GlaxoSmithKline China Executives Commit 3 Billion Yuan Of Economic Crimes

GlaxoSmithKline in China in trouble

More information is emerging in the Chinese authorities’ case against British pharmaceutical company GlaxoSmithKline (GSK). To bring you up to speed: the New York Times reported Monday that “high-ranking executives at the company’s China operations used travel agencies as money-laundering shops to funnel bribes to doctors, hospitals, medical associations, foundations and government officials.” So much money was being funneled that local travel agencies “would compete for the chance to take part.” Four GSK executives — all Chinese nationals — were detained.

That night, a company executive went on TV to apologize and detail his wrongdoing, as documented by The Telegraph:

On Monday night, Liang Hong, the company’s 49-year-old vice president of operations in China, appeared on one of China Central Television’s (CCTV) flagship evening news programmes, presumably from his detention cell.

“Having spent time reflecting over the past couple of days, I think the money we spent to run our business was too much,” said an unshaven and dishevelled Mr Liang, dressed in a striped polo shirt.

“All of these costs [of our bribery] were included in the price of the drugs. The money we spent running the business accounted for about 20pc to 30pc of the drug price”.

And yesterday, Bloomberg — NY Times’s cohort in websites banished behind the Great Firewall — noted that the depth and influence of the executives’ corruption was special:

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.

These charges come at a time as GSK is expanding its China presence.

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 was “not a trivial proposition.”

Eek, proposition. Word choice, fella.

The company could be ordered to pay up to $10 million, according to Kepler Capital Markets. But experts told Bloomberg that it wouldn’t really matter, since GSK is big pharma, and $10 million is a pittance.

“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,” [Fabian Wenner, a Kepler Capital health-care analyst in Zurich] said in an interview yesterday. “I haven’t spoken to any investor who is concerned about this yet.”

Meanwhile, China’s anti-corruption sweep — conducted like random drug tests — continues. The Wall Street Journal has more information about that if you’re interested.

3 Responses to “GlaxoSmithKline China Executives Commit 3 Billion Yuan Of Economic Crimes”

  1. laowai88

    GSK must have pissed somebody off or supported the wrong guy in a power struggle to get themselves singled out like this.

    Nothing they’ve done is unusual by Chinese business standards.

    Reply
  2. Dr David Hill

    No I would not on moral grounds and where at long last at least China is standing up against these giant pharmaceutical groups and their criminal operations. Indeed the 100s of millions paid out in China in bribes et al, is endemic in a corrupt system that looks on fines and payments to government bodies as a mere expense figured into the cost of drugs in the first place – no risk attached.

    At least China is standing up against these giant pharmaceutical groups.

    But GSK and all the major pharmaceutical giants are all the same when it comes to corruption and underhanded practices. Over the past 6 years alone over $13 billion in fines or payments out of court have been made by the 5 big players. No doubt if analysis were made of the top 100 pharmaceutical companies the fines et al for fraud and corruption would exceed $30 billion most probably over the same period. So what is their game in doing this? If one analyses the vast profits that the pharmaceutical industry makes every year you quickly come to realise that in the case of the big ’5′ these payments are mere expenses. Take for instance GSK’s payment of $3 billion+ last year to the US authorities and where it was reported in the media that they sold over $28 billion of these fraudulent drugs over a long period and where they were life-threatening to our young and old alike. But added to this it is a known fact that GSK make at least 50% bottom-line profits (after taking off R&D costs) on sales. Therefore that equates to a $14 billion profit. Take $3 billion from $14 billion and you still have a very nice earner indeed of $11 billion. Therefore the pharmaceutical industry looks on these matters as mere expenses for they know whatever happens they will come up smelling of roses, even if their actions endanger human life, as history shows they have.

    But to understand the mind-set fully of the giant pharmaceutical groups you have to understand where they come from – Surprising in the main, the Nazi era – http://foolscrow.wordpress.com/2010/07/27/return-to-nuremberg-big-pharma-must-answer-for-crimes-against-humanity/

    Dr David Hill
    World Innovation Foundation

    GSK and all the major pharmaceutical giants are all the same when it comes to corruption and underhanded practices. Over the past 6 years alone over $13 billion in fines or payments out of court have been made by the 5 big players. No doubt if analysis were made of the top 100 pharmaceutical companies the fines et al for fraud and corruption would exceed $30 billion most probably over the same period. So what is their game in doing this? If one analyses the vast profits that the pharmaceutical industry makes every year you quickly come to realise that in the case of the big ’5′ these payments are mere expenses. Take for instance GSK’s payment of $3 billion+ last year to the US authorities and where it was reported in the media that they sold over $28 billion of these fraudulent drugs over a long period and where they were life-threatening to our young and old alike. But added to this it is a known fact that GSK make at least 50% bottom-line profits (after taking off R&D costs) on sales. Therefore that equates to a $14 billion profit. Take $3 billion from $14 billion and you still have a very nice earner indeed of $11 billion. Therefore the pharmaceutical industry looks on these matters as mere expenses for they know whatever happens they will come up smelling of roses, even if their actions endanger human life, as history shows they have.

    But to understand the mind-set fully of the giant pharmaceutical groups you have to understand where they come from – Surprising in the main, the Nazi era – http://foolscrow.wordpress.com/2010/07/27/return-to-nuremberg-big-pharma-must-answer-for-crimes-against-humanity/

    Dr David Hill
    World Innovation Foundation

    Reply

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