China crisis takes a bite out of GSK’s profits

Andrew Witty The ongoing investigation into alleged bribery reduced GlaxoSmithKline’s revenue in China by 61% in the third quarter of 2013.

The loss of business in China, where GSK reps were temporarily barred from selling, meant the company’s Q3 revenue in emerging markets fell by 9%.

GSK’s global sales rose by 1%, with strong growth in Europe offsetting the impact of a scandal that the company took public steps to resolve.

Analysts predicted a 30% drop in GSK’s Chinese revenues following the detention of four leading GSK China executives on charges of orchestrating the nationwide bribery of health officials via travel agent accomplices.

However, the refusal of Chinese doctors and hospitals to see GSK sales reps – and in some cases, to see any pharma sales reps – has led to deeper revenue losses.

GSK’s sales in China represent only 4% of the company’s global sales, but none the less the breakdown of what had been their strongest emerging market reversed the trend of their overall emerging markets business, which otherwise rose by 5% in Q3.

A slowdown in vaccines sales further affected the emerging markets business, though the company showed growth in Europe (5%), the US (2%) and Japan (2%).

CEO Sir Andrew Witty commented on the China scandal: “We continue to co-operate with the authorities and we remain fully committed to supplying our products to patients in the country.”

It was “still too early” to assess the longer-term impact on the Chinese business, he added, and sales there in September had improved on sales in July (when the scandal broke) and August.

The company’s CFO, Simon Dingemans, noted that the global value of GSK’s shares increased by 16% in Q3. To further boost shareholder profits, GSK raised the dividend by 6%.