GlaxoSmithKline Admits Bribery, AstraZeneca Questioned by Chinese Police

Joe Goldman |

In the midst of a corruption and price fixing scandal, GlaxoSmithKline (GSK) has admitted that some of its executives in China violated Chinese bribery laws. Allegedly, the British drug giant bribed officials and doctors to boost sales and keep prices artificially high.

“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 company said in a press release. “We have zero tolerance for any behaviour of this nature.”

According to CNBC, company has already hired Ernst & Young to conduct an independent review of its Chinese operations and sent three senior executives to China to restore order. GSK also laid off 56 Chinese employees for policy violations in 2012 and conducted up to 20 internal audits in the region.

When the company reports quarterly earnings on Wednesday Chief Executive Andrew Witty will announce what further action the company will take in response to the scandal. Although China only accounts for three percent of GSK’s sales, the company could later become exposed to prosecution under the U.S. Foreign Corrupt Practices Act and Britain’s Bribery Act, so the company is naturally taking the allegations quite seriously.

“We will actively look at our business model to ensure we make a significant contribution to meeting the economic, healthcare, and environmental needs of China and its citizens,” read the press release. “In addition, 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.”

Because China represents such a small portion of GSK’s sales, shares traded down only 0.6 percent to $51.84 on Monday. Shares remain up over 19 percent year-to-date.

Chinese Police Question AstraZeneca Employee

Chinese officials visited AstraZeneca’s (AZN) offices in Shanghai and took away one employee for questioning, Reuters reported early Monday morning.

The action is believed to be related to GlaxoSmithKline’s bribery accusations, although it remains unknown how AstraZeneca is involved. The two companies have a working relationship, so their operations are naturally intertwined to a certain extent.

AstraZeneca is the largest firm to be investigated by Chinese authorities outside of GSK, the alleged original perpetrator. The company is yet to release a public comment about the investigation or the employee who was taken in for questioning.

Investors didn’t fret Monday’s news, as the company is believed to play a minor role in the investigation. Shares traded higher on Monday by 0.9 percent on news that the company is among of number of drug makers preparing a bid for Onyx Pharmaceuticals (ONXX) .

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Companies

Symbol Name Price Change % Volume
GSK GlaxoSmithKline PLC 37.69 0.00 0.00 110,890
AZN Astrazeneca PLC 26.01 0.00 0.00 866,067
PALS Mopals.com Inc 0.20 0.00 0.00 0

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