China hands drugmaker GSK record $489 mln fine, sentences executives

 China has fined GlaxoSmithKline Plc a record 3 billion yuan ($488.8 million) for paying bribes to doctors to use its drugs, the British company said on Friday, drawing to a close a corruption probe that rocked the pharmaceutical sector in China.

A court in the city of Changsha also sentenced Mark Reilly, the former head of GSK in China, and other GSK executives to between two and four years in jail, according to state news agency Xinhua.

However, Briton Reilly will be deported and will not face jail time in China, a source with direct knowledge of the case said.

“Reilly will be deported so he won’t be in detention in China,” said the source, who declined to be named because of the sensitivity of the case.

The verdict, handed out behind closed doors in a single-day trial according to Xinhua, is the culmination of a Chinese probe into the British drug maker which Chinese authorities made public in July last year.

Chinese police said then that the firm had funnelled up to 3 billion yuan, exactly the same amount as the fine, to travel agencies to facilitate bribes to doctors and officials.

GSK said the activities by the firm’s China unit were a “clear breach” of GSK’s governance and compliance procedures.

“Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this,” GSK CEO, Andrew Witty, said in the statement.

The case is the biggest corruption scandal to hit a foreign company in China since the Rio Tinto affair in 2009, which resulted in four executives, including an Australian, being jailed for between seven and 14 years.

SUDDEN JUDGMENT

The judgment on Friday took many people by surprise, partly because Chinese authorities did not make the date of the trial public in advance. Police handed proposed charges to the country’s prosecutors in May.

The judgment from the Changsha Intermediate People’s Court means China has charged GSK’s China unit with bribery as well as the individual executives.

Under Chinese criminal law, bribery by a corporate unit can lead to a large fine and jail sentence for the unit’s head.

GSK said it remained committed to China – a huge and growing market for pharmaceutical companies – and promised to become a “model for reform in China’s healthcare industry”.

“GSK Plc has reflected deeply and learned from its mistakes, has taken steps to comprehensively rectify the issues identified at the operations of GSKCI, and must work hard to regain the trust of the Chinese people,” GSK said in a written apology.

Future commitments include investment in Chinese science and improved access to medicines across the country through greater expansion of production and flexible pricing, it said.

Shares in the company were slightly higher on Friday, despite the Chinese news, as the market took the penalty in its stride. A fine had been widely expected and the $489 million hit will be relatively manageable for a company with a market value of $113 billion.

“GlaxoSmithKline will hope that this will draw a line under events in China, but it will take time for its Chinese commercial operations to recover,” said Mick Cooper, analyst at Edison Investment Research in London.

GSK faces investigations into its overseas practices by U.S. and British authorities. Those investigations continue and could result in further penalties for the group.

In addition to the high-profile Chinese case, GSK has been accused of corrupt practices, on a smaller scale, in Poland, Syria, Iraq, Jordan and Lebanon. (1 US dollar = 6.1376 Chinese yuan).