Scott, founder of Shanghai-based life sciences
consultancy ChinaBio LLC, in an e-mail. "But it happened in China, so it
affects the perception of the whole country."
To contact Bloomberg News staff for this story: Daryl Loo in Beijing at
dloo7 at bloomberg.net <mailto:dloo7 at bloomberg.net>
To contact the editor responsible for this story: Jason Gale at
j.gale at bloomberg.net <mailto:j.gale at bloomberg.net>
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