The GlaxoSmithKline Settlement

| About: GlaxoSmithKline (GSK)

You'll have heard that GlaxoSmithKline (NYSE:GSK) has paid out $3 billion in a settlement on illegal marketing practices, misreporting of safety data, and other violations. Needless to say, GSK does not have a spare $3 billion lying around that's not being used for anything; it would be a lot better off if it hadn't put itself in this position.

What's hard to figure, though, is how much money the company made through these actions. There's a lot of talk, understandably, about how drug companies (and their executives) could be warned off such behavior, but if GSK realized, say, an extra $4 billion in the process of incurring its $3 billion dollar fine, it's going to be hard to make the case to some of those people. The settlement actually appears to be a bit less than some investors were expecting and there may, in the end, be no way to have the magnitude of the potential fines do all the work of a deterrent.

Matthew Herper at Forbes notes that the company's current CEO, Andrew Witty, has issued an unusually forthright statement (by CEO standards) on the whole matter:

All of the actions predated the tenure of current GlaxoSmithKline chief executive Andrew Witty, who has been trying to improve the company’s reputation. He has pushed forward with efforts to develop medicines for poor nations, including a malaria vaccine that Glaxo is developing with the Bill & Melinda Gates Foundation. He has also taken steps to remove incentives that made pharma salespeople so overzealous, no longer tying compensation to how much of a drug they can sell. In a statement, he said that employees have been removed from positions as a result of the changes and that new provisions will allow the company to take back compensation from executives if they don’t adhere to the company’s standards.

Glaxo has done something else right, too: Witty actually managed, in the press release disclosing this settlement, something close to a full-throated apology. He said, 'While these originate in a different era for the company, they cannot and will not be ignored. On behalf of GSK, I want to express our regret and reiterate that we have learnt from the mistakes that were made.'

That may not sound like much, but in the context of an industry that has almost never seen fit to apologize for anything it is a step in the right direction.

But I also wanted to mention by name two of the people who set this entire thing in motion. One of them is Blair Hamrick, and another is Greg Thorpe. These were GSK sales reps who grew concerned about illegal activity over 10 years ago:

'Regardless of what company policy may be, my letters to human resources and my previous complaints of misconduct have been quashed. My 23-plus year career with this company has been trashed, and it is obvious I can no longer work with my district manager and friends/counterparts just because I have come forward with the truth, which could save the reputation of GSK and millions of dollars in fines,' wrote Thorpe, one of the whistleblowers on whose claims the feds based their allegations, in a January 2002 note to Glaxo officials ... instead, though, Glaxo officials issued their own warnings to Thorpe about his willingness to be a team player and refused to address various violations of the False Claims Act, which he referred to specifically and repeatedly in numerous communications.

"Team player" is one of those phrases that should put a person on their guard. It can be used completely innocuously, but it can also be used to justify pretty much any behavior that the rest of a group is doing, and on no more basis than, well, the rest of the group is doing it. I reserve my admiration for those who need more justification than that for their actions.

There are some effects that I hope this GSK news will have: making someone think twice about getting caught when they're planning something that goes over the line, or (on the other side) shoring up the resolve of a person who's deciding not to go along with something that they've realized is wrong. The world tends to run short of both of those.

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