GlaxoSmithKline settles healthcare fraud case for $3.2 billion

WASHINGTON - GlaxoSmithKline Plc agreed to plead guilty to misdemeanour criminal charges and pay US$3 billion (S$3.2 billion) to settle what government officials on Monday described as the largest case of healthcare fraud in US history.

The agreement, which still needs court approval, would resolve allegations that the British drugmaker broke US laws in the marketing and development of pharmaceuticals.

GSK targeted the antidepressant Paxil to patients under age 18 when it was approved for adults only, and it pushed the drug Wellbutrin for uses it was not approved for, including weight loss and treatment of sexual dysfunction, according to an investigation led by the US Justice Department.

The company went to extreme lengths to promote the drugs, such as distributing a misleading medical journal article and providing doctors with meals and spa treatments that amounted to illegal kickbacks, prosecutors said.

In a third instance, GSK failed to give the US Food and Drug Administration safety data about its diabetes drug Avandia, in violation of US law, prosecutors said.

The misconduct continued for years beginning in the late 1990s and continued, in the case of Avandia's safety data, through 2007. GSK agreed to plead guilty to three misdemeanour criminal counts, one each related to the three drugs.

Guilty pleas in cases of alleged corporate misconduct are exceedingly rare, making GSK's agreement especially unusual.

The agreement to settle the charges "is unprecedented in both size and scope," said James Cole, the No. 2 official at the US Justice Department. He called the action "historic" and "a clear warning to any company that chooses to break the law."

The settlement includes US$1 billion in criminal fines and US$2 billion in civil fines.

GSK said in a statement it would pay the fines through existing cash resources. The company announced a US$3 billion charge in November related to legal claims.

NEW 'ERA' AT GSK

Chief Executive Officer Andrew Witty said the misconduct originated "in a different era for the company" and will not be tolerated. "I want to express our regret and reiterate that we have learnt from the mistakes that were made," he said in a written statement.

The GSK settlement surpasses what had been the largest criminal case involving a drugmaker in US history. In 2009, Pfizer Inc agreed to pay US$2.3 billion to settle allegations it improperly marketed 13 drugs.

The cases follow a trend of US authorities cracking down on how pharmaceuticals are sold, in part because of the rising cost of providing drugs through government programs.

'Integrity' plan

Part of civil fines address allegations that, from 1994 to 2003, GSK underpaid money owed to Medicaid, the healthcare programme for the poor run jointly by states and the federal government. The company had an obligation to tell the government its "best prices" but failed to do so, prosecutors said, and US$300 million of the settlement will go to states and other public health authorities.

A portion of the US$2 billion in civil fines may go to a group of whistleblowers who contributed to the government's investigation and who are eligible to share in the recovery under the False Claims Act. Cole said the amount has not been determined.

'INTEGRITY' PLAN

As part of the settlement, GlaxoSmithKline agreed to new restrictions by the US government to prevent the use of kickbacks or other prohibited practices. The inspector general of the US Department of Health and Human Services will oversee the "Corporate Integrity Agreement" for five years.

The company will not be able to compensate its salesmen based on sales goals for territories. It was also required to change its executive compensation programme to allow the company to "claw back" certain pay for those engaged in misconduct.

Witty said GSK's US unit has "fundamentally changed our procedures for compliance, marketing and selling. When necessary, we have removed employees who have engaged in misconduct."

Prosecutors have not brought criminal charges against any individuals in connection with the GSK case, although the settlement expressly leaves open that possibility. Cole declined to comment on the possibility of future charges.

Almost exactly a year ago GSK agreed to pay nearly US$41 million to 37 states and the District of Columbia in an unrelated case about substandard manufacturing processes at a Puerto Rico factory.

In 2010, the company took a US$2.4 billion charge in connection with Avandia to settle claims from patients.

GSK's shares were positive on the New York Stock Exchange on Monday, up 1.6 per cent to US$46.29 at 1400 EDT.

Largest prosecutions of the last 10 years

British drugmaker GlaxoSmithKline said on Monday it agreed to pay US$3 billion in US fines for illegally promoting its antidepressant drugs Paxil and Wellbutrin for unapproved uses, and for failing to report safety data about its diabetes drug Avandia. The settlement represents the largest ever in the drug industry, topping the US$2.3 billion in fines paid by Pfizer on similar charges in 2009.

Here are some of the largest prosecutions of the last 10 years:

* Pfizer Inc in 2009 pleaded guilty to a US criminal charge relating to promotion of its now-withdrawn Bextra pain medicine and agreed to pay a record US$2.3 billion to settle allegations it improperly marketed 13 drugs.

* Eli Lilly and Co in January 2009 said it would pay US$1.42 billion to settle probes into selling its Zyprexa schizophrenia drug for unapproved uses, a practice known as "off-label" marketing. Lilly agreed to plead guilty to a federal misdemeanour.

* Merck & Co in February 2008 reached an agreement to pay more than US$650 million to resolve allegations that it failed to pay Medicaid and other government healthcare programs owed rebates for cholesterol drug Zocor and pain reliever Vioxx. The company also settled charges that it paid kickbacks to healthcare providers so they would prescribe its drugs.

* Bristol-Myers Squibb agreed in September 2007 to pay more than US$510 million to settle charges of illegal marketing and pricing for its products. That included allegations that the company paid and offered gifts to doctors and healthcare providers to entice them to buy their drugs and also promoted certain medicines for uses that were not approved by the Food and Drug Administration.

* Cephalon agreed in September 2008 to pay US$425 million to settle allegations that it marketed three drugs for uses that were not approved.

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