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Business Comment

David Prosser: Pushing the pills may be the world's most risky business

Outlook Just who would be chief executive of a major pharmaceuticals business? Andrew Witty, the man in the hot seat at GlaxoSmithKline, may cut a confident public figure, co-opted by the Prime Minister on to an advisory panel of business's great and good, but he also has to spend a disproportionate amount of time looking over his shoulder. For Mr Witty runs a leading company in an industry that is right in the sights of regulators worldwide.

So, while GSK made a profit of £3.2bn last year, the total was 60 per cent down on 2009 – largely because it plunged to a £476m loss in the final quarter after putting aside £2.2bn to settle litigation over its Avandia diabetes drug (the total bill for this and other disputes could be as high as £4bn).

The Avandia reckoning will have left Mr Witty with a familiar sinking feeling. Data published last week by the watchdog Public Citizen revealed that no company has been more heavily penalised in the US than GSK. Not including Avandia, it paid $4.5bn in penalties between 1991 and 2010.

It is far from alone. Total penalties for pharmaceutical companies in the US over that period came to a little over $20bn, more than any other industry was fined by regulators. And you can add on tens of billions more to cover the cost of litigation from victims of drugs scandals – Merck has put aside $5bn for law suits related to its painkiller Vioxx, for example.

Nor do the pharmaceuticals companies face trouble in the US only. Europe too has begun to zero in on the industry in recent years, though financial penalties here have so far been smaller.

Regulatory actions have spanned a multitude of sins, most of which Mr Witty and his fellow chief executives would argue have now been consigned to history. But with governments around the world spending more than ever on healthcare – and thus drugs – the pressure on regulators not to give the industry an inch gets greater by the day. There are bound to be further scalps.

Inevitably, this trend will have consequences. Many of the world's biggest pharmaceutical companies are now cutting back on R&D – see Pfizer's decision this week to close its Sandwich plant in the UK – often because they prefer to diversify into safer product areas. In some parts of the world, GSK is now more of a consumer goods business than a pharmaceuticals company. After all, no one sues you because they've drunk too much Ribena.