Archive for July 4th, 2012
Britain-based GlaxoSmithKline is one of the world’s largest pharmaceutical manufacturers. GSK got caught hawking two of its drugs for unapproved purposes, and failing to report fatal side effects in another.
GSK pled to three charges the USDOJ had made against it. First, that it marketed Paxil, an anti-anxiety drug, for use on children and adolescents, when it was only approved for adults. Second, that it marketed Wellburtin, an anti-anxiety drug, as a weight loss drug. And third, that GSK failed to report grave safety issues with its Avandia, a diabetes drug.
That’s on top of the $750 million GSK paid for shoddy manufacturing processes in Puerto Rico that resulted in adulterated medicines being distributed around the world, including the U.S.
And there are tens of thousands of product liability cases as well, about half of them unresolved.
While GSK only plead to the three counts, it also agreed to higher scrutiny of its sales group, which suggests that there were bribes and kickbacks in the marketing division. For the next five years, if the sales force is naughty, they – gasp – forfeit their bonuses. The horror.
And GSK will pay $3 billion as a fine; $1 billion as a criminal fine and $2 billion as a civil fine. $3 billion is serious money, the largest fine ever levied by the U.S. Food & Drug Administration, but it’s a pimple on the butt of a company like GSK. For fiscal year 2011, GSK reported net profits worldwide of $12.4 billion. The criminal activity extended for more than five years. So the $3 billion amounts to something like 5% of the net profits of the company over that period. It doesn’t even qualify as a tap on the wrist.
Look at it this way. GSK invests about $6.3 billion in research and development each year, and boasts a 12% rate of return on the investment. GSK isn’t about to tell us what it invested in its illegal marketing activities or in hiding the side effects of Avandia. But you can be sure it had a rate of return in excess of 12%.
The mistake USDOJ and the Food & Drug Administration are making is that they stop and end with a simple fine. And a simple fine, even a record-setting fine, isn’t a deterrent. If fines operated as a deterrent the $2.3 billion paid by Pfizer back in 2009 might have deterred GSK.
To really deter, to really send a message, companies should forfeit all revenue – not just profit – earned from illegal sales. It’s simple, really. The bad conduct was the sales, not the profits. When an armed robber is told to pay back the money he stole, the armed robber doesn’t get to subtract the cost of his pistol. He has to pay it all back, with interest. And in the case of corporate misconduct, then and only then should the talk of fines begin.
WC recognizes proper sanctions – penalties with teeth – will likely require changes to the law. And the chances of getting this kind of reform through Congress, whose members cheerfully accept large contributions from the corporations they are supposed to regulate, is nearly impossible.
But until that happens, for huge multi-nationals like GSK, a $3 billion fine is just a cost of doing business. Andrew Witty, the CEO of GSK, said, “On behalf of GSK, I want to express our regret and reiterate that we have learnt from the mistakes that were made.” WC is reminded of the old political cartoon of Julie Nixon, doing needlepoint and saying the same thing. The needlepoint said, “Don’t get caught.”