Glaxo to pay $3bn to end US drug case

City A.M. Reporter
GlaxoSmithKline has agreed in principle to settle its most significant disputes with the US government over the way it marketed and developed its drugs, at a cost of $3bn (£1.88bn), which is covered by existing provisions.

The settlement, over both civil and criminal 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 are £2.9bn.

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.

Announcing the outline settlement yesterday, 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 per cent of GSK’s market value -- the shares closed up 1.7 per cent at £13.78.

Analysts at Helvea said the deal was positive news as it would reduce financial uncertainty for the group.