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GlaxoSmithKline to Pay $3 Billion, Pursue Reforms in Historic Settlement

Tuesday, July 3, 2012

By David Pardo  

London-based pharmaceutical company GlaxoSmithKline has agreed to plead guilty and to pay $3 billion to resolve its criminal and civil liability arising from what the Department of Justice called the company's unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices, DOJ announced July 2.

The resolution is the largest health care fraud settlement in U.S. history and the largest payment ever by a drug company, DOJ said. GSK announced in November 2011 that had reached an agreement in principle with the government and would pay $3 billion (214 HCDR, 11/4/11).

As part of the resolution, GSK agreed to plead guilty to a three-count criminal information under the Federal Food, Drug, and Cosmetic Act, including two counts of introducing misbranded drugs, Paxil and Wellbutrin (both of which are approved for treating depression), into interstate commerce and one count of failing to report safety data about the diabetes drug Avandia to the Food and Drug Administration.

Settlements.

Under the terms of the plea agreement, which is subject to approval by the U.S. District Court for the District of Massachusetts, GSK will pay a total of $1 billion, including a criminal fine of $956 million and forfeiture in the amount of $43 million.

GSK also is paying $2 billion to resolve its civil liabilities with the federal government under the False Claims Act, as well as with the states, DOJ said.

The civil settlement resolves claims relating to Paxil, Wellbutrin, and Avandia, as well as additional drugs, and also resolves pricing fraud allegations, the government said.

As part of the global resolution, GSK agreed to resolve its civil liability for the following alleged conduct:

• promoting the drugs Paxil, Wellbutrin, Advair, Lamictal, and Zofran for off-label (i.e., not approved by FDA), noncovered uses, and paying kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent, and Valtrex;

• making false and misleading statements concerning the safety of Avandia; and

• reporting false best prices and underpaying rebates owed under the Medicaid Drug Rebate Program.

 

Corporate Integrity Agreement.

In addition to the criminal and civil resolutions, GSK has executed a five-year corporate integrity agreement with the Department of Health and Human Services Office of Inspector General, DOJ said.


 

An attorney for whistleblowers in the case said the corporate integrity agreement breaks new ground by allowing the use of “clawbacks” to recoup executive compensation, which is a “new pressure point about personal responsibility.”  

 


Under GSK's agreement with HHS OIG, the drug company will refrain from rewarding or disciplining its pharmaceutical sales representatives “based upon the volume of sales of [the company's] products” within the representative's territory. GSK will use its existing Patient First program, which it implemented in July 2011, to evaluate employees. The agreement also contains a “financial recoupment program” that subjects an executive who is discovered to have been involved in “significant misconduct” to forfeiting up to three years of bonuses or other “long term incentives.”

Mary Anne Rhyne, GSK's director of US Media Relations, told BNA July 2 that the Patient First program “is not new. This is one of the certain fundamental changes to our procedures for compliance, marketing and selling in the [United States] that we have made to meet society's expectations and to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently.”

“We implemented this new incentive compensation system for our professional sales representatives who work directly with health care professionals,” Rhyne added.

“The new system eliminates individual sales targets for these representatives as a basis for bonuses, and instead bases incentive compensation primarily on sales competency, customer evaluations and the overall performance of their business unit,” Rhyne said.

Kevin Colgan, spokesman for GSK, told BNA July 2 that Patient First uses “robust methodology” to evaluate employees. Colgan added that Patient First is “proprietary” to GSK and thus could not provide additional information.

Erika A. Kelton,  an attorney with Phillips & Cohen LLP, Washington,  who represents two of three whistleblowers who brought claims against GSK, told BNA July 2 that the corporate integrity agreement breaks new ground by allowing the use of “clawbacks” to recoup executive compensation, which is a “new pressure point about personal responsibility.”

Aside from GSK's guilty plea to the three-count criminal information, the claims settled by these agreements are allegations only, and there has been no determination of liability, DOJ said.

Other Companies.

The resolution of the GSK case follows several other large settlements, or potential settlements, involving the government and drug manufacturers.

In November 2011, Merck agreed to pay $950 million to resolve criminal charges and civil claims related to the promotion of the discontinued painkiller Vioxx (226 HCDR, 11/23/11).

In October 2011, Abbott Laboratories disclosed in an 8-K filing with the Securities and Exchange Commission that it has set aside $1.5 billion in litigation reserves in connection with a DOJ inquiry into the possible off-label marketing of its anti-seizure medication Depakote.

And in 2009, drug giant Pfizer Inc. paid $2.3 billion to the federal government--the largest amount at the time in a health care settlement--for illegally marketing the anti-inflammatory drug Bextra and three other drugs for uses that FDA had not approved. Pfizer's 2009 deal involved payment of a $1.2 billion criminal fine and resolution of civil False Claims Act allegations (169 HCDR, 9/3/09).

Also in 2009, Eli Lilly and Co. agreed to pay more than $1.4 billion to resolve criminal and civil allegations that it promoted its antipsychotic drug Zyprexa for off-label uses (10 HCDR, 1/16/09).

Group Cites Need for Stronger Punishment.

In a July 2 statement, Sidney Wolfe, the director of Public Citizen's Health Research Group, said the announcement “of the largest health fraud settlement ever reached between a pharmaceutical company and federal and state governments demonstrates that despite the seemingly large sums, the fines imposed on pharmaceutical companies for dangerous and illegal conduct pale in comparison to the profits generated from such activity.”

Wolfe said, “The industry is therefore tacitly encouraged to continue its illegal activity.” He added, “Until more meaningful penalties and the prospect of jail time for company heads who are responsible for such activity become commonplace, companies will continue defrauding the government and putting patients' lives in danger.”

According to settlement documents, GSK is represented by Goeffrey Hobart and Matthew O'Connor, with Covington & Burling LLP, in Washington.

By David Pardo  


Text of documents in the GSK case are at http://www.justice.gov/opa/gsk-docs.html. The corporate integrity agreement is at http://www.justice.gov/opa/documents/gsk/hhs-oig-corp-integrity-agreement.pdf.

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