…Says executive may have broken Chinese laws
GlaxoSmithKline has dropped a scheme to increase its stake in GSK Consumer Nigeria, its consumer healthcare business in the country, following opposition from minority shareholders. According to Reuters report the decision to abandon a scheme of arrangement that would have increased its indirect ownership in the unit to 75 per cent is a fresh setback for Britain’s biggest drug-maker, which is battling a corruption scandal in China. The company said on yesterday it had agreed to consult shareholders and the Securities and Exchange Commission about the proposal, including whether it should be implemented by way of a tender offer.
Also yesterday Glaxo says its executives appear to have broken Chinese law. GlaxoSmithKline said some of its executives in China appeared to have broken the law in a bribery scandal, as it promised changes in its business model that would lower the cost of medicine in the country. GSK is the latest in a string of multinationals to be targeted by Chinese authorities over alleged corruption, price-fixing and quality controls.
Chinese police visited the Shanghai office of another British drugmaker, AstraZeneca, a company spokeswoman said on Monday. They arrived on Friday and took away a sales representative for questioning, she said. Health Minister Li Bin maintained the pressure on the drugs industry by stating that her department would place people and companies guilty of bribery on a black list and punish them. GSK’s head of emerging markets, Abbas Hussain, said his company had zero tolerance for employees who broke the law.
“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,” he said in a statement. Hussain, sent to China last week to lead GSK’s response to the crisis, held a meeting with the Ministry of Public Security at which he also promised to review GSK’s business model. “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,” Hussain added.
Britain’s biggest drug-maker gave no details on the changes or the extent of price cuts – but the move addresses a key issue for Beijing, which launched a probe into pricing at 60 local and international drug firms earlier this month. GSK supplies key products such as vaccines in China, as well as drugs for lung disease and cancer. Chinese police, who have detained four Chinese executives from GSK, last week accused the firm of bribing officials and doctors to boost sales and raise drug prices by funneling up to 3 billion yuan ($489 million) to travel agencies.
Last week, Chinese officials also visited the Shanghai office of Belgian drug-maker UCB. The latest visit to AstraZeneca shows authorities are spreading the net, although AstraZeneca described the case as a local police matter. “We believe that this investigation relates to an individual case and while we have not yet received an update from the Public Security Bureau, we have no reason to believe it’s related to any other investigations,” the spokeswoman said. In a statement, China’s Ministry of Public Security said GSK’s Hussain, who was dispatched to China last week by CEO Andrew Witty, apologized for the scandal during the meeting. Witty will detail what action the drugmaker is taking in response to the bribery allegations when he presents quarterly results on Wednesday, sources said.
GSK’s intention to cut the price of its medicines in China would be in line with how other foreign companies have responded to pressure from Beijing. European food groups Nestle and Danone said they would cut infant milk formula prices in China after Beijing launched an inquiry into the industry. “In China, when the government criticizes people, they tend to bow down and apologize very quickly because they are scared of the authority of the central government to do tremendous harm to their business – whether it be for arresting executives very quickly or through auditing,” said Shaun Rein, managing director of the Shanghai-based China Market Research Group.
China has long been known for a culture in which drug companies make payments to doctors, since physicians rely on rewards for writing prescriptions to offset meager salaries. Those practices, however, are increasingly at odds with a crackdown on corruption under President Xi Jinping, leaving companies struggling to toe the line while not losing business in a highly competitive market. Chinese state media has aired interviews with one of the detained GSK executives who has said travel agencies were used to arrange conferences, some of which were never held, to allocate money that could then be used for bribes. One of the agencies at the center of the scandal has been identified by state media as Shanghai Linjiang International Travel Agency.
