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GlaxoSmithKline Plc has got off more lightly than expected in a high-profile legal clash with New York Attorney General Eliot Spitzer, sending its shares more than 1 percent higher on Friday.
Investors had been braced for a lengthy and damaging court case after Spitzer filed a suit in June accusing GSK of withholding negative information about its antidepressant Paxil.
In the event, Europe's biggest drug maker said late on Thursday it had settled the case for just $2.5 million, far less than the sum of up to $100 million some analysts had expected.
As part of the settlement, GSK also pledged to publish results of all its drug trials in a registry, something it has already started to do on its own Web site.
"The Spitzer issue was a cloud on the horizon and the financial terms are much lower than some market expectations. GSK has therefore avoided a protracted and potentially share-price damaging court case for $2.5 million," said Adrian Howd of ABN Amro.
The news may cause a collective sigh of relief across the pharmaceutical sector.
After taking on Wall Street's big investment banks, Spitzer's decision to focus on alleged links between Paxil and childhood suicide had sent alarm bells ringing throughout the drugs industry.
In the event, this case turned out to be financially insignificant, reducing the apparent risk of similar cases by other US states against Paxil and other drugs, according to analysts.
"If the big, bad Spitzer can only get $2.5 million, it seems unlikely that other states will file additional lawsuits," one analyst said.
The drug industry has been criticised for keeping quiet about negative results from clinical trials, since bad publicity would make product marketing more difficult.
GSK had been accused of withholding safety data on Paxil, with the result that the drug was being inappropriately prescribed to children.
Spitzer had sought "disgorgement of all profits obtained by GSK" as a result of the alleged misconduct between 1998 and the time the drug went off patent in 2003. In 2002, sales to children in the United States were around $55 million.
Paxil was never approved for paediatric use and was therefore only given to children on an off-label basis at the discretion of doctors. Such off-label use has proved to be a sensitive issue for drug companies in recent times.
In May, Pfizer Inc agreed to pay a $430 million fine for the illegal marketing of its epilepsy drug Neurontin to treat diseases for which it was not approved.
GSK shares, which had already made gains on Thursday after Deutsche Bank raised earnings forecasts for the group in the light of a patent victory over anti-nausea drug Zofran, were 1.2 percent higher at 11.45 pounds by 0835 GMT.

Copyright Reuters, 2004

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