GSK takes profit-negating $3.4B legal charge for Q4

GlaxoSmithKline's ($GSK) 2010 results will say plenty about which drugs are selling best and where the company is expanding most. But they'll also be a picture of pain--the pain of taking the hit from longstanding legal troubles. GSK says it's booking a $3.4 billion charge in the fourth quarter to cover Avandia litigation and a potential marketing settlement with the Justice Department. That's on top of $2.3 billion in the second quarter. And it brings the 2010 legal charges total to more than $6 billion, a company spokeswoman tells the New York Times.

The fourth quarter charge is expected to completely wipe out GSK's profits for the period, even after tax deductions bring the real cost of the charge down to $1.8 billion. "We recognize that this is a significant charge, but we believe the approach we are taking to resolve long-standing legal matters is in the company's best interests," P.D. Villarreal, SVP for global litigation, said in a statement. "We have closed out a number of major cases over the last year and we remain determined to do all we can to reduce our litigation risk."

Much of the latest charge is earmarked for settling a federal investigation into GSK's marketing of several drugs, including the antidepressants Paxil and Wellbutrin, from 1997 to 2004. That's a seven-year-old probe, the Wall Street Journal points out, and one that GSK has apparently been working to settle for two years.

Taking a hit from a marketing probe is hardly novel in pharma these days; Pfizer, Eli Lilly, AstraZeneca and Novartis have coughed up hundreds of millions--even billions--to wrap up their charges. But a GSK marketing settlement would come on top of last year's $750 million deal to settle a suit over serious lapses in manufacturing at a now-closed plant in Puerto Rico, and in addition to the company's ongoing legal troubles with the now-restricted diabetes drug Avandia. A "substantial" number of new lawsuits have hit the courts since that second-quarter legal charge that also covered Avandia-related expenses.

The Financial Times points out that CEO Andrew Witty (photo), who took over the company in 2008, wants to mop up its legal messes so it can move forward with a clean slate. Witty has been outspoken in his pledges to run GSK in a more ethical and compassionate way than it had been in the past. Will we see a higher-and-better GSK once the probes are settled and lawsuits wrapped? 

- see the GSK statement
- get more from the NYT
- check out the WSJ coverage
- read the news from Reuters
- find the FT article