NC Health Beats
GSK $3B Settlement Unprecedented, But Not Unexpected
By Rose Hoban
For several years now, drugmaker GlaxoSmithKline has been waiting for the other shoe to drop in the US Department of Justice’s legal case against the company over GSK’s business practices.
Yesterday, the US DOJ announced an unprecedented $3 billion agreement signed with the company over allegations of fraud in the marketing and regulatory submissions around the diabetes drug, Avandia, and marketing of the anti-depressants Paxil and Wellbutrin.
Even as word of the settlement spread, the stock price for GSK, which has one of its two major US corporate offices in Research Triangle Park, climbed for most of the day Monday, gaining a total of 62 cents/ share, according to Yahoo! Finance (stock price opened 30 cents lower Tuesday and was about unchanged at the time of publication).
That’s in part because GSK has been prepping for this day for years. In financial statements over the past three years, the company has warned stockholders about pending legal action against the company around all three products.
In addition, the company took a £4 billion (more than $6.2 billion at the prevailing exchange rate) write down at the end of 2010 in anticipation of the settlement, which has been in the works for months.
“During 2010, we reached settlements and agreements in principle to settle a number of significant legal disputes,” read GSK’s 2011 annual report.
“The resulting provision for legal and other disputes of £4.0 billion… 31 December, 2010 includes the best estimate of the amounts expected to be necessary to resolve those disputes”
GSK has some other outstanding legal liability cases, including one over the denture fixative Poligrip, and in 2011, the company settled a case over manufacturing conditions at it’s former Cidra, Puerto Rico plant for more than $40 million.
So, it appears GSK set aside more than enough of what it needed to settle its largest outstanding cases.
The $3 billion settlement is the largest fine ever paid by a drug company. Even though GSK, in court papers, does not admit liability, CEO Andrew Witty made a public apology in a statement issued Monday.
“On behalf of GSK, I want to express our regret and reiterate that we have learnt from the mistakes that were made,” Witty wrote.