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Q&A: The GSK scandal and what happens next

BY Rachel | 12 June, 2014 | no comments

What has GlaxoSmithKline done wrong?

Britain’s largest drugs company has admitted that its staff used a £320 million travel budget in China to channel kickbacks towards doctors who prescribed its drugs. Some of this hospitality fund was used for legitimate purposes but other payments went to corrupt travel agents who offered cash, gifts and even procured sexual favours for physicians who chose GSK’s medicines.

Does today’s settlement in China resolve the matter?

On top of paying a £297 million fine to the Chinese authorities, GSK’s name has been shamed and dragged through the mud. An investigation in Britain by the Serious Fraud Office is underway – if the SFO finds that executives in London knew anything about misconduct in China, it could prosecute the company. In the US, the Department for Justice is examining whether the company broke the Foreign Corrupt Practices Act. This is far from over.

Is this an isolated incident?

Not entirely. GSK has been accused of similar improper conduct by whistleblowers in Poland, Iraq, Jordan and Lebanon.

Why haven’t any heads rolled at the company?

Up to today, GSK’s line has been that it wanted to await the outcome of the Chinese criminal investigation before taking any disciplinary action against its own staff. Five of GSK’s executives in China have been convicted of wrongdoing including Mark Reilly, the company’s former country boss, who is likely to be deported rather than facing any jail time.

Could Sir Andrew Witty lose his job?

A £297 million fine is a huge financial hit by any standard and this debacle is particularly embarrassing for a chief executive who has put ethics at the very centre of his leadership. Sir Andrew will be under intense pressure to explain how this was allowed to happen under his watch.

That said, Sir Andrew has some powerful allies: he is highly regarded among shareholders, who believe he has steered the company successfully through the expiry of patents on key drugs, and among charities, who view him as relatively progressive on issues such as the availability of affordable drugs in poor countries.

How important is China to GSK?

In terms of pure sales, China isn’t very important: as a result of the bribery scandal, the company’s revenue from the country fell 25 per cent to £129 million in the first half of the year, amounting to just over 1 per cent of the group’s global revenue. However, emerging markets are at the centre of GSK’s long-term growth strategy: the company has made it clear it sees little future in producing only “white pills for western markets”. The company has invested $500 million in its Chinese operations which include a major research and development hub in Shanghai.