Glaxo names new head for China drug unit amid corruption claims

BEIJING, July 26 — GlaxoSmithKline Plc appointed a new head at its China unit amid claims that it used cash and sexual favours to bribe doctors and health officials in the country.

Herve Gisserot replaces Mark Reilly, who left China after four executives were detained in the nation last month. Gisserot was the senior vice-president of Glaxo’s European business. Reilly will become part of the drugmaker’s senior executive team in London, said Simon Steel, a company spokesman.

The crackdown on medical corruption has extended to other foreign drugmakers and local hospitals since China announced the Glaxo allegations in June. The claims prompted chief executive officer Andrew Witty (picture) to dispatch Glaxo’s head of emerging markets to China to meet government officials and oversee the reponse to the probe in the country, where it earned £1 billion (RM4.9 billion) in sales last year.

“It appears that this is a consequence of some individuals working outside of the controls and processes of the company to defraud the company as well as to then go on and do things which are potentially illegal,” Witty said on a July 24 call to discuss quarterly earnings. “We’re also seeing an inflection point in the Chinese environment in terms of how the government wants to see their entire health-care sector modernise.”

Glaxo’s sales contribution from China, where revenue gained 20 per cent last year, is “likely to be impacted by the current inquiries” in the second half of 2013, chief financial officer Simon Dingemans said on the call. “It’s too early to quantify this,” he said.

Witty commissioned law firm Ropes & Gray to conduct an independent review on the China investigation.

Spurious Meetings

The allegations against London-based Glaxo involve three billion yuan (RM1.56 billion) in spurious travel and meeting expenses as well as trade in sexual favours, the Public Security Ministry said July 15.

Reilly, who moved to China in 2009, left the country for the UK on June 27 after four of his colleagues, all Chinese nationals, were detained. His return was for a routine, planned business trip, the company said at the time.

The executive will help Glaxo respond to the investigation and support Gisserot during a transition period. Gisserot has served as president of Leem, a French trade group representing pharmaceutical companies, since January.

A travel restriction on Steve Nechelput, Glaxo’s finance chief in China, has been lifted, and he will remain in his current role, the company said.

Affordable Drugs

“There is still a lot we need to find out,” Witty said on the July 24 conference call. “We will learn from this and we will make changes.”

The company supports the efforts of the Chinese government to reform the medical industry and is open to looking at ideas to improve affordability and access to Glaxo’s drugs, including changing its business model in the country, Witty said.

Separately, Yu Yingzeng was identified by Reuters yesterday as being a US citizen detained in connection with China’s crackdown on medical corruption. Yu is the wife of Peter Humphrey, the British national also detained by Chinese authorities, Reuters said, citing two people with direct knowledge of the matter.

The couple co-founded ChinaWhys, a Shanghai-based risk consultancy that provided services for Glaxo in the past, the report said. It’s unclear if their detention is directly related to the investigation into Glaxo, Reuters said. — Bloomberg