London: GlaxoSmithKline Plc has agreed in principle to settle its most significant disputes with the US government over the way it marketed and developed its drugs, at a cost of $3 billion, which is covered by existing provisions.

GSK corporate HQ Brentford, Middlesex, UK.

Britain’s biggest drugmaker already took massive charges last year related to liability claims from patients who had been taking Avandia.

The company’s current legal provisions are £2.9 billion ($4.6 billion).

The deal to resolve the latest disputes follows a clampdown in the United States on unfair pharmaceutical industry practices that has forced major drugmakers to rethink the way they do business in the world’s biggest market.

Since the late 1990s the number of industry settlements with US states and the federal government has soared as authorities have taken an increasingly tough line on practices that may have put commercial goals above the interests of payers and patients, such as marketing drugs for unapproved uses.

Announcing the outline settlement on Thursday, GSK said it had implemented fundamental changes to US selling procedures in recent years and chief executive Andrew Witty said the cases “do not reflect the company that we are today".

Changes under Witty’s watch include a new bonus system for US sales representatives, who no longer work to individual sales targets. Witty has also overhauled the group’s top US management.

Reducing Uncertainty

Despite the hefty settlement cost -- equal to about 2.8% of GSK’s market value -- the shares were down only 0.3% at 01:30 pm, when the Stoxx 600 Europe drugs sector index was down 0.1%, as investors accepted the need to clear the decks of long-standing legal claims.

Analysts at Helvea said the deal was positive news as it would reduce financial uncertainty for the group.

Since the settlement of $3 billion is covered by existing legal provisions, there is no need to raise new money and GSK said payments would be funded through existing cash resources.

The disputes being settled include a marketing investigation in Colorado and Massachusetts, and a probe into rebates offered under the federal Medicaid programme, as well as the Avandia case.

In mid-2010, GSK took a $2.4 billion charge after settling most patient liability claims relating to Avandia, as well as an investigation into its former factory at Cidra in Puerto Rico, and anti-trust and product liability litigation over antidepressant Paxil.