GlaxoSmithKline In Trouble Again!

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Already in trouble in China and Iraq, GlaxoSmithKline (LSE:GSK) is now under investigation in Poland on allegations of bribery. Although the GSK share price has been losing ground today in early trading and following the opening of the exchange, it remains to be seen how shares will perform on the New York Exchange (NYSE:GSK). The GSK share price on the London Exchange is at 1,542, down 0.9% as of 2:45 pm today.

Is It Bribery or Is It Business?

The labs are squeaky clean. The salesmen dress for success. The physician’s offices are sanitary. But, apparently, there is more than one reason doctors need to clean their hands. It is a family secret of the pharmaceutical sector that sales are driven by practices that, in any other scenario, would be bribery. The practice is the elephant in the room that no one is willing to talk about.

To think that GSK is the only company that practices the fine art of selling products by paying the customer would be absurd. In the highly competitive pharmaceutical marketplace, it’s not so easy to get the product to the end user.

Think about it. Pharmaceutical companies can get product on the shelves, but, unlike most other products, those shelves are barred from the consumers that the company needs to reach. Product on the shelf in a pharmacy is just dollars tied up in inventory. The only way to get that product into the end users’ hands is by a doctor specifically prescribing it. Almost every other consumer product is sold exclusively based on the customers’ decisions. This purchase decision is not even available to the pharmacist on whose shelves the product sits. That’s why the pharmacy does not sell product. It dispenses it.

That leaves relatively few options for GSK and other pharmaceuticals. It’s pretty much about advertising the product commercially and encouraging consumers to “ask your doctor if Drug X is right for you,” or “encouraging” doctors to prescribe Drug X for you, with or without you asking.

The Best Paid Salespeople Sell What’s Best for Them

You can try to deny it all you want, but the truth remains the truth. The best paid salespeople sell the products that puts the most money in their own pockets. In the pharmaceutical downstream, their are two sales entities. One is the pharmaceutical sales rep. The other is your doctor. He is the single decision maker regarding what drugs you take (legally). Does it not make sense that he will be influenced to prescribe the drug from which he stands to make the most money when there exist several options that have the same effect?

I’m not here to condemn GSK’s practices or any other pharmaceutical company’s. It is what it is. And, unlike the corruption we have witnessed in the banking sector, this “corruption” may be much more difficult to redeem. It is not a simple practice of greasing palms. If you look at it from the drug companies’ perspective, it’s almost like paying the doctors a tip or a commission. It’s is not a good situation, but it is what it is. And they all do it.

So the question is, “Why is the spotlight on GSK?” And, “Who is pointing the spotlight?” That might be the best investigation to pursue, because the only place to be to ensure that you never have the spotlight pointed at yourself is to be the one behind the spotlight, pointing it at someone else.

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