GSK finds toxic side effects in Chinese market

July 16, 2013

By John Foley and Edward Hadas

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own)

GlaxoSmithKline has a problem in China. The Chinese authorities have a problem that goes well beyond the UK pharmaceutical maker.

The GSK problem has a familiar ring. Along with U.S. rivals Pfizer and Johnson & Johnson, GSK settled American bribery cases. It is all too easy for these makers of high-margin products to share some of the revenue with the doctors who write prescriptions. The manufacturer, doctor and non-paying patients are all happy. Those who actually pay for the junkets and favours are often left to fume. In China, that is usually the patients.

The Chinese authorities have gone beyond fuming. The Ministry of Public Security accused GSK of transferring up to 3 billion yuan ($489 million) of kickbacks to over 700 travel agencies and consultancies. The goal was to increase market share in a pharmaceutical market worth $181 billion last year. The company says it has “zero tolerance” for such activities, and has cut off business with the agencies suspected of foul play.

GSK may be able to discipline its own overly-ambitious employees and representatives in China. But this sort of anti-corruption campaign – prosecution combined with publicity – will not be enough to stamp out the industry’s problem.

A full Chinese pharma recovery will be hard to manage. To start, the country is addicted to kickbacks and China’s doctors, who are underpaid relative to equally skilled professionals, may consider largesse from drug companies a merited bonus. Without a sense of shame, the national genius for fake paper trails is likely to prevail over corporate mission statements.

Then there are the patients, who mistrust domestic products – with reason. There have been numerous fake pharma scandals – the chief drug watchdog was executed for one of them as recently as 2007.

Finally, it takes a large collection of honest and competent bureaucrats to police an industry with this pervasive a problem. Such people are in extremely short supply in China. If the government wants to get much more than headlines out of this campaign, it will have to dedicate time and money to creating strong regulators.

 

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