GlaxoSmithKline's deal to resolve multiple US investigations into its sales and marketing practices—one of the largest settlements by a pharma company—aims to patch up several long-running legal disputes.
With the settlement, GSK hopes to bring closure to allegations of off-label marketing for several products, charges it defrauded the Medicaid program, and another probe related to Avandia, the diabetes drug that came under intense scrutiny by the FDA and EMA last year after being linked to cardiovascular risks.
A spokesperson would not say whether GSK signed a corporate integrity agreement as part of the settlement
As of September 30, the company had more than enough in its legal war chest (£2.9 billion/$4.6 billion) to cover the settlement, JPMorgan analyst Alexandra Hauber wrote in an investor note. GSK “confirmed that they consider the remaining £1bn provision as appropriate, and thus don't expect to have a significant further P&L impact from the ongoing legal issues.”
Other US investigations remain ongoing, including one related to GSK involvement in the UN Oil for Food program and to sales and marketing of its HIV products, Hauber added.
But the deal is in line with expectations and may reassure investors that there won't be any future additional cash drain associated with off-label. Final settlement terms, still being negotiated, are expected to be finalized next year and to address civil and criminal liabilities, said the company.
The settlement was the latest in a string of commercial reforms at the company, and CEO Andrew Witty sought to emphasize the firm's progress in marketing compliance.
“This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today,” Witty said in a statement. “In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the US to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently.”
The settlement relates to an ongoing federal investigation into nine of the firm's largest selling products begun by the US Attorney's office in Colorado in 2004 and later taken over by the US Attorney's office of Massachusetts. Some of the probes relate to GSK marketing of antidepressant Paxil and Wellbutrin between 1997 and 2004 and allegations the company promoted the drugs for off-label use.
According to the firm's annual report, government investigators inquired about how the products were portrayed in GSK-sponsored CME programs, other speaker events, special issue boards, advisory boards, speaker training programs, clinical studies and related grants, fees, travel and entertainment.
The settlement also concerns a US Department of Justice investigation of possible inappropriate use of the nominal price exception under the Medicaid Rebate Program, and the Department of Justice's investigation of the development and marketing of diabetes drug Avandia.
Last year the FDA decided to keep products in the Avandia franchise on the market but required additional labeling and restrictions on use. In the EU, the EMA suspended Avandia's marketing authorization.
GSK isn't the first pharma company to strike a legal accord of this magnitude. In 2009 Pfizer agreed to pay $2.3 billion to settle a federal investigation into whether it promoted the painkiller Bextra off-label. The same year, Eli Lilly, facing off-label marketing allegations for antipsychotic Zyprexa, came to terms with the government on a $1.4-billion resolution.
Since Witty took over as CEO in 2008, GSK has implemented a number of initiatives in the US aimed at changing the firm's sales and marketing practices. Last year the firm announced plans to change the incentive compensation structure for its sales reps. In January 2011, individual sales goals based on Rx volumes were eliminated and were replaced in July by a new performance methodology based on selling competency, customer evaluations and performance of their business unit.
The company said it has also invested in training and compliance programs to ensure it is operating in accordance with the industry code, strengthened internal controls on promotion including deferring disease awareness advertising until after marketing approval, and limited CME grants to non-profit providers only.
Under Witty's watch, GSK also stepped up background checks on paid physician speakers, lowered the cap on payments for speaking and advising, and clamped down on speaker presentations to ensure they're in line with the FDA-approved label.