* Cost covered by existing legal provisions of $4.6 bln
* Relates to marketing and development of Avandia, other
* GSK says has since fundamentally changed commercial
* Shares up 0.7 pct, in line with European sector
LONDON, Nov 3 GlaxoSmithKline Plc has
agreed in principle to settle several long-standing disputes
with the U.S. government over the way it marketed and developed
drugs, at a cost of $3 billion, which is covered by existing
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
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 U.S.
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 U.S. 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
U.S. sales representatives, who no longer work to individual
sales targets. Witty has also overhauled the group's top U.S.
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.
The disputes being settled include an investigation that
started in Colorado and moved to Massachusetts, related to
improper marketing of drugs between 1997 and 2004.
Another probe involves charges that GSK used the Medicaid
system improperly to make additional profit from sales to the
federal programme, while the Avandia case covers investigations
into the way the drug was developed and then marketed.
In mid-2010, GSK took a $2.4 billion charge after settling
most patient liability claims relating to Avandia, as well as an
investigation into its former factory at Cidra in Puerto Rico,
and anti-trust and product liability litigation over
Several other leading drugmakers have also struck big-ticket
settlement deals in United States in recent years, or have been
forced to take big charges in anticipation of such deals.
Only last month, Abbott Laboratories took a $1.4
billion charge related to attempts to settle a U.S. federal
investigation into marketing of its Depakote anticonvulsant
In 2009, Pfizer paid $2.3 billion for pitching its
now-withdrawn Bextra arthritis drug and another dozen medicines
to patients and doctors for unapproved uses. Eli Lilly
paid $1.4 billion the same year after being accused of
improperly marketing its antipsychotic drug Zyprexa for use in
children and elderly patients.