Moody's cuts GlaxoSmithKline outlook, citing billions in outlays

Rating agency: Outlook "negative" on buybacks, hefty legal settlements
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As if GlaxoSmithKline didn't have enough trouble on its hands, Moody's Investors Service has cast some dark clouds over its credit outlook. The agency cut the outlook on Glaxo's ($GSK) long-term A1 rating to "negative" from "stable," citing worries about debt, share buybacks and massive legal settlements.

The corruption scandal in China, however, didn't contribute to the ratings service's move, Reuters notes. Glaxo faces allegations there that its marketing operations handed out up to $489 million to doctors and other health officials to induce them to use more of the company's drugs.

Past marketing allegations apparently did come into play, though. Moody's cited Glaxo's several billions' worth of legal settlements as worrisome drains on cash. Last year, the company agreed to pay $3 billion to wrap up state and federal investigations of its marketing tactics, used to pump up sales of drugs such as the diabetes treatment Avandia, and the antidepressants Wellbutrin and Paxil. That deal, of course, followed Glaxo's $750 million agreement to wrap up whistleblower claims of shoddy manufacturing at a plant in Puerto Rico.

GSK has also been spending big money on share buybacks. Last year, the company targeted up to £2.5 billion ($3.83 billion) in buybacks after selling off some over-the-counter drug brands; in 2011, its buybacks amounted to about £2.2 billion.

Moody's also cited Glaxo's $3 billion buyout last year of Human Genome Sciences, which it financed in part with debt. Benlysta, the lupus drug that was at the centerpiece of Glaxo's preexisting partnership with HGS, still hasn't lived up to early sales expectations. A diabetes drug won in that deal has just recently gone to FDA for approval, however, so the company has some hopes of recouping its investment soon enough.

- read the Reuters news

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