China fines GSK £300m as country head deported and given suspended sentence

GlaxoSmithKline has been fined 3bn renminbi (£297m) and former China boss Mark Reilly has been given a suspended jail sentence for bribery.

The pharmaceutical giant’s local subsidiary was found guilty in a Chinese court of bribing non-governmental officials.

Chinese media say the fine is the largest levied on a corporate by the Middle Kingdom.

Chinese state media company Xinhua reports that Reilly was convicted and sentenced to between two and four years’ imprisonment.

However, that has reportedly been suspended for four years and Reilly will be deported.

In a statement to the exchange, GSK says the illegal activities of its subsidiary are “ wholly contrary” to the conduct expected of its employees.

It had co-operated fully with the authorities and has worked to rectify the failings in its systems.

“GSK has published a statement of apology to the Chinese government and its people on its website,” the statement adds.

The company will pay the fine using existing cash on hand.

GSK chief executive Andrew Witty says the conclusion of the investigation is important for the company.

“But this has been a deeply disappointing matter for GSK,” he adds.

“We have and will continue to learn from this. GSK has been in China for close to 100 years and we remain fully committed to the country and its people.”

Liberum Capital head of European pharmaceuticals research Naresh Chouhan says the relatively small fine is manageable for GSK, but the worst may be yet to come.

“The bigger fines could come from SFO of DOJ if they were to find that GSK had also bribed government officials through their investigations,” he warns.

“We have no evidence that this would be the case and on the basis that the Chinese didn’t find evidence of this, we would expect the US and UK authorities to rule similarly.”

He believes GSK has already provided for the fine so it should make no difference to its profit and loss statement. However, the restructuring of its Chinese operation is likely to impact sales, Chouhan adds.

“Not only will GSK’s future revenue growth be significantly lower in what will become the world’s largest drug market, but GSK is also significantly cash strapped over the coming years and so even £300m is valuable to them on top of the £1bn of cash going out the door for restructuring charges form the Novartis deal.”