Will GSK's China mess damage the country's R&D boom?

GlaxoSmithKline ($GSK) faced a barrage of headlines around the world after Chinese police officials made a series of salacious allegations about widespread corruption while raising questions about the absence of the head of GlaxoSmithKline's China operations, Mark Reilly, who left the country on June 27 and has not returned.

"We found that bribery is a core part of the activities of the company," said Gao Feng, the head of China's fraud unit, according to The Guardian. "To boost their share prices and sales, the company performed illegal actions."

Specifically, the police alleged that GSK had acted as the "godfather" in an organized crime ring, handing out hundreds of millions of dollars in bribes to get its products in general use--widely reported as standard operating procedure in China. The company is alleged to have used travel agencies to handle the bag money. And officials want to know why Reilly hasn't come back to China--even though police are already holding four executives in detention.

For GlaxoSmithKline, which gave its China operations a clean bill of health after an internal probe, the headlines are a disaster. The multinational pharma company had gone to some lengths to distance itself from past unethical practices, which triggered some huge fines. GSK became a leader in the movement to open up data on approved drugs, launched new development efforts to back drugs for poor countries and was quick to terminate the head of its China R&D division in Shanghai after he was tied to a claim of manipulating data.

Now it has to deal with accusations of widespread corruption it already tried to discount, while continuing to work in the country and push ahead with new drug development activities. The police have also made it clear that they believe other multinational drug companies--which have been building extensive R&D facilities in China--are also implicated. And that could derail or stymy one of the biggest shifts in drug research in the global industry.

Just as GSK has grappled with this crisis, Pfizer ($PFE) and Bristol-Myers Squibb ($BMY) have had to face questions over the revelations about fraudulent data and unreported adverse events at a site in China used to test Eliquis.

China's R&D boom includes a swift ramp-up for local biotech companies anxious to capitalize on the country's major commitment to the field in repeated 5-year plans. Analysts now will try and see whether the fallout from Glaxo's commercial scandal will spill over into the research field, where any allegations of unethical behavior could raise more serious questions about the validity of their data.

- here's the story from The Guardian

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