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GSK's Chinese sales hit by scandal, say analysts

Company estimated to have lost a third of its revenues

GlaxoSmithKline (GSK)GlaxoSmithKline's sales in China are estimated to have dropped by a third in volume terms since news of the bribery investigation broke, according to Citigroup analysts.

China accounted for £759m (around $1bn) in pharmaceutical and vaccines sales for the group last year - a 17 per cent increase over 2011.

The Citi analysts suggest that other multinational pharma companies that have become embroiled in the scandal - which include Novartis/Alcon, Eli Lilly and Sanofi - could also report sales declines in China in the order of 10 to 20 per cent.

Back in July four GSK executives were detained over claims that some 3bn yuan ($490m) had been funnelled to doctors and healthcare officials via a network of middlemen including travel agents.

So far GSK has remained tight-lipped on the potential loss of business from the investigation, although chief executive Andrew Witty did suggest during the company's second-quarter results call in July that its China business may be impacted by the inquiries.

Any impact on GSK may not stem simply from the corruption probe, as the company has already suggested it will undertake a review of the pricing of its medicines in the country, which is now the world's second-largest economy.

That statement came in the wake of the news that the Chinese government has also started a pricing investigation in the pharmaceutical sector.

A statement released by the Evaluation Center of Drug Pricing National Development suggested the purpose of the enquiry is to "understand the pharmaceutical supply chain process, recognise the costs involved and ensure the timely adjustment of drug prices", according to analysts at Business Monitor International.

GSK has always insisted its head office was completely unaware of the activities of senior executives in China, although reports in the local media claim to have evidence to the contrary.

Despite the problems faced by GSK in China, analyst Savvas Neophytou of Panmure Gordon believes that prospects for the group remain buoyant on the back of its strong respiratory pipeline and darapladib for atherosclerosis which could have "vast potential" if it reaches the market.

Article by
Phil Taylor

25th September 2013

From: Sales

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