LONDON—GlaxoSmithKline plc (GSK) announced this week that ithas reached an agreement in principle with the U.S. Government to concludeGSK's current ongoing federal government investigations. The specificinvestigations in question include the investigation into GSK's sales andmarketing practices that was initiated by the U.S. Attorney's office ofColorado in 2004 and then taken over by the U.S. Attorney's office ofMassachusetts; the U.S. Department of Justice's investigation regardingpossible inappropriate use of the nominal price exception under the MedicaidRebate Program; and the Department of Justice's investigation of thedevelopment and marketing of Avandia, GSK's drug for the treatment of type 2diabetes.
The settlement is intended to address civil and criminalliabilities, and while the final terms remain subject to negotiation, thesettlement is expected to be finalized by next year. The price tag of $3billion is covered by existing provisions, and GSK intends to make paymentsunder the final agreement in 2012, payments that will be funded through thecompany's existing cash resources.
"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 officer of GSK, said in a press release regardingthe agreement. "In recent years, we have fundamentally changed our proceduresfor compliance, marketing and selling in the U.S. to ensure that we operatewith high standards of integrity and that we conduct our business openly andtransparently. We reiterate our full commitment to ensuring appropriatepromotion of our medicines to healthcare professionals and to the standardsrightly expected by the U.S. Government."
GSK's management have been working on resolving thecompany's legal matters, and in a company press release, it was noted that "TheGSK board and management team…believe this agreement in principle to be in thebest long-term interests of shareholders."
The company established a new framework for compliance inthe United States in 2008, backed up by a larger compliance staff as well asintensified company training programs, which require employees to attaincertification. In addition, there is also a new bonus system for U.S. salesrepresentatives. The system seeks to eliminate individual sales targets as abasis for bonuses; instead, bonuses are based on the quality of service thatthe representatives deliver. GSK's U.S. Commercial Practices Policies have alsobeen change, and they now meet or exceed the U.S. PhRMA Code that governsinteractions with healthcare professionals.
The lingering charges are not the only issues the companyhas faced; in 2010, GSK took a $2.4 billion charge after settling most of thepatent liability claims that existed with regards to Avandia, in addition to aninvestigation into a former factory in Cidra. The charge also coveredanti-trust and product liability litigation over Paxil, the company'santidepressant.
GSK is far from the only company to face litigation issues in recent years.Abbott Laboratories took a $1.4 billion charge in October to settle a federalinvestigation into the marketing of Depakote, its anticonvulsant drug. Amgen isalso seeking to settle lingering issues, setting aside $780 million last monthto resolve civil and criminal investigations with regards to its salespractices. Pfizer took a hit nearly as large as GSK's in 2009, paying $2.3billion as a result of pitching Bextra, an arthritis drug that is nowwithdrawn, for unapproved uses.
SOURCE: GSK press release