19th Sep 2014 10:27
LONDON (Alliance News) - GlaxoSmithKline PLC's Chinese arm Friday has been fined GBP297 million after a court ruled that it had been guilty of bribery, concluding investigations started in June 2013 over allegations that it had paid up to USD500 million to doctors and hospital executives over the past six years.
The Changsha Intermediate People?s Court in Hunan Province ruled that Glaxo had offered money or property to non-governmental personnel in order to obtain improper commercial gains, and guilty of bribing non-government personnel.
Five senior executives including China head Mark Reilly have been sentenced to two to four years in prison, Chinese state news agency Xinhua reported Friday. Reilly has been given three years, with a four-year reprieve, and will be expelled from China, the report said.
Xinhua also named former Human Resources Director Zhang Guowei, former Vice President and Operation Manager Liang Hong and former Legal Affairs director Zhao Hongyan. The sentences of the five were reduced as they confessed the facts truthfully and were considered to have given themselves up, the report said.
Xinhua said that the bribe was "the biggest ever by a Chinese court."
A spokesperson for Glaxo was not immediately available for comment Friday morning.
Glaxo will pay the fine to the Chinese Government through its existing cash resources, and associated costs and charges related to restructuring will be included in its third quarter results.
The pharmaceutical giant said that the "illegal activities" of the Chinese brand are in clear breach of its governance and compliance procedures. On the back of the ruling, Glaxo has pledged to rectify issues in its operations; it will change the incentive programme for its salesforce, reducing and changing engagement activities with healthcare professionals, and review and monitor the invoicing and payments.
Glaxo issued an apology to the people of China, saying that it "fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities."
In the statement, Glaxo said it will make a commitment to the Chinese government and people that the China branch will take action to establish itself "as a model for reform in China's healthcare industry." This includes investing in China, further development medicines and vaccines for diseases prevalent in the country, and increasing access to its products in both city and rural areas of China.
"This long-term development strategy of GlaxoSmithKline will promote the future health and well-being of the Chinese people, and positively contribute to China?s economic and social development," the company said.
Chief Executive Andrew Witty said in a statement that reaching a conclusion in the investigation of its Chinese business is important, but said it had been "a deeply disappointing matter for GlaxoSmithKline."
Although Glaxo has cleared this significant hurdle, it is still under investigations for similar allegations across other areas of its operations, with smaller claims having since surfaced in Poland, Iraq, Jordan, Lebanon and Syria. Glaxo is also under investigation by the UK's Serious Fraud Office, and the US Department of Justice.
Liberum maintained its Sell rating for the company, saying that whilst the fine is "relatively small and manageable" for the company bigger fines could come from the Serious Fraud Office or Department of Justice if they were also to find truth in the allegations. "We have no evidence that this would be the case and on the basis that the Chinese didn't find evidence of this, we would expect the US and UK authorities to rule similarly," Liberum says.
Although Liberum believes that Glaxo has provisioned for the fine, Glaxo alluded to associated costs and restructuring charges. Although this will be non-core and hence "ignored by the market", it could have important cash implications, Liberum argues.
Liberum says that Glaxo is "significantly cash strapped" over the coming years, and its future revenue growth will be "significantly lower in what will become the world's largest drug market", so the GBP300 million will be valuable to them on top of the GBP1 billion in cash for restructuring from its deal with Novartis International AG.
Shares in Glaxo were trading up 1.0% at 1,450.50 pence Friday.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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