China Bribery Probe: GSK Manager Charged with Corruption; Concerned Pharma Executives May Leave China

The Chinese bribery allegations against GlaxoSmithKline (GSK) have taken a scary turn for pharmaceutical executives working abroad. According to Chinese authorities, Glaxo’s employees engaged in a bribery scheme with doctors totaling $483 million. Mark Reilly, the former China head of GSK was charged with corruption last month and could face years in prison. Recent strange details of the story reveal that a secretly-filmed sex tape may have spurred the investigation in the first place.

China originally launched their investigation against GSK last year. At the time, BBC ran a story that offered a window into the complex, and potentially dangerous, Chinese pharmaceutical marketplace:

“[F]oreign investors have looked on with a mixture of horror and sympathy: China is a complicated market with many grey areas, and most firms live in fear of the day they draw the unwelcome attention of the state.

“Much of the overseas media coverage has also leaned towards the sympathetic side, noting that the medical industry is renowned for shady dealings and implicitly suggesting that GSK has been unfairly singled out.

“As the Chinese saying goes, you kill a chicken to frighten the monkey – and if that chicken is foreign, well, all the better.

It is easy to see why this attitude has been adopted. State investigators have form in targeting foreign companies when they wish to make a point, despite the fact that local competitors in the same markets are often engaged in much more flagrant breaches of the law.”

In the months since the investigation started, and now that individual executives are being charged, other pharmaceutical executives are thinking about moving out of China, Reuters reports. “China’s crackdown on corruption in the pharmaceutical sector has frightened foreign executives so much that some fear they could be jailed and have asked their lawyers if they should leave the country for six months,” the article states. “Others are thinking of going for good.”

Even before Chinese police filed corruption charges against Reilly, “executives were getting worried about a wave of visits from police and regulators to their offices as well as articles in Chinese media alleging corrupt practices against many global drugmakers.” That fear may now have reached a breaking point.

Reuters quotes John Huang, Shanghai-based co-founder and managing partner at law firm MWE China: “Many of our clients are asking about personal liabilities and insurance, with executives asking if they are put in jail what will happen to their families and how the company will provide protection for them.”

Virtually all big drug-makers in China have come under scrutiny from police or regulators. “Last year authorities visited Novartis AG of Switzerland, Britain’s AstraZeneca Plc, Sanofi SA of France, U.S. firm Eli Lilly & Co, Germany’s Bayer AG and Danish drugmaker Novo Nordisk A/S,” states Reuters. Executives at these companies are understandably concerned that they could be targeted personally.

The bribery allegations have potentially spurred GSK to take unprecedented steps in changing the pharmaceutical marketing practices. The company announced they will abandon individual prescription sales targets and will stop paying healthcare professionals for speaking engagements. GSK is looking to have the new compensation system in place in all of countries GSK operates by “early 2015.”