Glaxo cleans up illegal practices after $3bn fine

Sir Andrew Witty, chief executive of Britain’s largest pharmaceutical company, GlaxoSmithKline, has expressed regret for ‘unacceptable’ marketing practices that resulted in a $3bn (£1.9bn) fine for mis-selling drugs in the US, and promised a company-wide overhaul to ensure there would not be any further mistakes.

 

Witty, who became chief executive in May 2008, has been dealing with the legal cases involving three of GSK’s best-selling drugs in US courts for four years.

 

GSK, valued at £75bn, sold the antidepressant Paxil for unapproved use on children, Wellbutrin for unapproved use for sexual dysfunction and weight loss, and failed to flag up concerns about heart risks with Avandia to the regulator. 

 

Meanwhile, entertainment was lavished on medical professionals to entice them to promote GSK medicines. Witty says that the company has now adopted a zero tolerance approach, having almost doubled the number of compliance staff to more than 240 over four years.

 

The mis-selling and other illegal practices were brought to light by company whistleblowers and the £1.9bn fine will be paid out of GSK’s £7.5bn cash pile. 

 

The fine comes hard on the heels of the revelation of lower first half sales and profits and the announcement of £500m of cost savings by the end of 2015.

 

Price cuts imposed by many European governments as part of their austerity drive have bitten into GSK’s sales and they warn that no improvement in the situation can be expected this year. 

 

Profits in the second quarter were slightly down on last year at £1.5bn with sales falling in Europe and the US contributing to a 2% drop in sales overall.

 

However, the acquisition in August of Human Genome Sciences adds a drug to fight lupus, a chronic immune disorder, to their product list and GSK is launching eight new medicines in the next two years.

 

Value for GSK’s shareholders is maintained with regular dividends and continuing share buybacks.