GlaxoSmithKline plc (ADR) (NYSE:GSK) Andrew Witty said that it appeared the allegations of corruption by four GSK executives in China were probably true, calling the situation “personally deeply disappointing,” reports Denise Roland with The Telegraph.
GlaxoSmithKline (GSK) is being investigated
GlaxoSmithKline plc (ADR) (NYSE:GSK) is being investigated on allegations that the company created a complex network of ‘travel agents’ to bribe people throughout the Chinese health sector. Under the guise of travel agents helping doctors, regulators, and others plan travel to conferences, this network allegedly disbursed RMB 3 billion ($488 million) in order to boost its drugs’ market share and prices.
Four Chinese nationals who work for GlaxoSmithKline plc (ADR) (NYSE:GSK) have been detained by the police, and at least one British executive has been asked not to leave the country according to CBS News, though he has not been officially detained.
Witty says that there are control mechanisms in place to prevent bribery and other forms of corruption, but that the methods these individuals used “would have been difficult to find using our controls,” despite the large sums of money involved. Witty said that he still believes GlaxoSmithKline plc (ADR) (NYSE:GSK)’s controls are robust, and the company’s own investigations have found that the extent of the bribery scandal is significantly less than what the Chinese government contends.
Simon Dingemans’s statement on investigation
When GlaxoSmithKline plc (ADR) (NYSE:GSK) CFO Simon Dingemans was asked about the impact that this investigation could have on the company while discussing Q2 earnings he said, “It’s likely that there will be some impact for the China business, but it’s very early stages and to quantify that…again, too early to tell.” He didn’t seem to think that this case would have much bearing on GSK’s financial outlook.
“We ended the half-year very much where we expected to be,” said Dingemans. “Our guidance remains unchanged for the full year of earnings per share growth percent to four percent and sales growth of around one percent.”
So far GlaxoSmithKline plc (ADR) (NYSE:GSK)’s stock price appears to be unaffected by the news, and there is not much concern that the investigation will seriously harm the company’s profits. Even if this is the beginning of a difficult period for GSK in China, that market is a relatively small part of the company’s overall strategy.
There have also been concerns about the possibility of anti-corruption charges spreading to the U.S. and the U.K., but that appears to be unlikely at the moment, Reuters reports.