GlaxoSmithKline to Pay $3 Billion in U.S. Settlement - Largest for Pharmaceutical Company

GlaxoSmithKline has agreed to pay $3 billion to settle U.S. criminal and civil investigation over allegations that the pharmaceutical company marketed its drugs illegally and defrauded the Medicaid program.

The U.K.-based company, which announced the settlement on its Web site on Thursday, stated the settlement will be one step toward resolving difficult, long-standing matters which do not reflect the company we are today.

The cases against GlaxoSmithKline include an investigation by the Justice Department over the illegal marketing of Avandia, a diabetes drug that was severely restricted by the U.S. Food and Drug Administration last year after it was linked to cardiovascular risks. The company reportedly paid doctors and manipulated research to promote the pharmaceutical, according to former employees and federal prosecutors investigating the case.

In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the US to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently, GlaxoSmithKline CEO Andrew Witty said in a statement. We reiterate our full commitment to ensuring appropriate promotion of our medicines to healthcare professionals and to the standards rightly expected by the U.S. government.

The company claims it has established initiatives to ensure those standards are met, including the implementation of a new incentive compensation system for sales representatives who work directly with healthcare professionals. In addition, the new system, established in 2008, eliminates individual sales targets as a basis for bonus, instead basing incentive compensation on the quality of service they provide to customers.

The settlement is reportedly the largest in a series of lawsuits against drug companies for the illegal marketing of their products. Pfizer, the previous record-holder, paid $2.3 billion in 2009 over the marketing of its Bextra painkiller, while Eli Lilly & co. paid $1.4 million that same year.

GlaxoSmithKline reports the company set aside $3.4 billion in January to fund investigations and product liability cases over Avandia.

The other cases facing the company include a nationwide investigation of the company's sales and marketing practices for nine of Glaxo's best-selling medications between 1997 and 2004. The U.S. Attorney's office of Colorado began the investigation and 2004, which was later taken over the U.S. Attorney's Office of Massachusetts. The Justice Department is also conducting another investigation into the company's Medicaid pricing procedures.