Glaxo names new boss for China

herve gisserot gsk
Herve Gisserot has been appointed the new general manager of China pharmaceuticals for GlaxoSmithKline, which is dealing with a corruption scandal in China.

GlaxoSmithKline on Thursday appointed a new head to its China pharmaceutical business, in the wake of a corruption scandal that has ensnared some of its executives.

Herve Gisserot has replaced Mark Reilly as general manager for GlaxoSmithKline China, according to spokeswoman Mary Anne Rhyne. The move came in the midst of a growing scandal that has engulfed the U.K. drugmaker.

Glaxo (GSK) admitted earlier this week that some of its executives may have broken the law, and promised to change its business practices. The admission came after Chinese police accused the company of facilitating a bribery ring to artificially boost drug prices.

The company stands accused of using a network of more than 700 travel agencies and other firms to channel bribes to hospitals, doctors and government officials since 2007.

"We are deeply concerned by the allegations of fraudulent behavior and ethical misconduct by individuals in our China business," Rhyne said.

The allegations have ensnared several people who work at the company.

Glaxo's finance director in China Steve Nechelput was initially barred from leaving the country. But travel restrictions have recently been lifted, Rhyne confirmed. He will also remain at his job after officials said there was no evidence he was involved in wrongdoing, Rhyne said.

At least four other Glaxo executives have been detained. State television has aired an apparent confession by one of the four, Liang Hong, who explained how the scheme worked, including the use of fake conferences and travel agencies to create receipts for services that were never performed. The surplus funds were allegedly then used to pay bribes.

Related: China drugs scandal set to grow

Chinese police accused 39 hospital workers of taking more than $450,000 in kickbacks from pharmaceutical firms over a three-year period, state media reported Wednesday. Nine of the doctors involved were suspended or had their licenses revoked.

China appears determined to clean up its health care sector. It is investigating price-setting practices at 60 pharmaceutical companies. Lawyers believe firms other than Glaxo may be caught up in the anti-corruption drive.

Two managers working for a second British drugs firm, AstraZenec, (AZN) have also been questioned by police after a local sales representative was detained last week. The firm said it saw no link to the Glaxo investigation.

Inside the robotic pharmacy
Inside the robotic pharmacy

Big pharmaceutical companies have rushed to invest in China in recent years to take advantage of rapid growth for medical treatments. But they're now under enormous pressure to reduce costs as the population ages, straining the country's medical system and care facilities.

Glaxo's sales of pharmaceuticals and vaccines in emerging markets grew by 2% in the second quarter, double the rate for the division as a whole. Revenue from China spiked 14% to $18 million. Emerging markets account for about 23% of revenue in the division.

Glaxo has hired international law firm Ropes & Gray to do an independent review of the corruption allegations.

The newly appointed head Gisserot had been a senior vice president for European business, and had previously worked in China.

Rhyne said he will "strengthen" the company's management team in China. Outgoing general manager Reilly will remain on the senior executive team and help the company navigate the investigation, she said.

-- CNNMoney's Mark Thompson contributed to this report.

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