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GSK’s travails in China
October 9, 2013
By: Ed Silverman
Contributing Editor
In July 2012, GlaxoSmithKline chief executive Andrew Witty came close to issuing a rare apology for the egregious corporate behavior that led the drug maker to pay a $3 billion fine to the U.S. federal government. Why? There was a troika of bad practices: off-label promotion, a failure to report safety data and reporting false prices to government agencies. Mr. Witty cast his remarks as a turning point in which not only would such infractions come to an end, but a new corporate mindset would emerge, especially since he maintained that the embarrassing gaffes occurred in the past. In effect, Mr. Witty was aiming for a clean sweep — a new image for a new era. The past was the past and, going forward, GSK would behave better. “Today brings to resolution difficult, long-standing matters for (GSK). Whilst these originate in a different era for the company, they cannot and will not be ignored. On behalf of (GSK), I want to express our regret and reiterate that we have learnt from the mistakes that were made,” he said as the ink was fresh on a Corporate Integrity Agreement that says repeat offenses will be dealt with harshly. “We are deeply committed to doing everything we can to live up to and exceed the expectations of those we work with and serve. Since I became CEO, we have had a clear priority to ingrain a culture of putting patients first, acting transparently, respecting people inside and outside the organisation and displaying integrity in everything we do,” he continued. Naturally, he harped on steps in the U.S., such as overhauling compensation for sales reps, along with changes in the marketing and compliance departments. “When necessary,” he said, “we have removed employees who have engaged in misconduct.” And he maintained the drugmaker ‘enhanced’ its ability to ‘claw back’ remuneration from senior managers who commit transgressions. A few months later, GSK became the first big drugmaker to commit to making available patient-level data from its clinical trials to independent researchers, which means other scientists will have an opportunity to study the material and develop their own findings about safety and effectiveness. This also includes data for discontinued drugs. The drugmaker later locked horns with the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade group that represents the pharmaceutical industry in the U.S., over its stance. GSK, in fact, publicly supported the release of patient-level data one day after PhRMA excoriated BMJ, the prominent medical journal, for its sponsorship of a campaign to press all drugmakers to take this step. For a few months, GSK managed to get ahead of the curve and position itself as not only as a corporate citizen willing to repent, but as a leader of sorts for an issue — disclosure of clinical trial data — that has been harming the overall industry reputation. Suddenly, GSK went from being a bad boy to the kid that others should emulate. Or so it seemed. Then the bribery scandal in China broke this past summer. Although numerous drug makers have somehow since been implicated or probed — Novartis, Eli Lilly, AstraZeneca, Lundbeck, Novo Nordisk, and UCB, as of this writing — the affair began with GSK, after an insider leaked details of bribes paid to doctors and hospitals to the media. By then, Chinese authorities were following up. The allegations were sensational. GSK purportedly paid nearly $500 million since 2007 to boost prescriptions and, in some cases, reportedly used travel agencies to create conferences — real and imagined — that would attract physicians and government officials. The agencies also supposedly funneled payments that were originally disbursed by GSK employees in China. For instance, Chinese media reported that a regional sales manager in China’s Henan Province named Li, who was in charge of selling respiratory drugs to more than 10 hospitals in the capital city of Zhengzhou, explained that each sales rep was given about $1,700 and a list of doctors, who were invited to conferences. Reps were also told to establish good personal relations with these doctors. One 35-year-old rep with the surname of Wang, who worked for Li, said she would enter a doctor’s office to act as an assistant and meet their needs as much as possible, including sex, Xinhua wrote. She maintained GSK execs in China were aware and gave clear orders to bribe doctors with cash or conference trips. The Chinese police said that between 7% and 10% of sales were funneled to personal accounts held by physicians, and that once a doctor agreed to cooperate, the drugmaker paid a bonus based on the number of prescriptions written. Those who resisted reportedly were invited to conferences and offered gifts, travel and lecture fees, which were sometimes for non-existent lectures. “From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China,” Gao Feng, head of the economic crimes investigation unit at the Ministry of Public Security, told The Telegraph. “. . . 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.” Strong language, indeed. But employees were arrested and GSK soon issued a mea culpa. Abbas Hussain, GSK’s president of international operations, met with Chinese authorities, and admitted that “certain senior execs” in the Chinese unit “acted outside of our processes and controls, which breaches Chinese law.” Mr. Witty later used similar language to distance London headquarters from the imbroglio. To be fair, there is considerable speculation that Chinese authorities have pounced on the multinational drug makers because China wants to bolster its own domestic pharmaceutical industry or simply use this as leverage to extract lower prices. The National Development and Reform Commission, you may recall, is examining pricing by 60 drugmakers, including both local and multinational companies. Moreover, doing business in other cultures is, of course, challenging. China may be huge, but remains something of an emerging market and global drugmakers are simultaneously navigating government edicts and street-level rules of conduct. This is not to say that bribery is somehow acceptable, but it is viewed differently and drugmakers have learned to do what they must. “It’s a culture that hinges a lot on personal relationships,” said Ted Acosta, global leader in the life sciences practice for fraud investigation and disputes at Ernst & Young, before GSK retained the firm to review its operations in China. “The facts about products and services are sometimes as important as relationships with the purveyor of products and services. . . . They’re starting to move away from relationships, but it’s so ingrained that it’s difficult to separate and will be a slow process.” Nonetheless, the bribery was real. And the episode made a mockery of the pronouncements that GSK was turning over a new leaf. Compounding matters, GSK had trouble getting its story straight. Until the mea culpa was issued, GSK had insisted an internal probe into bribery allegations raised by an anonymous tipster had not found signs of wrongdoing. However, the e-mails sent by a tipster to GSK execs — which were routed through the public relations department — suggested the infractions were investigated both internally and by Chinese authorities. Yet in remarks to The Wall Street Journal, which leaked copies of the emails, Mr. Witty maintained the probes were about two different sets of circumstances. The allegations, he told the paper, were about “two completely different sets of issues.” Those raised by the tipster were investigated “fully,” but the drug maker was “unable to find any evidence of systems abuse or any evidence of material concern.” And the allegations made by the Chinese authorities, he added, were “quite different.” He did not offer details about how the allegations differed, but the paper compared the charges in the e-mails with what Chinese authorities outlined. And there were some remarkable similarities, suggesting that Mr. Witty was parsing about some very specific details or that GSK officials may have miscalculated the likelihood that Chinese authorities would be so interested and aggressive. There were also inconsistencies. For instance, the drugmaker also told the WSJ last June that, for four months, each claim was investigated and there was no evidence of corruption or bribery in its China operations. But there was a discrepancy, because in a May e-mail to the tipster, a GSK official wrote the drugmaker had not yet hired an external lawyer to run a probe. Recall that just last year, Mr. Witty said: “We are deeply committed to doing everything we can to live up to and exceed the expectations of those we work with and serve. Since I became CEO, we have had a clear priority to ingrain a culture of putting patients first, acting transparently, respecting people inside and outside the organization and displaying integrity in everything we do.” Unfortunately for him, the episode suggests otherwise and raises questions about the GSK commitment to transparency and restoring integrity. So what next? While GSK execs mull over the damage done, they must also contend once again with U.S. authorities. Why? The drug maker may have violated its corporate integrity agreement and the Foreign Corrupt Practices Act as well.
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