Glaxo Agrees to Pay $3 Billion to Settle U.S. Probe Into Sales, Marketing
By Phil Serafino and Makiko Kitamura – Nov 3, 2011 8:23 AM ET
GlaxoSmithKline Plc (GSK) agreed to pay $3 billion to resolve U.S. criminal and civil investigations into whether the U.K. company marketed drugs for unapproved uses and other matters, its biggest legal settlement.
Negotiations over the terms will be completed next year, the London-based company said in a statement today. The cost is covered by existing legal provisions and will be paid from the company’s cash resources, Glaxo said.
The potential settlement brings Glaxo closer to putting years of legal probes behind it. The company set aside 2.2 billion pounds ($3.5 billion) in the fourth quarter last year in anticipation of reaching an agreement on the cases. Glaxo said it will have about 1 billion pounds of its 2.9 billion pounds in total legal provisions remaining after today’s settlement is completed, and it hasn’t decided what to do with the money.
“This news essentially draws a line under a 10-year legal saga,” Gbola Amusa, an analyst at UBS AG in London who recommends buying Glaxo shares, said in an e-mail. “This removes significant uncertainty on ongoing legal issues.”
Glaxo rose 0.4 percent to 1,361 pence at 11:54 a.m. London time.
The Glaxo settlement would trump the $2.3 billion Pfizer Inc. paid in 2009 over the marketing of its Bextra painkiller and other drugs and the $1.4 billion Eli Lilly & Co. (LLY) paid the same year over sales of its Zyprexa anti-psychotic medicine. The Bextra accord had been the largest pharmaceutical marketing settlement in U.S. history.
Abbott Laboratories agreed to pay at least $1.3 billion to settle claims by the U.S. government and 24 states alleging the company illegally marketed its Depakote epilepsy drug, people familiar with the accords said last month.
“Litigation is an ever-present business risk in the pharmaceuticals industry,” Mark Purcell, a Barclays Capital analyst, wrote in a note to investors today.
Federal prosecutors began an investigation in Colorado in 2004, later taken over by the U.S. attorney in Massachusetts, into whether Glaxo promoted drugs for unapproved uses, and into ways Glaxo potentially influenced doctors. The probe concerns nine of the company’s best-selling products from 1997 to 2004, including the Advair lung treatment, Glaxo said in its annual report.
Today’s settlement also covers a U.S. Justice Department probe of Glaxo and a Medicaid rebate program, and a Justice Department investigation into the development and marketing of the Avandia diabetes drug, the company said.
Drugmakers are required to give rebates to Medicaid, the government health insurance program for the poor. The investigation examined how Glaxo reported prices charged to other payers, which are used in calculating the Medicaid rebates.
Regulators said last year that Avandia would be withdrawn from the market in Europe and sales would be limited in the U.S. because of an increased risk of heart attacks.
“This is a significant step toward resolving difficult, longstanding matters which do not reflect the company that we are today,” Chief Executive Officer Andrew Witty said in the statement. “In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the U.S. to ensure that we operate with high standards of integrity.”
Earlier this year, Glaxo changed incentive compensation programs for U.S. sales representatives. The company has eliminated the link between sales goals and bonuses, which are now based on selling competency, customer evaluations and overall performance of the representative’s business unit.
Glaxo still faces probes involving the United Nations oil- for-food program, and HIV product sales and marketing in the U.S., JPMorgan Chase & Co. analysts wrote in a note to investors today.
The company agreed to pay more than $250 million to resolve about 5,500 claims related to Avandia to avoid the first trials over claims it can kill users, two people familiar with the accords said in February. Glaxo said in the annual report that it reached agreements to settle the majority of Avandia claims pending as of February, though it didn’t specify how much the settlements would cost.
The legal provision, announced in January, led to a loss for Glaxo in the fourth quarter of 2010. Less than three weeks after the provision was disclosed, the company said it would begin a share repurchase for the first time since 2008 to enhance investor returns.
To contact the editor responsible for this story: Phil Serafino at email@example.com