LONDON (Reuters) - GlaxoSmithKline has sent its head of emerging markets and two other top executives to China to lead the drugmaker’s response to an unfolding crisis over alleged bribery and corruption.
Abbas Hussain, GSK President Emerging Markets, was dispatched 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.
All three have now arrived in the country to cooperate with Chinese authorities and try to get to the bottom of a scandal that has shaken confidence in GSK’s internal procedures.
On Monday, Chinese police 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 ($489 million) to 700 travel agencies and consultancies over six years to facilitate the bribes.
The decision to send the executives shows the seriousness with which Britain’s biggest drugmaker views a situation that threatens its reputation and risks undermining business in a big, fast-growing market.
GSK said it was deeply concerned by the allegations, which it called “shameful”.
The drugmaker has also hired auditors Ernst & Young to carry out an independent review of its systems in China, another source said on Wednesday.
China has detained four senior Chinese executives and banned GSK’s finance chief in China, Steve Nechelput, from leaving the country.
The episode has left GSK’s senior management team in China in disarray, with the general manager for China, Mark Reilly, leaving the country on July 5 for what sources said were routine meetings in London. Reilly has not returned.
Hussain is a key lieutenant of GSK’s chief executive, reflecting the importance that Witty places on emerging markets as future driver of sales for GSK. He joined in June 2008 and is a member of the corporate executive team.
GSK’s move to send senior-level reinforcements to China comes as Chinese authorities widen a probe into malpractice by drug companies.
Belgian drugmaker UCB - a medium-sized company with a particular strength in epilepsy treatment - said on Thursday its office in Shanghai had been visited by officials from the State Administration for Industry and Commerce (SAIC) seeking information on compliance.
The SAIC is one of China’s main three anti-trust regulators in charge of market supervision.
The tough Chinese action against GSK, including the detention of four senior Chinese executives and a ban on a top British executive leaving the country, has sent a chill through the wider pharmaceutical sector.
There has been widespread speculation that other multinational companies will be drawn into the corruption investigations.
“This is not just GSK. The entire industry is on a journey here,” one European drug industry executive said.
The GSK investigation is the highest-profile corporate probe in China since four executives from mining giant Rio Tinto were jailed in March 2010 for taking bribes and stealing commercial secrets. Three of those executives were Chinese while the fourth was a Chinese-born Australian.
Beijing has targeted corporations on multiple fronts in the past few months, including over alleged price-fixing, quality controls and consumer rights.
European food groups Nestle and Danone said they would cut infant milk formula prices in China after Beijing launched an inquiry into the industry.
And on Friday the official People’s Daily newspaper reported the Chow Tai Fook Jewellery Group, the world’s biggest jewellery retailer by market value, was among a number of gold shops being probed for price fixing.
Editing by Jane Merriman and Sophie Walker