GlaxoSmithKline notifies SEC, DOJ of new questions in China bribery probe

GlaxoSmithKline’s China bribery imbroglio is the scandal that just won’t die. After having paid more than half a billion dollars to lay to rest investigations by Chinese and U.S. authorities, the U.K. drugmaker has now been asked for new info from fraud investigators in its home country.

In its fourth-quarter 2017 earnings report (PDF) today, GSK said that it has been asked to provide information about "third-party advisers engaged by the company in the course of the China Investigations."

The request came from the U.K.’s Serious Fraud Office, which initiated an investigation in 2014, the year after the bribery case exploded in China, set off by a clandestine sex tape involving former GSK China head Mark Reilly, which executives received alongside a whistleblower’s corruption allegations. Bound by an agreement with the SEC, GSK also informed the DOJ and is responding to their requests for additional information.

GSK spokesman Simon Steel said in an email that today’s info was a "status update regarding the ongoing inquiry" but declined to comment on details about what third-party advisers the SFO is interested in hearing about.

One third-party adviser the company was known to have hired was a husband-and-wife private investigation team, who ultimately spent time in prison in China for their efforts. The couple, Peter Humphrey, of the U.K., and Yu Yingzeng, sued GSK unsuccessfully in the U.S. in 2016, alleging GSK hired them to gather information on Vivian Shi, then the drugmaker's government relations head in China; GSK believed she was the source of the bribery allegations that the company had paid off doctors to get sales in the country. But the pair of sleuths also said they were hired with the understanding that the bribery allegations were false.

Instead, they claimed they wound up with an assignment to pinpoint the source of a the sex tape of Reilly and to create a "dossier" on Shi to "frame her as a vindictive former employee." While a number of employees were rounded up by Chinese authorities, Riley left the country without being arrested.

Ultimately, the pair was arrested in 2013 for illegally obtaining and selling personal information about Chinese citizens. After a not-fully public legal process, Humphrey received a 2.5-year prison sentence and Yu was sentenced to two years. After nearly two years in prison, they were deported. They brought their lawsuit to collect damages for the lost business and physical and emotional stress from prison but a U.S. federal judge tossed their case, saying they didn’t have standing in the U.S.

GSK’s China scandal put a chill on Chinese sales for many multinational drugmakers for awhile. The drugmaker paid China $489 million and the SEC $20 million to settle their investigations. The scandal led to marketing reforms across the company, which is now known for its solid corporate behavior.

It has also recovered its financial footing in the country. While it didn’t break out its China sales in today's earnings report for the fourth quarter and 2017, it did say its international sales growth of 2% was helped by the launch of its HPV vaccine Cervarix in China. Overall, the company said adjusted earnings per share were up 4%  in 2017, at constant exchange rates, but warned that earnings could be flat to down 3% this year if generics of its top selling Advair inhaler make it to the U.S. market by midyear. If not, earnings could grow by a range of 4% to 7%.

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