Pharma Scandals: Bribery, Insider Trading and Paula Deen

By Ed Silverman
July 22, 2013

The summer may be in full swing, but the torrent pace of news and interesting developments has not subsided at all. Hot days simply yield hot stories.

1. GlaxoSmithKline Bribery Scandal

Unarguably, the most sensational item over the past few weeks has been the GlaxoSmithKline bribery scandal unfolding in China. As of mid-July, four Glaxo executives, all of whom are Chinese nationals, were detained and authorities hinted that other drugmakers may be examined as they review records held by travel agencies implicated in the drama.

The scandal is all about boosting prescriptions of Glaxo meds in China, where domestic drugmakers are notoriously corrupt and doctors are paid relatively low wages compared with the West. But the episode is renewing scrutiny of Glaxo – and by extension, all multi-national drugmakers – at a time when they are jockeying to expand in China and are also under a microscope for their corporate practices.

Moreover, the overall affect may be that Chinese patients will be paying as much as 10 times more for some medicines, since Glaxo funneled hundreds of millions of dollars in bribes. The details, meanwhile, hint at lurid behavior as Glaxo used some 700 middlemen, such as travel agents, to funnel hundreds of millions of dollars to doctors and health officials to boost prescriptions.


One Chinese investigator uttered a statement that cast Glaxo in a terrible light. “From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China,” said Gao Feng, head of the economic crimes investigation unit at the Ministry of Public Security. “…It is like a criminal organization, there is always a boss. In this game, GSK is the godfather.”

The episode is especially embarrassing for the drugmaker, which only last year paid a $3 billion settlement with US authorities to resolve criminal and civil charges that drugs were marketed for unapproved uses and clinical trial data was withheld, among other things. Glaxo ceo Andrew Witty then vowed to bolster compliance and restore credibility.

The scheme allegedly involved travel agencies, such as Shanghai Linjiang Travel Agency, that arranged conference services and then paid kickbacks to Glaxo executives that included money and sexual favors, according to media reports. Interestingly, the fellow who headed China operations for Glaxo left the country in late June, just before authorities began detaining employees.

Chinese authorities, who have also suggested the scheme involved tax evasion, have been combing through travel agency records and reportedly found indications that some agencies were doing outsized business with multiple pharmaceutical companies. As a result, any stepped up pressure on global drugmakers is likely to reverberate as they assess further investment and market expansion in China.

2. Onyx Pharmaceuticals Insider Trading

As always, there were some developments that captivated investors, in particular. One was the decision by Onyx Pharmaceuticals, which has successfully brought three oncology medications to market, to reject a rich and unsolicited bid from Amgen. The biopharma then effectively put itself up for sale, prompting a huge increase in its stock price and brought biotech takeover talk to a feverish pitch.

Less than a week later, though, the US Securities and Exchange Commission filed a lawsuit accusing an unnamed number of people of insider trading and making about $4.6 million in potentially illegal profits on a $305,000 investment, according to court documents. The traders purchased call options during three days just prior to the June 30 statement rejecting the Amgen bid.

I its complaint, the SEC says the traders caused a “highly suspicious” spike in the volume of Onyx call options in the three trading days before the buyout offer was made public. The lawsuit alleges that, as a result of the June 30 statement by Onyx, its stock rose 51 percent the following day, compared with the closing price on the prior trading day, and that the trading volume increased by more than 900 percent.

Meanwhile,  Vivus, the aspiring diet drug marketer Vivus appeared to take a conciliatory tone toward its largest shareholder and chief nemesis, the First Manhattan investment fund, which has been waging an increasingly nasty proxy battle over board nominees as a result of floundering strategy for marketing the Qsymia weight-loss pill.

In one statement, Vivus invited three First Manhattan nominees to join its board regardless of the outcome of the vote at the annual shareholder meeting scheduled for mid-July. And the offer would remain valid, even if the fund was unsuccessful at placing any nominee on the board. Why? Vivus belatedly acknowledged shareholder cries for change.

The little drugmaker has been widely criticized for pursuing a go-it-alone strategy in marketing its pill, instead of seeking a big pharma marketing partner. And the failure to win approval in Europe further undermined confidence in its ability to develop a market for Qsymia. The gesture toward First Manhattan was designed to deflect criticism that the board was out of its depth and out of touch.

But the following day, another missive was launched, accusing the fund of making “false and misleading” statements about recent recommendations from different proxy advisory services and failing to file the necessary disclosures with the Securities and Exchange Commission. What’s more, Vivus also postponed its annual shareholder meeting for three days.

First Manhattan, of course, was infuriated and called the move “desperate action by desperate people.” The fund already announced that Tony Zook, who had been executive vp for global commercial activities at AstraZeneca, is set to run Vivus after the annual meeting. Zook left the big drugmaker this past January as part of a shake-up instituted by AstraZeneca ceo Pascal Soirot, who arrived from Roche last fall and has been overhauling operations ever since.


3. Paula Deen Suspended by Novo Nordisk

After several days in which one large company after another dumped Paula Deen as a spokesperson, Novo Nordisk took a similar step. The move came after the self-styled Queen of Southern Cuisine acknowledged using racial slurs in the past and was promptly let go by The Food Network, where she rose to stardom. Others that showed her the door included Wal-Mart, Smithfield Foods and Caesars Entertainment.

The drugmaker, however, made a point of insisting that Deen was not dumped, but suspended. Just the same, its ongoing decision to use her as a spokesperson after an earlier controversy –  she had failed  to acknowledge that she has diabetes, even while cooking unhealthy dishes on her Food Network show right up until the time she signed on as the Novo Nordisk spokeswoman.

She was famous for cooking fried cheesecake and a breakfast special – a donut sandwich that overflowed with burger meat, eggs and crispy bacon. As a result, Novo was widely criticized for appearing cynical and hypocritical, and was chastised for choosing someone who sent the wrong message to diabetics. Even after learning about her health, Novo maintained the relationship.

The Author

Ed Silverman

Ed Silverman

Warning & Disclaimer: The pages, articles and comments on do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of Read more.

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