GlaxoSmithKline Plc has agreed in principle to settle several long-standing disputes with the US government over the way it marketed and developed drugs, at a cost of $3 billion, which is covered by existing provisions. Settlement of the civil and criminal mis-selling claims is expected to be finalised in 2012. It includes a Department of Justice investigation into the company's controversial diabetes drug Avandia, which has been linked to heart risks.
Britain's biggest drugmaker already took massive charges last year related to liability claims from patients who had been taking Avandia. The company's current legal provisions stand at 2.9 billion pounds ($4.6 billion). The deal to resolve the latest disputes follows a clampdown in the United States on unfair pharmaceutical industry practices that has forced major drugmakers to rethink the way they do business in the world's biggest market.
Since 2000 the number of industry settlements with US states and the federal government has soared as authorities have taken an increasingly tough line on practices that may have put commercial goals above the interests of payers and patients, such as marketing drugs for unapproved uses.
Announcing the outline settlement on Thursday, GSK said it had implemented fundamental changes to US selling procedures in recent years and Chief Executive Andrew Witty said the cases "do not reflect the company that we are today". Changes under Witty's watch include a new bonus system for US sales representatives, who no longer work to individual sales targets. Witty has also overhauled the group's top US management.
Despite the hefty settlement cost - equal to about 2.8 percent of GSK's market value - the shares were up 0.7 percent at 1230 GMT, in line with the Stoxx Europe 600 healthcare sector index , as investors accepted the need to clear the decks of long-running legal claims. Analysts at Helvea said the deal was positive news as it would reduce financial uncertainty for the group. Since the settlement of $3 billion is covered by existing legal provisions, there is no need to raise new money and GSK said payments would be funded through existing cash resources.
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