GlaxoSmithKline Catches Heat With Fraud Charges

by Income Research Team
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GlaxoSmithKline Catches Heat With Fraud Charges

GlaxoSmithKline Catches Heat With Fraud Charges

The pharmaceutical industry has certainly been dramatic lately.

Pfizer’s (PFE) courtship of AstraZeneca (AZN.L) lit up the headlines and provided some entertainment.

AstraZenaca spurned Pfizer for a third time, even after an eye-popping $117-billion proposal.

This time, Pfizer may not be coming back with a sweetened offer. The company has said it will focus on internal growth, as well as other potential deals.

Both sides are cooling down, but now things at GlaxoSmithKline (GSK.L) are heating up . . .

Once again, the UK drugmaker is in hot water, as it faces another criminal investigation, this time by Britain’s fraud office for alleged bribery.

This comes less than two weeks after Chinese officials alleged that GSK staff bribed officials, doctors and hospitals with a total of $480 million. Senior managers from GSK’s China business have been charged with corruption.

It’s the biggest scandal to hit a foreign company in China since 2009, and similar allegations are surfacing in Jordan, Lebanon, Iraq and Poland – indicating a pattern of behavior.

GSK argues that it has no systemic issue with unethical behavior. And in an attempt to move on, it’ll be rolling out a new sales model, under which it’ll become the first company in the industry to stop paying doctors to promote its products.

So, the allegations are almost assuredly hurting Glaxo’s reputation, but what about its shares?

Since news broke, GlaxoSmithKline’s American depositary receipts (ADRs), which trade under the ticker GSK, have dropped by over 4%.

GSK’s dividend yield is an attractive 4.7%, in an industry that’s fertile ground for dividend investors.

Pfizer and Novartis (NVS) pay dividends of 3.4% and 3.1%, respectively. Next in ranking, Merck’s (MRK) yield sits at 3.0%. Lastly, with dividend yields of 2.9% and 2.8%, respectively, there’s Roche (RHHBY) and Johnson & Johnson (JNJ).

As details of the scandal emerge, we’ll see if this mark on GSK’s report card will have a long-lasting effect.

Income Research Team

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