Will Chinese Bribery Scandal Scuttle Glaxo Stock?

Another day, another set of damaging details emerges about the GlaxoSmithKline (GSK) bribery scandal in China. Chinese authorities have now released the names of four senior execs – all of whom are Chinese nationals – who are being detained and noted that the drugmaker used some 700 middlemen, such as travel agents, to funnel hundreds of millions of dollars to doctors and health officials to boost prescriptions of its drugs.

GSK Chart

GSK data by YCharts

“From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China," said Gao Feng, head of the economic crimes investigation unit at the Ministry of Public Security, according to The Telegraph.

"We could not find the evidence [of corruption] in their accounts. They used travel agents as a money platform. But I must make it clear that among these partners, GSK is the main party responsible. It is like a criminal organization, there is always a boss. In this game, GSK is the godfather.” He noted the drugmaker is also being investigated by US authorities for potential violations of the Foreign Corrupt Practices Act.

The incident, which also reportedly involves ‘sexual favors’ offered to Glaxo execs by various travel agencies, has greatly embarrassed the drugmaker and will likely hinder efforts to restore its reputation after paying a $3 billion fine last year to the US government for civil and criminal charges stemming from marketing practices and withholding clinical trial data, among other things.

GSK Revenue TTM Chart

GSK Revenue TTM data by YCharts

The investigation, which Chinese authorities say was not sparked by a Glaxo whistleblower (see earlier Pharma news), may eventually implicate other drugmakers as well, since Chinese authorities have been combing through travel agency records and reportedly found indications that some agencies were doing outsized business with multiple pharmaceutical companies.

Among the Glaxo execs who have been arrested are Zhao Hongyan, 41, legal counsel and head of compliance; Liang Hong, 49, a vice president in charge of operations; Huang Hong, 45, a general manager in charge of commercial development and Zhang Guowei, 50, human resources director. The foursome was once dubbed China’s. "quadriga.”

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  pharma stocks   

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