The company had previously disclosed that it was setting aside billions of dollars to deal with various legal issues. But it did not break down how much money it was allotting to each matter, which spooked investors and at times affected the company’s stock price.
The announcement Thursday eased investor fears by assuring markets that Glaxo had reserved enough cash to deal with its biggest legal headaches in this country and would not need to charge additional legal expenses, analysts said.
Glaxo shares closed at $44.55 Thursday on the New York Stock Exchange, up nearly 3 percent from Wednesday.
The agreement “eliminates any residual uncertainty surrounding these matters,” Mark Purcell, an analyst at Barclays Capital, wrote in a note to clients on Thursday.
If the deal is finalized, it will mark the latest success in the federal government’s push to rein in drug companies’ promotional efforts. Of the 165 settlements reached between pharmaceutical companies and federal and state governments in the past two decades, about three-quarters took place between 2006 and 2010, according to a report by Public Citizen.
Before the Glaxo agreement, the largest federal settlements took place in 2009: Pfizer paid $2.3 billion to settle federal investigations tied to the promotion of the anti-inflammatory drug Bextra and other drugs, and Eli Lilly & Co. paid $1.4 billion related to the marketing of the antipsychotic drug Zyprexa.
Still, consumer advocates said the penalties are not enough.
“The size of the penalties, although large, are not as large as the money [the drug companies] make and so they keep doing it over again,” said Sidney M. Wolfe, director of Public Citizen’s health research group. “The only way this is going to stop, or get reversed, is to greatly increase the size of the penalties or to start sending some of the executives to jail, if appropriate.”
Analysts who track Glaxo said the agreement addresses the missteps of the company’s past management regimes, an assessment backed by Andrew Witty, Glaxo’s chief executive.
“This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today,” Witty said in a statement. “In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the U.S. to ensure that we operate with high standards of integrity.”
One of the issues the agreement tackles involves an investigation initiated in 2004 by the U.S. attorney’s office in Colorado, which examined whether Glaxo promoted “off-label” uses of nine of its drugs from 1997 to 2004 and later its asthma medicine Advair.
Drug companies are barred by law from encouraging doctors to prescribe drugs for conditions that they were not officially approved for by the Food and Drug Administration.
The company’s statement also briefly mentioned an agreement related to Avandia, which has been linked to an increased risk of heart attack and stroke. In its annual report, Glaxo said it received a subpoena from the Justice Department in 2010 seeking documents on the development and marketing of the drug.
The use of Avandia has been restricted in the United States and banned in Europe after regulators concluded that its risks outweigh its benefits.
The Justice Department declined to comment on the Avandia probe or the Medicaid fraud investigation, also included in the settlement. Glaxo has said that the Justice Department was examining since 2004 whether the company was overcharging the Medicaid program.
Staff writer Rob Stein contributed to this report.