GSK’s $490 Million Fine to Spark Pharma Strategy Shift in Emerging Markets

In the wake of the GlaxoSmithKline (GSK) bribery scandal and the resulting hefty fine, Aparna Krishnan, MS, GlobalData’s Analyst covering Healthcare Industry Dynamics, considers the implications for the industry's product marketing strategies.

“GSK's involvement in a large-scale bribery scandal in China came to an expected conclusion last week, with Chinese authorities issuing a sizeable fine of $490 million. The scandal and its repercussions will be felt deep into Big Pharma’s operations in emerging markets, causing a fundamental shift in product marketing approaches involving physicians.

“In the immediate aftermath, the fine is expected to be reflected in GSK’s third quarter financial results as a one-time cost component draining its net income. Associated costs to improve marketing and sales standards in countries such as India, China and Brazil will also add to the company’s selling, general and administrative costs for the quarter.

“The bribery scandal is one of three major blows that will impact the pharma giant’s profits this year. Revenues from GSK’s Chinese operations have declined by 20% in the second quarter alone and a sustained drop in US sales of Advair, its flagship respiratory treatment, will leave serious doubts over whether the firm will end 2014 in deficit.  

“For the industry at large, this verdict signifies a potential backlash, most certainly in China, as is already visible with increasing scrutiny over drug prices. For firms that have a sizeable presence in emerging markets, including Novartis, AstraZeneca, Roche, Sanofi, Merck and Eli Lilly, this verdict will force the reassessment of certain strategies in these countries.

“In recent years, issues related to pricing and patents were deemed to be having a negative impact on top-line growth from these markets. The bribery scandal will add a new dimension to the highly scrutinized relationship between the pharma industry and medical community, with measures similar to the US Physician Payments Sunshine Act likely to be implemented in emerging markets, if indeed payments are allowed to continue at all.”