Healthy Skepticism Library item: 19694

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Publication type: news

Wilson D
Glaxo Settles Cases With U.S. for $3 Billion
The New York Times 2011 Nov 3
http://www.nytimes.com/2011/11/04/business/glaxo-to-pay-3-billion-in-avandia-settlement.html?_r=1

Full text:

The British drug company GlaxoSmithKline said Thursday that it had agreed to pay $3 billion to settle United States government civil and criminal investigations into its sales practices for numerous drugs.

Marius Becker/DPA, via European Pressphoto Agency
The charges included illegal marketing of Avandia.
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Andrew Witty, chief executive, said the matters “do not reflect the company that we are today.”

The settlement would be the largest yet in a wave of federal cases against pharmaceutical companies accused of illegal marketing, surpassing the previous record of $2.3 billion paid by Pfizer in 2009. In recent years, drug companies have been prime targets of federal fraud investigations, which have recovered tens of billions of dollars for Medicaid and Medicare.

The cases against GlaxoSmithKline include illegal marketing of Avandia, a diabetes drug that was severely restricted last year after it was linked to heart risks. Federal prosecutors said the company had paid doctors and manipulated medical research to promote the drug.

GlaxoSmithKline had already set aside cash for the settlement, which analysts said would remove legal uncertainty. The company’s stock rose 2.96 percent Thursday, to $44.55, near its 52-week high, amid a broader market advance of about 2 percent.

“This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today,” Andrew Witty, chief executive of GlaxoSmithKline, said in a 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 and that we conduct our business openly and transparently.”

The agreement to settle its biggest federal cases should be completed next year, the company added in the statement. It said $3 billion would settle not only the Avandia case, but also a Justice Department investigation of its Medicaid pricing practices and a nationwide investigation led by the United States attorneys in Colorado and Massachusetts into the sales and marketing of nine of its drugs from 1997 to 2004.

GlaxoSmithKline did not specify how much money would resolve each case, nor the possibility of criminal findings and fines, saying the final settlement remained under negotiation. A Justice Department spokesman declined to comment.

GlaxoSmithKline, with a market value of more than $110 billion, had net profit of about $5 billion on sales of $43 billion in the year ending Sept. 30.

The company set aside $3.4 billion in January — eliminating its fourth-quarter profit — and $2.3 billion in July 2010 to resolve a variety of civil and criminal cases.

Critics of the settlements made with drug companies argued for stiffer penalties, including prison sentences for corporate officials.

Frances H. Miller, a Boston University law professor and health policy expert, said, “Although $3 billion is a very big number in terms of drug industry settlements, it’s not a very big number in relation to almost $50 billion in annual revenue for the world’s fourth-largest pharmaceutical company.”

Patrick Burns, spokesman for Taxpayers Against Fraud, an advocacy group for whistle-blowers, said, “Who at Glaxo is going to jail as a part of this settlement? Who in management is being excluded from doing future business with the U.S. government?”

Last year, the Justice Department accused a former vice president and associate general counsel of GlaxoSmithKline, Lauren C. Stevens, of obstruction of justice and making false statements. But she was acquitted of all six charges in May by a United States District Court judge, Roger W. Titus, in Maryland, who ruled that she had been advising the company in good faith.

Mr. Burns said the health care sector accounted for more than 80 percent of the $4 billion in overpayments recovered by the government in 2010 as a result of whistle-blower lawsuits and resulting fraud investigations by federal and state agencies.

“This is a well-worn path for big pharma,” said Les Funtleyder, health care strategist with the New York brokerage firm Miller Tabak.

“I know $3 billion sounds like an astronomical number,” he added, “but when you live in the world of worst-case scenarios, like investors do, $3 billion is a welcome relief. At least you have certainty.”

Brian Bourdot, an analyst at the investment bank Barclays Capital, called the settlement an important step but also noted that GlaxoSmithKline “remains involved in other legal disputes, including alleged violations of the Foreign Corrupt Practices Act.”

“We regard such disputes as an innate risk for large multinational pharmaceutical companies,” he wrote in a note to investors.

In a separate case last year, GlaxoSmithKline agreed to pay $750 million, including a $150 million criminal penalty, to resolve federal complaints about manufacturing quality at a plant in Cidra, P.R., since closed.

Mary Anne Rhyne, a spokeswoman for the company, said Thursday that it was still negotiating with the government over whether to include a corporate integrity agreement in that deal. The agreement could provide further penalties for other violations, though in manufacturing.

This article has been revised to reflect the following correction:

Correction: November 3, 2011

An earlier version of this article described the drug Avandia incorrectly. It is a diabetes drug, not a painkiller.

This article has been revised to reflect the following correction:

Correction: November 5, 2011

An article on Friday about a GlaxoSmithKline settlement of federal civil and criminal investigations into its sales practices for numerous drugs described the company’s accusers incorrectly. The investigations resulted in accusations from federal and state prosecutors; no company whistle-blowers are known to be involved.