Pharmaceutical giant GlaxoSmithKline reported an incremental global sales increase for the third quarter and dropped a bombshell that drug and vaccine sales in China have plummeted 61 percent in the midst of a corruption probe one of GSK's most promising markets.
The British drug maker, which employs 4,600 people in the Triangle, reported third-quarter sales of nearly $10.1 billion, a 1 percent increase from the same quarter a year earlier.
The Chinese bribery investigation dominated Glaxo's earnings news, because the fallout was difficult to explain and much more significant than anything analysts had expected. The sales drop resulted in a loss of sales in GSK’s emerging Asian and Pacific markets at a time that global sales rose in other world markets, including the United States and Europe.
GSK CEO Andrew Witty blamed the problems in China on that country's media coverage of the scandal, and said the company is cooperating with Chinese officials in their ongoing investigation into allegations that GSK funneled millions of dollars to win business in China.
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“The activities described by the authorities are very serious and totally unacceptable,“ GSK CEO Andrew Witty said in a conference call. “They are contrary to our values and to everything I believe in.”
China is just 3.5 percent of GSK’s sales, but represents a huge potential of future sales.
GSK reported a third-quarter profit of $1.5 billion, and per share earnings of 31 cents, up 16 percent. The company reported earnings in British pounds and provided a dollar conversion.
Drug and vaccine sales rose in the United States, Europe and Japan, but fell in emerging Asian and Pacific markets because of the Chinese bribery probe. The third quarter saw four drug approvals worldwide, including an HIV treatment and a four-strain flu vaccine in the United States.
The Telegraph, and English newspaper, reported that Chinese authorities arrested four Chinese GSK sales executives and paraded one on state television. GSK has also admitted that its own internal investigation corroborates some of the bribery allegations, but questions remain as to why Chinese doctors would stop prescribing GSK products.
“The bottom line is that, simply, the media in China, if you will, the commentary in China has created an anxiety which has led to some disruption in the business,“ Witty told analysts.
Chinese media operate within government censorship guidelines. Throughout the Wednesday morning analyst conference, Witty was highly deferential to Chinese authorities.
“This slowdown is significant, but we shouldn't forget this remains a very significant business,” Witty said. “That is why it is so important to reassure consumers of our products in China that we are absolutely committed to maintain supply to them as we go through this.”
GSK has 7,000 employees in China in all aspects of drug development, from molecule discovery to sales and distribution, Witty said. He said GSK is not only the most integrated international pharmaceutical company in China, but the only one that “literally has activities in China.”
GSK is accustomed to government probes, but less so to their cultural ramifications. A U.S. Justice Department fraud investigation led to a $3 billion settlement with GSK earlier this year over allegations that the company improperly marketed medications for unapproved uses.
GSK employs 4,000 at its North American headquarters in Research Triangle Park. The company also employs 600 at its Zebulon manufacturing plant.
GSK shares closed Wednesday at $50.76, down 99 cents. The stock is up 8 percent this year.