Novartis shells out $390M to settle specialty pharmacy kickback claims

Novartis ($NVS) agreed to pay about $390 million to wrap up federal kickback claims before the $3.3 billion case went to trial. The Justice Department and a number of U.S. states had sought up to $3.4 billion in damages in the case, which zeroed in on the Swiss drugmaker's relationships with specialty pharmacies.

The settlement, together with other one-time charges, knocked down Novartis' third-quarter net income, which declined to $1.8 billion, a 28% decrease year-over-year in constant currencies.

According to the feds, Novartis offered special deals to pharmacies to boost prescriptions of its transplant drug Myfortic in a head-to-head competition with Roche's ($RHHBY) CellCept. The drugmaker set up another scheme to increase refills of its iron chelation drug Exjade, the government says.

One pharmacy, BioScrip, flipped on Novartis last year, agreeing to pay $15 million and detail its financial relationship with the drugmaker to settle the government's claims about Exjade kickbacks. BioScrip said it pushed patients to get Exjade refills in return for more patient referrals and higher rebates. The case had been set for trial Nov. 2, and the settlement still needs final court approval.

The company says it's not admitting wrongdoing as part of the settlement, and, in fact, continues to use some similar tactics--at least for now--because they're designed to keep patients on their medication regimens.

Novartis CEO Joe Jimenez

"We're not admitting liability, it's something we just believe we want to put behind us," CEO Joe Jimenez said in announcing the settlement.

"We continue to maintain that specialty pharmacies must continue to play a role in ensuring patient adherence," Jimenez said (according to press reports). "How that's going to play out as to whether we change our behavior or not remains to be seen."

Novartis' sales fell short of analyst expectations, down slightly to $12.3 billion; Jimenez said the company's sales did grow by 6% if currency effects are stripped out. Much of the sales pain came from Alcon, down 12% (2% excluding forex) mainly because of competition in the intraocular lens field. The generics business Sandoz offset that somewhat, with 9% constant-currency growth, led by biopharma products, including Glatopa, the new knockoff of Teva Pharmaceutical's ($TEVA) multiple sclerosis therapy Copaxone.

The Novartis kickbacks settlement comes amid controversy over pharma's use of specialty pharmacies. The Justice Department is investigating Valeant Pharmaceuticals' ($VRX) specialty pharmacy relationships--including its ownership ties to a particular pharmacy, Philidor Rx Services--and a short-seller's analysis of those relationships accused the company of booking "phantom sales."

Valeant denies those allegations and says its revenue reporting is appropriate. A series of major drugmakers have issued statements saying they don't use in-house specialty pharmacies to oversee their patient programs.

- see the Novartis release
- and Novartis' settlement statement

Special Report: Top 15 pharma companies by 2014 revenue - Novartis | Pharma's Top 11 Marketing Settlements

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