GlaxoSmithKline Agrees to a $3 Billion Settlement with the U.S. Government

On November 3, 2011, GlaxoSmithKline (“GSK”) announced an agreement in principle with the U.S. government for the largest settlement to date to conclude ongoing government investigations against a pharmaceutical company marketing products in the U.S. The $3 billion settlement against GSK, the world’s fourth largest pharmaceutical company, should be finalized in 2012 and is expected to address currently outstanding civil and criminal liabilities. This settlement surpasses the $2.3 billion settlement federal authorities negotiated with Pfizer in 2009 over off-label marketing of its painkiller, Bextra, and the $1.4 billion settlement between the U.S. government and Eli Lilly & Co., also in 2009, which was the result of off-label marketing allegations for its anti-psychotic medication, Zyprexa. Recently, pharmaceutical companies have been a favored target of federal fraud investigations, which have resulted in a recovery of tens of billions of dollars for Medicaid and Medicare.

Investigations by the U.S. government into GSK’s marketing activities date back to 2004 and include allegations that GSK promoted off-label use of its nine best-selling drugs through various sales and marketing practices. The U.S. Attorney’s offices in Colorado and Massachusetts investigated these allegations, specifically looking at how GSK portrayed these drugs, whether GSK promoted the drugs for uses not approved by the U.S. Food and Drug Administration (“FDA”) and at the various ways GSK potentially influenced doctors. In addition, the U.S. Department of Justice (“DOJ”) investigated GSK’s inappropriate use of the Medicaid Rebate Program’s nominal price exception, as well as GSK’s improper development and marketing of the diabetes drug, Avandia. Under the Medicaid Rebate Program, drugmakers are required to give rebates to Medicaid, the amounts of which are calculated based on the lowest price they charge most organizations for their drugs. Investigators examined how GSK reported the prices it charged other payors and whether GSK inappropriately used rules exceptions to improperly inflate the prices for the purposes of Medicaid reimbursement. Investigators also questioned both GSK’s and the FDA’s handling of Avandia after a 2009 study published in the New England Journal of Medicine found that Avandia increases the risk of heart attack by 43%. A 2010 Senate Finance Committee staff report found that GSK knew for several years prior to the study that Avandia was associated with cardiovascular risks.

GSK’s CEO, Andrew Witty, stated in a press release that the settlement is “a significant step toward resolving difficult, long-standing matters which do not reflect the company we are today.” He also reiterated GSK’s “full commitment to ensuring appropriate promotion of our medicines to healthcare professionals and to the standards rightly expected by the U.S. Government.” In support of this assertion, Mr. Witty noted that last year GSK changed its incentive compensation practices for U.S. sales representatives to focus more on selling competency and customer evaluations instead of individual sales goals based on pharmaceutical volume.

The GSK press release can be accessed here:
http://www.gsk.com/media/pressreleases/2011/2011-pressrelease-710182.htm

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