Glaxo Subpoenaed On Avandia in U.S.

- WSJ

11/05/2010 - GlaxoSmithKline PLC said net profit fell 3.5% in the third quarter due to frugal government health-care spending and other factors, and disclosed that it has been subpoenaed by U.S. authorities examining its diabetes drug Avandia.

Glaxo's earnings were hurt by U.S. health-care reform and European price cuts that have hit most of the drug industry. Glaxo's results were also hit by declining sales of Avandia and by a £147 million ($233 million) charge in the quarter to write off supplies of the drug, which is being pulled from the market in Europe and restricted in the U.S. due to concerns that it is linked to heart-attack risks.

In a sign that Avandia may again be in the legal cross hairs, Glaxo said it is responding to a subpoena from the U.S. Department of Justice regarding its development and marketing of the drug. The company said it has also received "civil investigative demands" from "a number of states Attorneys General offices relating to the development and marketing of Avandia."

"These inquiries are at an early stage, and GSK is cooperating with these offices," Glaxo said in its earnings statement. A Glaxo spokesman declined to comment further. A Justice Department spokesman declined to comment.

It isn't clear whether the Justice Department is pursuing a criminal or civil investigation. Earlier this year, a Senate Finance Committee report accused Glaxo of knowing about data linking Avandia to an elevated risk of cardiovascular events for several years, but playing down the information and trying to suppress doctors who raised concerns. Glaxo rejected those conclusions, saying it had acted appropriately and never tried to suppress doctors' views.

Glaxo also said new consumer lawsuits regarding Avandia "continue to be filed," and that the company is "not yet in a position to determine whether any further provision will be necessary" to cover those lawsuits. Previously, Glaxo used part of a £1.57 billion charge it took in the second quarter to cover the cost of settling what it said at the time was the "vast majority" of lawsuits from consumers claiming that Avandia had hurt their health. Glaxo wouldn't say how much of the charge related to Avandia, but suggested at the time that it didn't expect many more lawsuits to be filed.

On a conference call with analysts, Chief Executive Andrew Witty said U.S. plaintiffs' lawyers have been advertising heavily in an effort to win new clients for Avandia lawsuits. Glaxo knows more cases have been filed but is just starting to analyze them to determine "whether the cases are real or not real," Mr. Witty said.

Mr. Witty said high sales of pandemic-flu medicines and vaccines in the year-earlier quarter also made for a tough comparison this year. Generic competition to some of Glaxo's biggest products also hurt sales.

Net profit in the quarter fell 3.5% to £1.29 billion, from £1.34 billion in the year-earlier quarter. Sales rose 1% to £6.81 billion.

Mr. Witty told journalists on a conference call that U.S. health-care reform and efforts by European governments to cut health-care spending deprived Glaxo of £140 million of sales in the third quarter. He said European governments are cutting drug prices by about 3.5% this year, and will cut them by roughly another 5% next year.

He added that some European governments are delaying the purchase of vaccines to save money, though he declined to name the countries or the diseases involved. "I'm slightly more concerned about that, not from a business perspective but from a public-health perspective," he said of the delays.

In the U.S., health-care reform has forced Glaxo and other drug companies to pay higher rebates to state Medicaid programs, which will reduce Glaxo sales by about $500 million this year, Mr. Witty said.

Sales in emerging markets were a bright spot, rising 14% at constant exchange rates versus declines of 8% and 9% in the U.S. and Europe, respectively.

Separately, Glaxo said it has received a subpoena from the U.S. Attorney for the Eastern District of New York "regarding sales and marketing practices for three HIV products, as well as educational programmes, grants or payments to physicians regarding any drug used to treat HIV-infected adults." Glaxo said it is cooperating with the investigation.

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