Glaxo takes hit in China, but these are global dilemmas for Big Pharma

August 6, 2013

Glaxo Smith Kline faces a serious scandal for its business practices in China. There are serious implications for the entire global pharmaceutical industry

Some years ago, I wrote of the dilemmas facing Glaxo as its then chief sought to address criticisms of the gap between corporate actions and its rhetoric of corporate social responsibility. The entire pharmaceutical industry has been a favourite target on the internet under the cover-all term Big Pharma, as long-term profits were threatened, and speed-to-market pressures increased. Various unpleasant and often illegal practices were revealed.

The $400 million scam

Glaxo Smith Kline [GSK] is currently [July 2013] the centre of another scandal through its operations in China. The company is accused of a $400 million scam involving bribing doctors. Eighteen Glaxo employees have been arrested in China. The Chinese authorities claim a network of 700 people has been involved.

The issues are those facing the global giants known collectively as Big Pharma. The current story has a depressingly familiar tone. Last year [2012] Glaxo Smith Kline was hit with a $3bn fine for mis-selling drugs in the US. To date, the city has taken a relaxed view on the affair. Analyst Nils Pratley disagrees, offering three reasons:

First, reputation matters to drug companies and to Glaxo chief Andrew Witty who has been on a clean-up campaign during his five years in charge. After [last year’s fine] Witty said he was dealing with “echoes of the past” and announced his determination that such events would never happen again.

Nobody should doubt his sincerity but the Chinese allegations, if they are proved, would represent a serious failure of management. As far one can tell, GSK put in audit controls that it thought were sufficient for China; it may have been bamboozled by a sophisticated internal scam that was hard to spot without access to private bank accounts and emails. But that would be an explanation of failure, and won’t help GSK on the image front. Witty the unwitting is poor branding when you are dealing with governments around the world.

Second, GSK will probably have to rethink its entire model of doing business in China and other “high risk” countries. That signals disruption ahead as internal compliance controls are overhauled yet again.

[Eventually] in China, GSK will have to arrive at a working arrangement with a central government that appears to have a twofold agenda of running an anti-corruption drive and getting more funding into its dysfunctional healthcare system. Greater opportunity for GSK could emerge from the mess [through lower costs but greater volumes of sale and a better-regulated market.} But, to judge by the current aggressive rhetoric in China, the road to that position could be very long indeed. The story is still developing, but the City looks to be underplaying it.

I have long argued that the ‘pipeline’ model of innovation long-accepted by Big Pharma is in need of rethinking. It is based on a belief that success requires a pipeline of massive proportions through which vast numbers of candidates proceed in a Darwinian series of tests. Commercial pressures have ramped up the size and speed of operations. The temptation to ignore corporate social responsibilities is strong, regardless of the rhetoric and the establishment of CSR departments. Sir Andrew faces a host of leadership dilemmas.

July 2014

China continues legal proceedings

See Feldman, S. (2013) Trouble in the middle, oxford: Routledge for a broader analysis. http://blogs.wsj.com/chinarealtime/2013/08/01/eight-questions-steven-feldman-trouble-in-the-middle/
Accessed, July 12th 2014

August 2014

China jails Peter Humphrey for illegal transactions

http://www.bbc.co.uk/news/world-asia-28712420


10 Headaches for the Drugs Industry

September 22, 2012

GlaxoSmithKline has pleaded guilty and agreed to pay $1 billion in criminal fines and $2 billion in civil fines following a nine-year federal investigation into its activities. The Pharmaceuticals Industry is facing dilemmas which threaten its existence in its current form. Here are ten dilemmas which are keeping executives in Big Pharma organizations awake at night

Onece upon a time, the search for scientific knowledge was associated with contributions to human well-being and enlightened progress. One of the great economists who held that view was Joseph Schumpeter, who also visualised great knowledge-creating laboratories. Such medical laboratories came to pass. Many millions of lives have been saved through their products. Even the humble aspirin was made safely and widely available by such technological processes, as were increasingly sophisticated vaccines and drugs. But today, the firms operating the research laboratories have acquired an increasingly poor image for criminally corrupt business practices.

Their leaders, if they have not resorted to effective drugs, may well spend sleepness nights worrying over the emerging dilemmas

[1] The demise of the ‘funnel’ model of discovery of new drugs. This was the standard business model for finding the next generation of mega-drugs. The model has struggled to retain credibility as fewer financial winners emerged out of the funnel.

[2] Fines for criminal wrongdoings. The global pharmaceutical industry has racked up fines of more than $11bn in the past three years for criminal wrongdoing, including withholding safety data and promoting drugs for use beyond their licensed conditions. In all, 26 companies, including eight of the 10 top players in the global industry, have been found to be acting dishonestly.

[3] The scale of the wrongdoing, revealed for the first time, has undermined public and professional trust in the industry and is holding back clinical progress, according to two papers published in this week’s New England Journal of Medicine [September 2012]

[4] Prosectution of business leaders. Leading lawyers have warned that the multibillion-dollar fines are not enough to change the industry’s behaviour so that criminal prosecutions of executives may be considered more seriously in the near future.

[5] Corporate social responsibilities. The drug companies would like to concentrate on profitable areas and leave research into socially important areas such as alzheimers disease to governmental and other not-for-profit agencies.

[6] Big Pharma’s image problem, fuelled by such high-profile scandals, may have made doctors so suspicious of the industry’s claims that it is warping their clinical judgement

[7] Cynicism of pro-bono efforts. Pressures continue for low-cost drugs delivered to the poorer countries in the world with increasing opportunities for reducing the security of intellectual property such as patents. Industry’s pro-bono efforts are viewed cynically.

[8] Conspiracy theories abound in popular culture. These feed into TV and movie dramas in which leaders of drug companies are part of secret and illegal alliances.

[9] Drug compaies perceived as thoroughly corrupt. Drug companies may be the next industry sector to become increasingly regarded as institutionally corrupt, and its leaders will take their place alongside financial executives, politicians, journalists and the police, in future legal investigations.

[10] More government intervention rather than self-regulation of industry practices will become increasing easy to introduce.

Conspiracy Theory or Leaders We Deserve?

There has been an enormous level of interest in the working of Pharmaceutical Companies as part of a gigantic conspiracy theory. I took a look at the blogs which appeared most prominent via a Google search. The conspiracy theory implies that the big companies are broadly colluding with powerful elites including prominent figures in Governments, the Federal Drug Agency, and in some variants of the theory with other more shadowy groups who meet in clandestine fashion.

One way in which conspiracy theories persist is that they are very difficult to test applying the canons of empirical analysis. That, incidentally, is one interpretation of what a theory is, an abstraction helping to explain the world in which we live.

An alternative abstraction is to consider the wrongdoings in drug companies as episodes to which there is a pattern which does not require the presence of a wider global conspiracy or an ultimate (evil) architect. I like the label of Leaders We Deserve as a start to approaching the means whereby organizations develop their cultures and behaviours.