Volume 89 Issue 4 | p. 9 | News of The Week
Issue Date: January 24, 2011

Pharmaceuticals: GSK Takes $3.5 Billion Charge For Marketing, Product Liability Cases

Department: Business
Keywords: manufacturing, product liability, Avandia

GlaxoSmithKline will take a fourth-quarter 2010 legal charge of $3.5 billion related to consumer lawsuits and a U.S. investigation of the company’s marketing practices. The charge is the third big financial hit GSK has taken since mid-2010 due to questionable marketing and manufacturing practices.

The new charge primarily relates to product liability cases over the diabetes drug Avandia and to an investigation by the U.S. Attorney’s Office into the firm’s overall sales and promotional practices, according to GSK. “We recognize that this is a significant charge, but we believe the approach we are taking to resolve long-standing legal matters is in the company’s best interests,” says P. D. Villarreal, GSK’s senior vice president for global litigation.

In a research report, Morgan Stanley stock analysts say they suspect the bulk of the write-down relates to the U.S. government’s investigation. “Enforcement risk for the industry remains high and has an important impact on revenue momentum, profitability, and balance sheets,” they write.

The analysts figure that most of the Avandia cases were covered by a $2.4 billion charge the company took in the second quarter. Avandia has been under scrutiny for some time because of its potential cardiovascular side effects. In September, FDA said it would substantially limit use of the drug.

The earlier charge, announced in July, also covered product liability and antitrust litigation over Paxil, an antidepressant, and payments to the U.S. government related to manufacturing violations at a plant in Cidra, P.R. In November, GSK paid out $750 million to settle criminal and civil cases connected to the Cidra plant.

 
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ISSN 0009-2347
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