GlaxoSmithKline to pay $3B to settle charges over marketing practices

GlaxoSmithKline to pay $3B to settle charges over marketing practices

GlaxoSmithKline 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 are ongoing and 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 Glaxo settlement would trump the $2.3 billion Pfizer paid in 2009 over the marketing of its Bextra painkiller and other drugs and the $1.4 billion Eli Lilly 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.

Glaxo to pay $3B to settle U.S. sales, Avandia cases
By Phil Serafino and Makiko Kitamura
November 3, 2011
Bloomberg

GlaxoSmithKline Plc 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 are ongoing and 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 were unchanged at 1,355.5 pence at 10:14 a.m. London time.

Pfizer Settlement

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. 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. Barclays expects Glaxo will incur legal charges of 150 million pounds a year, Purcell said.

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.

Medicaid Rebates

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.”

Compensation Changes

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 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.

U.S. pays as Prudential invests troop death benefits

U.S. pays as Prudential invests troop death benefits
By David Evans
Bloomberg News
Sunday, October 3, 2010
washingtonpost.com

When Prudential Financial invests the death benefits owed to survivors of U.S. troops killed in battle, the money comes from a source with deep pockets: the federal government.

After a service member dies in combat - including the more than 4,000 who have been killed in Iraq and Afghanistan - the Department of Veterans Affairs sends Prudential the full amount of each family's life insurance coverage, usually $400,000.

The government has paid Prudential $1.7 billion for these benefits since 2003, when the war in Iraq began, according to information provided by the VA.

Prudential holds that taxpayer money, invests it and reaps the gains.

Here's how it works: If survivors request a lump-sum payment of the death benefit, Prudential opens a retained-asset account, a quasi-checking account that allows families to draw money when they are ready to spend it.

(READ: Washington Post special report on soldier's traumatic brain injuries and coming home a different person)

Until the money is used, it stays in Prudential's corporate account. There, the insurer invests it, mostly in bonds, making returns as much as eight times what it is paying out to holders of the retained-asset account.

What this means is that Prudential is investing - and profiting from - death benefits owed to service members' families, using money provided by the government.

"They have what appears to be a nice sweetheart deal with the federal government," says Michael Powers, a professor of risk management and insurance at Temple University in Philadelphia. "This strikes me as the same sort of thing as those classic stories of the government paying hundreds of dollars for a wrench or a toilet seat."

Ninety-five percent of survivors paid by Prudential ask for lump-sum payments, the VA says. Since 1999, the company has sent out more than 60,000 Alliance Account checkbooks, instead of checks, covering more than $7 billion in death benefits when families asked for full payouts...