GSK “Led” Scandal Fallout Smacks Entire Industry Across the Face

Wednesday, November 13, 2013 6:00

There is NOTHING, and I repeat, NOTHING like having an executive open up at a conference about a crisis their industry is following. Particularly when they are attempting to make their company look better than the “others”, try to justify why it was “industry practice”, and then lament that all the back doors to “diffusion of scientific knowledge” are all closed.

It was a classic moment, backed by slides no less. One of which I wanted to share with you as it shows the level of pain that he (and his colleagues) at one of the firms is now facing. A pain that is being felt across the industry, and one that is yet to be fully known as many (if not all) of the pharmaceutical’s operating in China are being asked to drop their prices.

The “real” reason why GSK (and many) others are now being investigated for fraudulent business practices in China.

I won’t bore you by going through the entire list one by one, I’d like to point out a few that match well.

Reduced sales/ ROI on investment – GSK announced a couple of weeks back their sales “slipped” 61%, and for a firm that has invested billions into R&D centers in China (in hopes of further access to the market), their ROI timelines are going to get VERY ugly should they find themselves unable to recover from this scandal.

Loss of reputation and talent loss – this is something I remember hearing about during the SIEMENS medical equipment scandal. The risk of being associated with SIEMENS led to a 40% drop in sales (that took 2-3 years to recover) and hiring talent because very tough. Which, on the bright side, were both windfalls for their primary competitor GE. They had a banner year.

compliance/ regulatory/ monitoring/ transparency – these have been increasing for years, and I would argue that whistle blower aside, each was already in place already. they only needed the spark to catalyze a reason to bring all forces to bear, turn the industry upside down (for a few months), and make the point known to stop screwing patients (as hard as they were)

Loss of confidence in China/ reduction in expansion rates/ new sources of rev – when presented, the speaker actually said that firms were threatening to leave China due to the pressure to reduce prices and play a clean game. Something I found laughable. But, one thing that we agreed on was not funny, was that these firms were all going to see reduced market, and would find it hard to expand under current conditions. One thought they were giving, which I don’t place much into, was the idea they could buy into clean brands.

So, for those of you out there who are playing the “China game”, I’d highly recommend that you look at the list above and think twice about your short term vs.  long term.  There is every reason to believe that China’s nets are closing in on a number of industries, and while the international media has been distracted by CCTV’s full court press on Starbucks,  the foreign infant powder brands begun drinking their cups of tea.

So….Do as the Chinese do or do as the Chinese will do in 10 years?

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