GlaxoSmithKline to Fire 110 Staffers in China for Violating Policy
Published: Mar 06, 2015
March 6, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
British drugmaker GlaxoSmithKline plc will fire 110 employees that were involved in a probe by the Chinese government, Bloomberg reported Friday, as it attempts to clean house after an embarrassing bribery scandal that continues to dog the company.
As such, the workers who were involved in activities “where there is clear evidence of wrongdoing” will be disciplined and even terminated, according to a memo sent by Herve Gisserot, senior vice president and general manager for pharmaceuticals and vaccines for Glaxo in China and Hong Kong.
A year and a half ago Chinese authorities opened the probe to investigate claims of bribing non-government personnel as well as various other misdeeds. In September, regulators there fined Glaxo $479 million, prompting the firm to issue an apology, saying it “fully accepts the facts and evidence.”
“Based on the findings, we have taken disciplinary action against employees whose conduct contravened GSK’s values and code of conduct,” according to the statement seen by Bloomberg.
It has been a rough few quarters for Glaxo. Last week it drew scrutiny when it announced it would slash CEO Andrew Witty’s pay 46 percent as the firm’s profits continued to nosedive and shares have continued a skid that lost 8 percent over the last year.
As part of the new compensation structure, Witty’s annual bonus was halved 51 percent to $1.41 million, though his salary enjoyed a boost of 2.6 percent to $1.68 million.
“You could read it as a message from the board that he’s under-performing,” Nicholas Turner, an analyst with Mirabaud Securities in London, told Bloomberg. “The buck stops with Witty.”
Indeed, Witty has been rushing to reassure the market that the massive hemorrhaging of value Glaxo has experienced also stops with him, scrambling in December reassure investors its dividend is secure despite cutting its profit forecast and increasing concern from analysts.
In a conference call Dec. 19, Witty told analysts worried about the dividend that they can expect the company to ante up its share. The firm said it will splash out 80 pence, or $ 1.25, per share for 2014.
“I don’t think people should be concerned about that,” Witty said in a call after a shareholder meeting discussing new deals the company is doing with Novartis AG .
Witty also reassured analysts that shareholders will get an additional 4 billion pounds when the deals with Novartis close.
Pending regulatory approval, both in the U.S. and in Europe, Glaxo will sell its cancer drug pipeline to the Swiss company for around $16 billion, in exchange for snapping up Novartis’s entire vaccines business for $7.1 billion. The two are also attempting to partner in a joint health venture, the parameters of which have not yet been distinctly defined.
Glaxo has been a ripe target for bearish analysts this year, after slow growth and whittled forecasts had several predicting the company will have to call in its dividend this year. After Glaxo cut its forecast in July, analysts at Liberum Capital Ltd warned investors that the likelihood of a dividend cut was “increasing dramatically.”
Instead, Glaxo appears poised to pay out a dividend, even at an enormous cost to the company’s bottom line. If it keeps to its initial 80 pence guidance, it will use around 85 percent of its profits to meet dividend calls this year, one of the highest margins in biotech, let alone the wider capital markets.
To stem the tide of losses, GlaxoSmithKline (GSK) has already hired three heavy hitting banks to advise on the spin-off of its HIV unit, ViiV Healthcare, as Big Pharma once again rushes to take advantage of the hottest initial public offering market in a decade.
Witty said in October that the company would be undergoing a strategic review of ViiV and the next portion of that review appears to be a listing on the London Stock Exchange, sources close to the deal said this week.
Britain’s largest drugmaker may have hired Morgan Stanley, Goldman Sachs and Citi as financial advisers on the potential IPO of ViiV, of which GSK owns 80 percent. The rest is parceled up between global drugmakers Shionogi and Pfizer Inc. —all of whom declined to comment on the report Wednesday.
ViiV has 674 employees in 15 nations and is based in West London. Witty said in October that its size and reach put it at around number 40 for the FTSE 100. At the time, Witty appeared to be showcasing the unit’s value, a classic opening gambit in a run at the public market or for showcasing the company to potential suitors.
“This is not a forecast, but this business will make a £1bn profit this year if you simply grossed up the nine months’ year-to-date on a straight line basis. That, I think, tells you straight away what the kind of underpinning profit number of this business might be,” he said. “Obviously, this business is on an accelerating curve, it is an important business going through a very expansionary phase…and obviously we are keen that our shareholders get to be the full beneficiaries of that.”
Analyst have long projected that it will attempted to spin-out ViiV as a way to both please existing shareholders by streamlining its businesses and bring value back into its existing pipeline. ViiV is a good earner for GSK, bringing in billion annually—a leap that analysts have reconfigured to around £1.4 billion in 2013 to £2.5 billion in 2018 after new drug Tivicay saw a blockbuster debut.
Shareholders will likely be nothing but pleased with that news, after a massive bribery scandal in China in 2014 caused Glaxo to write down huge chunks of its earning, causing a 8 percent drop in its stock price over the past year.
Still, GSK has been struggling to regain some of the value currently being enjoyed by its competitors, and is doing so in creative ways: It is almost finished with a $20 billion asset swap with Swiss drugmaker Novartis AG (NVS), which will boost its vaccines and consumer healthcare divisions, and its IPO of ViiV is another potentially lucrative strategy.
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Last week controversy erupted over the compensation package for Sanofi’s new CEO, Olivier Brandicourt, with several French government officials decrying the amount, calling it "incomprehensible." Brandicourt could walk off with as much as $4.5 million in a “golden handshake” payment in addition to making $4.76 million a year. That base figure is comprised by a fixed annual salary of $1.36 million a year, which is supplemented by a performance-related bonus of between 150 to 250 percent, as well as stock options and performance shares.
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