SHANGHAI/LONDON: China fined GlaxoSmithKline Plc a record 3bn yuan ($489m) yesterday for paying bribes to doctors to use its drugs, underlining the risks of doing business there while also ending a damaging chapter for the British drugmaker.
A court in the southern city of Changsha handed suspended jail sentences to Mark Reilly, the former head of GSK in China, and four other GSK executives of between two and four years, according to state news agency Xinhua.
Briton Reilly, shown on state television wearing a suit and looking tired during the trial, will be deported, a source with direct knowledge of the case said.
The verdict, handed out behind closed doors in a single-day trial, highlights how Chinese regulators are increasingly cracking down on corporate malpractice.
However, it also offers GSK a potential way forward in the fast-growing Chinese pharmaceutical market, a magnet for foreign firms who are attracted by a healthcare bill that McKinsey & Co estimates will hit $1 trillion by 2020.
“If GSK China can learn a profound lesson and carry out its business according to the rule of law, then it can once again win the trust of China’s government and people,” Xinhua said in a commentary. Xinhua closely reflects China’s official government view.
The fine, equivalent to around 4 percent of GSK’s 2013 operating profits, was less than some investors had feared. GSK will take a charge in the third quarter and pay the penalty from existing cash resources.
GSK said it remained committed to China and promised to become a “model for reform in China’s healthcare industry”.
“GSK Plc has reflected deeply and learned from its mistakes, has taken steps to comprehensively rectify the issues identified at the operations of GSKCI, and must work hard to regain the trust of the Chinese people,” GSK said in a written apology.
Future commitments include investment in Chinese science and improved access to medicines across the country through greater expansion of production and flexible pricing, it said.
Roche Chief Executive Severin Schwan said in an interview this week: “I remain very bullish about China, even though currently the market has slowed down and pricing pressure has increased.” GSK also faces investigations into its overseas practices by US and British authorities. Those investigations continue and could result in further penalties for the group.
“The SFO criminal investigation into the commercial practices of GlaxoSmithKline Plc and its subsidiaries continues,” a spokeswoman at Britain’s Serious Fraud Office said in an email.
In the United States, GSK is being investigated under the Foreign Corrupt Practices Act, which prohibits bribery of public officials.
In addition to the high-profile Chinese case, GSK has been accused of corrupt practices, on a smaller scale, in Poland, Syria, Iraq, Jordan and Lebanon.
GSK said the activities by the firm’s China unit were a “clear breach” of GSK’s governance and compliance procedures.
Reuters
