GlaxoSmithKline distances itself from employees in China probe; 2Q profits down

LONDON – UK pharmaceutical company GlaxoSmithKline distanced itself Wednesday from the scandal engulfing its operations in China, saying that four employees suspected of paying bribes were acting outside of company controls.

GSK's CEO Andrew Witty refused to offer detail on the criminal investigation, but portrayed the company as being a victim of people "acting outside of our processes." He insisted that "99.9" percent of GSK's employees play by the rules.

Chinese police allege that four employees of GSK China are suspected of paying bribes to doctors and hospitals to encourage them to prescribe medications.

"We have zero tolerance for this kind of behavior," Witty said during a conference call on its second-quarter earnings.

Describing it as "shameful," Witty added that the company had reached out to regulators in both the U.S. and Britain and is cooperating with all of the relevant authorities. He said it was too early in the investigation to know whether criminal charges might be laid against the company by Chinese authorities.

In his comments to investors, Witty said that while the company was likely to see some impact on their performance in China as result of the current investigation, it was too early to quantify the extent and cost.

Since news of the arrests in China, GSK has said that its China finance director has been barred since June from leaving the country. The Financial Times reported that a British anti-fraud investigator who worked for the company also has been detained.

Police in China allege the detained employees obtained money to pay the bribes by arranging to receive phony invoices or rebates from travel agencies. The official Xinhua News Agency has cited a police investigator who said the employees did this to avoid GSK's internal anti-bribery controls.

Witty spoke during a conference call following the release of a second-quarter earnings. GSK said net profit was 1.04 billion pounds ($1.6 billion,), down nearly 16 percent from a year earlier while revenue rose 2 percent to 6.6 billion pounds.

But the call was totally overshadowed by questions about the probe. Though Witty sidestepped queries about whether he would hand back any bonus he might receive because of the investigation, he insisted the company itself did not know about the fraud.

"It appears some individuals have let us down," he said.

Witty said that while he was willing to go to China to lead the company's response, he had other responsibilities and no plans to go at the moment.

His remarks come only days after the British company said its president for Asia-Pacific and emerging markets met with Chinese police officials examining whether GSK employees bribed medical personnel to prescribe its drugs. The executive, Abbas Hussain, said in a statement that the actions breached Chinese law.

The Chinese probe is not the first time GSK has fallen afoul of authorities.

In the U.S. last year, the company paid $3 billion and pleaded guilty to promoting two popular drugs for unapproved uses and failing to disclose important safety information on a third in the country's largest health care fraud settlement.

The criminal case was accompanied by a civil settlement in which the government said the company's improper marketing included providing doctors with expensive resort vacations, European hunting trips, high-paid speaking tours and even tickets to a Madonna concert.

At the time, GSK expressed regret and said they have learned "from the mistakes that were made."

Meanwhile in the UK, the company is under investigation for paying off competitors to delay launches of their own versions of GSK's best-selling antidepressant, Seroxat.