Posted by: Audrey Erbes | July 28, 2013

GSK Plagued by Charges in China plus Events and Jobs

Dealing in countries rift with corruption and a culture that accepts that that’s the way business is done makes it very difficult for countries with a different set of ethics and anti-corruption laws in place, for example, the “anti-corruption practices” law in the U.S., to function successfully in those markets. In order to be able to do business in cultures requiring bribery to get anything done, Western pharmaceutical companies in the past typically used other parties—distributors and private entities outside their countries not liable under such restrictions—to represent them. It was not possible to do any sales in certain Middle Eastern markets, for example, with honest practices. A sector of professionals made a good business of handling the contacts inside these markets.

With the new giant revenue opportunity offered by the BRIC countries for life science companies at the same time dollar sales growth rates decline in the U.S. and EU markets in response to shift to generics and tightening of reimbursement, it’s not surprising that Western companies are getting caught up in this issue. But I was surprised that so many large pharma companies set up their own companies in China rather than working through partner companies or distributors because of potential difficulties with handling corrupt practices and the absence of the rule of law there. Global pharma companies didn’t adequately prepare for the handling of corruption, lack of availability of enough sufficiently trained management personnel and poor enforcement of IP law and now they are suffering the consequences. Not to say that 10 years from now China might not have caught up with innovation capacity and really changed their business practices, but meanwhile it’s a very discouraging lesson to operate with these myriad headaches and costs of doing business.

Company management had trusted that the high level Chinese officials with whom they earlier spoke would keep their promises regarding IP enforcement and changing business practices but probably failed to foresee that when the rubber hits the road, the layers of government personnel might not implement these expectations. In fact, the government entities might also practice a form of coercion to benefit themselves with a more favorable cost for healthcare. China as they had with high tech and automotive industries earlier wanted the West to invest heavily in building modern facilities in China and made promises they were unlikely to keep.

One doesn’t know if the recent arrest of several GSK executives for bribing government officials, foundations, hospitals and doctors by China’s Ministry of Public Security is really a change in heart by the government about tackling corruption in China in general or a cover for obtaining product price reductions from global pharma companies and large domestic companies. CEO Andrew Witty stated at this month’s  Quarter 2 performance call, that “it appears that certain senior managers in the Chinese business have acted outside of our processes and our controls to both defraud the company and the Chinese healthcare system.” (Source: BioCentury Extra, July 24, 2013) It may be no coincidence that GSK’s Abbas Hussain, president of Europe, Japan, emerging markets and Asia Pacific recently announced passing on company savings in form of price reductions in China. See another article published by MM&M covering the same story.

Earlier on July 16 BioCentury notified us that China’s National Development and Reform Commission (NDRC), a government body responsible for economic development, had undertaken a review of drug pricing and manufacturing costs for 60 Chinese and international pharmas. The commission said the review would look at 2010-12 data, including corporate audits, sales contracts and invoices.  GSK, Astellas Pharma, Boehringer Ingelheim and Sandoz, a generic unit of Novartis were included in the survey. As reported by BioCentury, Citi Analyst Richard Yeh noted that “the survey will likely focus on branded generics from international pharmas, as well as drugs recently added to China’s essential drug list, which comprises drugs and traditional Chinese medicines that are considered the minimum level of drug coverage and are fully reimbursable under China’s Basic Medical Insurance.” Yeh said the survey “likely reflects NDRC’s intention to build a more optimized drug pricing regulation system and to provide a basis for future price cuts on overly priced drugs.”

At one point the GSK CFO was denied the right to exit China but now that issue has been resolved following the price reductions. Surprisingly several of the Chinese nationals involved in the scandal were interviewed by in country media and revealed that the use of bribes was the only way they could accomplish their jobs.

GSK has 200 development projects underway in China and has already spent $500 million in collaborations with 30 hospitals and universities there. GSK is not alone in efforts to establish a large presence in the country to position themselves for future sales but also anticipated huge savings in salaries for research activities outside their own countries which hasn’t materialized for the long term. We don’t know if the motives driving the corrupt business practices also played a role in the falsification of scientific data by top GSK research management in Shanghai. Employees in China as well as Chinese ex-patriots recruited to work there have tremendous pressure on them to succeed in this system by their companies and the Chinese government.

This separate scandal involving falsified scientific results only adds to the embarrassment of GSK, a poster child for how things can go wrong in a foreign environment with different standards of doing business. The top scientist Jingwu Zhang, who managed GSK’s 400-member scientific team in Shanghai, has been dismissed while others are being investigated for their involvement in publishing false results for the company’s leading MS product there.  A whistle blower is responsible for their acts coming to light.

Major Western pharmaceutical companies rushed to establish research centers in China to take advantage of low wages and laid off thousands of trained, experienced scientists and closed research centers in their own countries to pay for the move. But now that the cost of experienced local staff has dramatically increased and capability of the staff doesn’t measure up at this time to produce excellence, there are questions about wisdom of the strategy. Unfortunately, based on my discussions with management representatives, they failed to research the experiences of other foreign companies from other industries that suggested there would be problems like these and people in charge on the ground lacked true international experience. Working in the U.K. or France does not make one an international Asian expert but, unfortunately, many American companies made this error in judgment.

See more details about followup to GSK bribery probe at http://www.firstwordpharma.com/node/1126326#axzz2aCOOlSok and general attack against foreign pharmaceutical companies at http://www.trust.org/item/20130717081523-94bi0/?source%20=%20hpbreaking

Highlights for Upcoming Events Week of July 28, 2013

  • BioCentury This Week, See new program Webcast Starting Sunday, July 29, 2013 http://www.biocenturytv.com, Available anytime starting at 9:00 a.m. EDT, Date: Original broadcast Sunday, Starts July 29, 2013; Topic: “Seeing 20/20: Rare Disease Visions;” Speakers: Dr. Ruxandra Draghia-Akli, Director of Healthcare Research at the European Commission; Dr. Lu Wang, Program Director at the National Human Genome Research Institute; and Dr. Rogerio Vivaldi, SVP and Head of Rare Diseases at Genzyme, part of Sanofi and John Walsh, Co-Founder, President and CEO of the Alpha-1 Foundation
  • Bio2Device Group, Tuesday Morning, July 30, 2013; Topic: “Enabling remote patient monitoring: Opportunities and Challenges;” Speaker: Akhsar Kharebow, CEO, Infometers
  • VC Taskforce, Tuesday Evening, July 30, 2013; Event: “Life Sciences Investor Pitch;” Moderator: Meredith L. Warshaw, PhD; Panelists: Don Ross, Health Tech Capital; Klaus Hambuschen, The Angels’ Forum ; Alex de Winter, GE Corporate; Ben Pensak, Morgan Lewis
  • Squire Sanders Free Webinar, Wednesday Morning, July 31, 2013; Topic: “Guarding the Path to Innovation: Regulatory and Policy Developments and Defenses to the Attack of Patent Trolls;” Speakers: Mark J. Botti and Steven M. Auvil, Squire Sanders lawyers
  • MedTech Frontiers, Thursday Evening, Aug. 1, 2013; Seminar: “Skin-Inspired Electronic Sheets with Touch, Chemical and Biological Sensors;” Speaker: Zhenan Bao, PhD

Next Uncoming Intensive Life Science Business and Marketing Course

  • UC Berkeley Extension Course, Thursday and Friday, Oct. 3-4, 2013; Course: “Life Science Business and Marketing: Their Integral Role for Success,” Instructor: Audrey S. Erbes, Ph.D., Principal, Erbes & Associates and AudreysNetwork.com blog; Guest Speakers: Joyce Chiarenza,  Regulatory Consultant; Linda Schock, Director, Commercial Compliance and Government Programs, CIS; Bev Hudson, MBA, Executive Director/SVP of Clinical Research, Oklahoma Foundation for Cardiovascular Research; Julie Tompkins, MBA, Sr. Vice President, Timely Data Resources, Inc. Dates and Time: Thursday and Friday, Oct. 3-4, 2013; 8:30 am – 5:00 pm for classroom intensive and balance of term for working on term project; Location: Downtown University of California, Berkeley Extension, 425 Market St., 8th Floor, San Francisco, CA 94105; Fee: $795, online registration now available; Register at http://extension.berkeley.edu/catalog/course190.html

You can download the detailed list of all events for which I have information through January 2014 in Audreys Picks July 28, 2013 plus a new list of Jobs That Crossed My Desk Through July 28, 2013 by right clicking the highlighted titles. The jobs list is shorter since I was not collecting jobs during my vacation from June 23 until July 15. I typically provide lists for 3 weeks period.

Audrey

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