Glaxo sets aside £1.6bn for outstanding lawsuits
Friday 16 July 2010
The drugs giant GlaxoSmithKline disclosed yesterday that it has set aside a record £1.57bn to meet legal charges during the second quarter. The money will be ringfenced to end a number of legal wrangles, including most of the claims involving its diabetes treatment Avandia.
Europe's biggest pharmaceuticals company said the charges related to "longstanding" litigation, including actions that claim Avandia causes heart complaints in some patients.
The settlement includes provisions for settling a competition case in the US, and an investigation into the operation of a manufacturing plant in Puerto Rico.
On Wednesday, most of the medical experts sitting on a US Food and Drug Administration (FDA) advisory panel ruled that Avandia was safe enough to stay on the market, adding that it did not increase the risk of heart attack or strokes, as some had insisted.
GSK said the money it had set aside included an estimate on future Avandia liabilities. It refused to comment on reports earlier this week that it had agreed to pay $460m (£300m) to settle a number of cases.
On Tuesday, the company said it would continue to fight Avandia claims, adding: "We continue to prepare for trials later this year, and are fully prepared to defend any litigation because we are confident that when courts and juries look at actual clinical data, the manner in which we communicated with the FDA and physicians, and our openness in posting studies on our website, the facts will support our position." Yesterday, GSK's general counsel, Dan Troy, insisted the settlement was good for shareholders.
"The charge we have announced today reflects the company's ongoing efforts to resolve certain longstanding legal cases," he said. "This represents a substantial proportion of GSK's outstanding litigation. This process is helping us to reduce financial uncertainty and risk for shareholders."
Despite the settlement costing the company about 2.5 per cent of its value, and wiping out most of its second-quarter earnings, the move was welcomed in the City, where GSK's shares closed the day up 21.5p at 1,203p. "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 Mark Clark, an analyst at Deutsche Bank.
GSK declined to comment on how the settlement would be split, refusing to give details of how much it was setting aside for Avandia claims. Its Cidra plant in Puerto Rico has been the subject of an investigation by various American agencies, including the Department of Justice, for the past seven years. According to GSK's 2009 annual report, the inquiry was connected to a former employee's complaint that the site failed to comply with FDA guidelines.
GSK said it would pay £500m to settle the inquiry, adding that "the final settlement is subject to the negotiation". It refused to say whether it would accept liability. The Cidra plant has now closed.
Yesterday's settlement included a charge to settle anti-competition litigation brought against GSK's blockbuster antidepressant Paxil, and unnamed "provisioning relating to other legal matters".
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