GlaxoSmithKline CEO Andrew Witty said a bribery investigation would hit the company's business in China, where sales grew 14% in the second quarter.
LONDON (CNNMoney)
GSK (GSK) admitted this week that some of its executives may have broken the law, and promised to change its business practices, after Chinese police accused the company of facilitating a bribery ring to artificially boost drug prices.
The British drugmaker is accused of channeling nearly $500 million through a network of 700 travel agencies to pay bribes to government officials, medical associations, hospitals and doctors.
"Clearly, we are likely to see some impact to our performance in China as a result of the current investigation, but it is too early to quantify the extent of this," GSK CEO Andrew Witty said in a statement. "We are co-operating fully with the Chinese authorities in this matter."
Four senior GSK executives have been detained. State television has aired an apparent confession by one of the four, Liang Hong, explaining how the scheme worked, including the use of fake conferences and travel agencies to create receipts for services that were never performed. The surplus funds were allegedly then used to pay bribes.
In addition, Steve Nechelput, finance director for GSK China, has been prevented from traveling outside the country since the end of June.
Related: China drugs scandal set to grow
Chinese police accused 39 hospital workers of taking more than $450,000 in kickbacks from pharmaceutical firms over a three-year period, state media reported Wednesday. Nine of the doctors involved had been suspended or had their licenses revoked, and a case involving a trade union official was referred to the judicial system.
China appears determined to clean up its healthcare sector. It is investigating price-setting practices at 60 pharmaceutical companies and lawyers believe firms other than GSK may become ensnared in the anti-corruption drive.
Two managers working for a second British drugs firm, AstraZeneca (AZN), have been questioned by police after a local sales representative was detained last week. The firm said it had no reason to believe the action was linked to the GSK investigation.
Big pharmaceuticals companies have rushed to invest in China in recent years to take advantage of rapid growth for medical treatments, but they're now under enormous pressure to reduce costs as the population ages, straining the country's medical system and care facilities.
GSK's sales of pharmaceuticals and vaccines in emerging markets grew by 2% in the second quarter, double the rate for the division as a whole. Revenue from China spiked 14% to £212 million ($18 million). Emerging markets account for about 23% of revenue in the division.
First Published: July 24, 2013: 9:30 AM ET
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