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China Fines GlaxoSmithKline $485 Million for Bribery

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After a one-day secret trial, a Chinese court has fined pharmaceutical company GlaxoSmithKline (GSK) $489 million for bribing hospitals and doctors to use their products.

According to the New York Times, the court also sentenced GSK’s former country manager Mark Reilly as well as four additional managers to prison time of up to four years. However, the sentences were suspended, and the managers will avoid prison with good behavior--though Reilly must leave the country. The is the largest ever corporate fine in China, reports the Wall Street Journal, though some analysts had expected the fine to be even higher.

GSK issued a statement of apology, writing:

GSK fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese Government and the Chinese people. GSK deeply regrets the damage caused. GSK plc also apologizes for the harm caused to individuals who were illegally investigated by GSKCI [GSK China Investment Co. Ltd].

You can read GSK's full apology here.

GSK says they fully cooperated with the authorities and are reducing and changing the nature of their activities with health professionals, as well as growing the process the company uses to monitor payments and invoices. "We will also continue to invest directly in the country to support the government's health care reform agenda and long-term plans for economic growth," said GSK CEO, Sir Andrew Witty in a statement. The fine will come from existing cash resources, the company says.

According to IBISWorld Global Pharmaceuticals analyst Sarah Turk, GSK's 3% market share in the global pharmaceuticals and medicine manufacturing industry will likely drop over the next five years, and the fine will significantly hinder the company's research and development funding, thus increasing its competition with global companies like Pfizer and Novartis.

"As [GSK] seeks new investment opportunities in the coming years, the $489 million fine will limit the company’s leverage to acquire other companies and remain competitive in an industry that is increasingly looking for methods to harness new drug development pipelines," writes Turk in an emailed statement. "Additionally, other pharmaceutical companies will likely tread carefully in the Chinese market, due to GSK’s fine possibly indicating that Chinese regulators are increasingly cracking down on corporate malpractice."

This is not the first time GSK has been fined significantly for wrongdoing. In July 2012, the U.S. State Department fined the company $3 billion for marketing drugs for unapproved uses.

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