GSK will pay $3 bn to settle US drug row

GlaxoSmithKline PLC on Thursday announced it had reached a $3-billion settlement agreement with the US to conclude the global consumer healthcare company's most significant ongoing Federal government investigations.

The 'in-principle' settlement of $3 billion is covered by existing provisions. GSK expects to make payments under a final agreement next year.

These payments will be funded through existing cash resources, the company said in a statement.

It said the investigation into its sales and marketing practices, which was started by the US Attorney's office of Colorado in 2004 and taken over by the US Attorney's Office of Massachusetts and the US Department of Justice's investigation, relates to the possible inappropriate use of the nominal price exception under the Medicaid Rebate Programme and the DoJ's investigation of the development and marketing of Avandia, an oral drug used in the treatment of type-2 diabetes.

The final settlement, which is expected to address civil and criminal liabilities, remains subject to negotiation of specific terms. It is expected to be finalised next year.

The GSK board and management team has been focused on resolving these long-standing legal matters and reducing financial uncertainty for the Group.

It believes that this agreement in principle would be in the best and long-term interests of shareholders.

"This is a significant step toward resolving difficult, long-standing

matters, which do not reflect the company that we are today," said Andrew Witty, CEO.

He noted that the company, founded in 2000, had in recent years, fundamentally changed its procedures for compliance, marketing and selling in the US to ensure that it operated with high standards of integrity and conducted business transparently.

"We reiterate our full commitment to ensuring appropriate promotion of our medicines to healthcare professionals and to the standards rightly expected by the US government," he said.

Since 2008, GSK has established a new framework for compliance in the US, based on the company's values, policies and established industry codes of practices.

It is supported by a larger compliance staff and strengthened training programmes that require certification by employees.

Other initiatives to drive change in commercial procedures have also been undertaken. They include the implementation of a new incentive compensation system for its professional sales representatives who work directly with healthcare professionals.

The new system eliminates individual sales targets as a basis for bonuses.

Instead it bases incentive compensation on the quality of the service these representatives deliver to customers to support improved patient health.

GSK's US commercial practices policies now meet or exceed the US PhRMA Code governing interactions with healthcare professionals, the company said.