AGLAXOSMITHKLINE expects to record a legal charge of £1.57bn for the second quarter after settling the “substantial majority” of claims relating to its controversial diabetes pill Avandia.
The move, designed to clear the decks of outstanding legal issues, will wipe out most of the drugmaker’s expected earnings for the three months to June but leaves it better placed to grow profits in future.
The British drugmaker said yesterday the charge would cover not only settlements for Avandia but also other long-standing legal cases, including an investigation into its former factory at Cidra in Puerto Rico, and anti-trust and product liability litigation over antidepressant Paxil.
The charge will cost £1.35bn after tax. News of the hefty charge – equal to about 2.5 per cent of Glaxo’s market value – initially dampened an anticipated rally in the shares after a US panel voted to keep Avandia on the market with new warnings on heart risks.
“Some people might baulk at the size of the charge but probably most will say this is putting it all behind the company, so we can now look to the continuing business and view the stock on a more rational basis,” said Deutsche Bank analyst Mark Clark.
The big legal hit will slash second-quarter earnings per share by more than 26p, according to analysts, wiping out most of the group’s profit for the period. Prior to the news, the consensus earnings per share forecast had been 29.5p. Glaxo will report results on 21 July.
Glaxo did not specify the amount it was setting aside to settle liability claims over
Avandia, arguing settlement terms were confidential.
Initially, analysts had feared it might have to spend as much as $6bn (£3.9bn) to resolve an estimated 13,000 US Avandia claims. But the favourable panel vote and recent reports of modest settlements means some now see a bill of around $1bn or less.
Avandia was once Glaxo’s second-biggest drug, with sales of £3bn a year.