Glaxo Investigates Alleged Improper Conduct in Iraq

GlaxoSmithKline Plc is investigating allegations of improper conduct in Iraq, nine months after China began a corruption probe into the local operations of the U.K.’s largest drugmaker.

“These allegations relate to a small number of individuals,” the London-based company said in an e-mailed statement. “However, we are investigating whether there has been any improper conduct. We have zero tolerance for unethical or illegal behavior.”

The disclosure is a setback for Chief Executive Officer Andrew Witty, who pledged to clean up Glaxo after it paid a record $3 billion in 2012 to resolve U.S. charges it improperly promoted drugs and failed to report safety information. Chinese authorities said last year Glaxo sales people bribed doctors, hospitals and officials. Glaxo said at the time some employees appear to have defrauded the company China’s health system.

In Iraq, Glaxo hired 16 government-employed doctors and pharmacists as paid sales representatives, the Wall Street Journal reported yesterday, citing e-mails from an unidentified person familiar with Glaxo’s Mideast operations. Glaxo’s pharmaceutical operations employ fewer than 60 people in Iraq, according to the company.

Glaxo fell 1.2 percent to 1,558 pence at 1:25 p.m. in London. The stock has returned 7.5 percent in the past year including reinvested dividends, trailing the Bloomberg Europe Pharmaceutical Index’s 18 percent return.

Justice Department

The U.S. Justice Department has been investigating since 2010 whether several drugmakers, including Glaxo, violated the Foreign Corrupt Practices Act, the companies have said. The probe includes Argentina, Brazil, Canada, China, Germany, Italy, Poland, Russia and Saudi Arabia, Glaxo said in its 2013 annual report.

Sales in emerging markets for Glaxo amounted to 6.7 billion pounds ($11.1 billion) last year, about 25 percent of total revenue. Pharmaceutical sales in the Middle East and Africa totaled 1 billion pounds, Glaxo said.

“Operating in emerging markets is challenging, given the issues many of these countries face with funding and maturity of their respective health-care systems,” said Simon Steel, a spokesman.

While anti-bribery enforcement regulations are nowhere near as strong in the Middle East as in the U.S. and Europe, company attitudes toward local practices are slowly changing because of scandals that are surfacing, said Andrew Henderson, a vice president at Red Flag Group, a consulting firm that advises companies on compliance matters.

“They’re finding that they can in fact stand up to these practices,” he said in a telephone interview.

Improper Practices

Identifying and rooting out improper practices around the world is expensive and requires in-depth work on the ground, so certain markets take priority over others, he said.

Glaxo is revising its marketing and sales practices. The drugmaker said in December it planned to stop direct payments to doctors for giving speeches and attending medical meetings by early 2016. It is also introducing a new compensation program for sales representatives who deal directly with those who prescribe medicines.

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