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Jul 22, 2013, 03.43 PM IST | Source: Reuters

GSK says senior execs appear to have broken Chinese law

GSK's head of emerging markets, Abbas Hussain sent to China last week to lead GSK's response to the crisis said certain senior executives of GSK China, who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law

GlaxoSmithKline said on Monday that some of its executives in China appeared to have broken the law as part of a major bribery scandal that has ensnared the British drugmaker.

The company also said that proposed changes to its operations would result in lower prices of its medicines in China.

Also Read: How GlaxoSmithKline missed red flags in China

"Certain senior executives of GSK China, who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law," the firm's head of emerging markets, Abbas Hussain, said in a statement.

Hussain, sent to China last week to lead GSK's response to the crisis, held a meeting with the Ministry of Public Security at which he also promised to review GSK's business model.

"Savings made as a result of proposed changes to our operational model will be passed on in the form of price reductions, ensuring our medicines are more affordable to Chinese patients," Hussain added.

Police last week accused GSK of bribing officials and doctors to boost sales and raise the price of its medicines in China. They said GSK transferred up to 3 billion yuan (USD 489 million) to 700 travel agencies and consultancies over six years to facilitate the bribes. Four senior Chinese executives from GSK have been detained.

GSK has said it was deeply concerned by the allegations, which it called "shameful".

In a statement, China's Ministry of Public Security said Hussain apologized for the scandal during the meeting.

Hussain was dispatched to China by Chief Executive Andrew Witty, along with the group's global head of internal audit and a senior legal official, a person familiar with the matter said on Friday.

Witty will detail what action the drugmaker is taking in response to the bribery allegations when he presents quarterly results on Wednesday, sources said.

The company has run into problems despite conducting up to 20 internal audits in China each year, resulting in the sacking of dozens of staff for misconduct. In 2012, GSK dismissed 312 staff for policy violations worldwide, according to its annual Corporate Responsibility report, of which 56 were in China.

There has been widespread speculation that other multinational drug companies would be drawn into the corruption investigations.

The National Development and Reform Commission (NDRC) - China's powerful economic planning agency which sets and enforces drug prices - said it would establish a web platform to monitor the pricing behavior of drugs distributors, but gave few details.

Since 2000, the NDRC has made three rounds of adjustments on the maximum retail prices for medicines, the agency said in a statement posted on its website. Those efforts were geared toward preventing a rise in prices.

"The next step is to establish an online platform for medicine factory price monitoring, and strengthen monitoring of distributors' pricing behavior," the statement said, citing an unnamed official.

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