This was probably not the kind of discussion GlaxoSmithKline (NYSE:GSK) CEO Andrew Witty wanted to have.
Three GSK products received U.S. Food and Drug Administration approval in the second quarter. The company saw its U.S. pharmaceuticals and vaccines sales increase 5 percent in the quarter, the best quarterly growth for that business in more than four years. Looking ahead, GSK’s drug pipeline outlook is bright, or at the very least, productive. GSK expects to clinical trial results on 13 more assets over the next 18 months,.
Yet on the British pharma company’s Wednesday conference call to discuss second quarter results, one analyst after another pressed Witty on the company’s dealings in China, where GSK officials are being now being investigated for corruption. The Chinese government alleges that GSK executives bribed government and health officials to use GSK products, tactics taken in order to boost sales of GSK drugs. There are claims that travel agencies were used as intermediaries to move money. And the corruption involved more than money. Some doctors were allegedly bribed with sexual favors.
So on Wednesday, Witty responded to the analyst questions.
He offered few answers.
Witty acknowledged the investigation, condemned the alleged conduct and said an independent review would investigate the matter.
“To see these allegations made about people working for GSK is as we have said shameful and for me personally they are deeply disappointing,” Witty said, according to a transcript from SeekingAlpha. “The alleged activities are not what we expect of our people and are totally contrary to our values.”
When pressed by analysts by analysts for more, Witty deflected their parries. It’s understandable he would say very little, given that an investigation is underway. But it still runs counter to the openness and transparency Witty has professed throughout his tenure as CEO.
Soon after becoming GSK’s top executive in 2008, Witty started beating a drumbeat of change. He said pharma needs to move away from selling “white pills in Western markets.” In other words, pharma would need to shift its emphasis away from selling to the large and lucrative U.S. and European markets and build sales in emerging markets, including China.
Witty also acknowledged that pharma companies, including GSK, had run amok in the 1990s and early 2000s, offering trips and trinkets to doctors in order to boost drug sales. The wining and dining of doctors was understood, even accepted as a way of conducting business in the pharmaceutical industry. GSK has also faced allegations that it pushed unapproved, off-label uses of its drug in order to boost sales. GSK and others used such practices to build some of their drugs into blockbuster sellers.
To his credit, GSK under Witty has moved away from the old pharma sales practices. In 2011, the company adopted a new sales model that did not base compensation solely on drug sales. Pharmaceutical sales representatives are now evaluated on a wide range of measures, including how well they communicate to doctors the risks and benefits of a drug. The goal is for the encounter to be driven more by information and less by the pure financial incentive of making a sale.
China will no doubt play a big role in GSK’s future. The size of its market is the target of every big pharma company. But in building up its China business, it appears GSK has not also transferred the new GSK culture that Witty strives for. The drive for pure sales appears to be at the heart of the corruption allegations GSK faces in China. Many questions remain. Did Witty and other top executives know? How widespread were these practices? Does GSK have different sales rules for different markets?
For now, GSK is offering no answers. Witty has made openness and transparency a hallmark of his tenure as GSK’s top executive. If he’s to hold true to the company culture he professes, he’ll have to answer sometime.
[GSK ARCHIVE: Check out more than a decade of GSK stories as reported in WRAL Tech Wire.]
