GSK takes $3.4 billion charge for Avandia case

Posted January 17, 2011 11:27 a.m. EST
Updated January 17, 2011 11:45 a.m. EST

— GlaxoSmithKline (NYSE: GSK) is bracing itself for more lawsuits centering on its diabetes drug Avandia.

The drug giant said Monday it is setting aside $3.4 billion to deal with a growing number of new liability claims from Avandia patients.

The charge is in addition to a charge of $2.4 billion announced las July.

GSK described the number of "new product liability cases" as "substantial."

The $3.4 billion will be taken as a charge against its fourth quarter revenues, GSK said in a statement issued in London. The company operates its U.S. headquarters in RTP.

An undisclosed number of Avandia cases were settled last summer. But the lawsuits against GSK have continued.

“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," said P.D. Villarreal, the senior vice president for global litigation at GSK, 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," he added.

Last October, GSK said Avandia is under investigation by federal and state law enforcement officials in the U.S.

The announcement came less than a month after the Food and Drug Administration issued severe restrictions on use of Avandia because of its links to heart attack. Regulators in Europe pulled the drug off the market altogether.

GSK said in October it received a subpoena from Department of Justice, which is investigating the development of marketing of Avandia. The company received similar requests for information from attorneys general in several states.

"These enquiries are at an early-stage, and GSK is cooperating with these offices," the company stated in its third-quarter earnings filing.

Avandia was once Glaxo's third best-selling product, with over $3 billion in sales in 2006, but it has become a major liability since 2007 when its heart risks were first publicized.

More than 2 million patients in the U.S. filled prescriptions for Avandia last year, though that number is expected to shrink under new FDA restrictions. The agency announced in September that patients would have to sign a waiver saying they understand Avandia's risks before receiving the drug. The drug will be available only to patients who can't control their blood sugar with alternate medications.