GlaxoSmithKline replaced its general manager for China and warned investors to expect an unspecified impact on earnings as Chinese officials continue to investigate allegations that employees of the drug giant engaged in bribery and tax-related crimes there.

 

Police have arrested 18 GSK employees in the city of Zhengzhou since June 17 according to the Chinese state news agency Xinhua. While GSK has not responded in detail to allegations against those arrested, it has acknowledged that some of them are likely to have broken China’s laws.

 

Chinese investigators are looking into alleged bribes to doctors made with the goal of boosting drug sales volume, a practice that the officials say drove up drug prices and “disrupted market order,” reports Xinhua. The news agency says that GSK sales representatives and executives in China may have offered doctors bonuses based on sales of the company’s drugs, as well as gifts and paid travel to industry and academic conferences.

 

To deal with the situation, GSK has appointed its senior vice-president for Europe, Hervé Gisserot, to serve as general manager of GSK's China Pharmaceuticals business. He’ll repace Mark Reilly there while Reilly works in London to help lead the company’s response to the investigation. The company is also launching its own independent review of the situation and will initiate reviews in other emerging markets “to make sure that there isn’t a similar risk elsewhere,” says CEO Andrew Witty.

 

Witty called the situation “shameful” and “disappointing” during the company’s second quarter earnings call, July 24, but steered clear of providng deeper explanations of what he characterized as an investigation still in its early stages.