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GlaxoSmithKline to pay $750m fine in fraud case

By Robert Weisman
Globe Staff / October 27, 2010

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Federal prosecutors in Boston yesterday said British drug giant GlaxoSmithKline PLC agreed to pay $750 million to settle civil and criminal charges that it made and sold adulterated drugs, including the antidepressant Paxil, to Medicaid and other government payers.

The settlement, one of the largest ever in a health care fraud case, burnished the reputation of the US attorney’s office in Boston as the premier federal office for investigating health care fraud. It has been responsible for recovering about $6 billion in health care fines and claims in the past decade, about 25 percent of all recoveries nationally.

“A settlement of this size will help build confidence in the public that health care fraud will be prosecuted,’’ said US Attorney Carmen Ortiz, who oversaw the office’s civil and criminal investigations.

The case began when a whistle-blower, Cheryl Eckard, global quality assurance manager for London-based GlaxoSmithKline, filed a complaint in 2004 under the False Claims Act about the company’s manufacturing processes at a Puerto Rican subsidiary. Eckard, who does not live in Massachusetts, filed the complaint under seal in a Boston court because of the expertise of the US attorney’s office, which decided to intervene in the case, according to her lawyer and Ortiz.

Under the settlement unveiled yesterday, GlaxoSmithKline admitted to operating its SB Phamco Puerto Rico Inc. unit “in a manner that was inconsistent with current good manufacturing practice requirements,’’ P.D. Villarreal, senior vice president and head of global litigation, said in a statement issued by the company.

GlaxoSmithKline, which gained a foothold in the Boston area when it purchased Sirtris Pharmaceuticals two years ago, said it would take a charge of $750 million against its second-quarter earnings to account for the settlement. Its shares edged down 14 cents, or 0.3 percent, to $40.17 yesterday on the New York Stock Exchange.

The settlement covered four drugs manufactured at a Cidra, Puerto Rico, plant that has since been shuttered: Kytril, an antinausea medication; Bactroban, a topical anti-infection skin ointment; Paxil CR, a controlled release formulation of the company’s antidepressant drug Paxil; and Avandamet, a combination Type II diabetes drug.

According to criminal information filed in the case, prosecutors alleged that the manufacturing plant failed to ensure its Kytril and Bactroban products were free of micro-organism contamination. They also alleged the plant’s processes caused the two-layer Paxil CR tablets to split and that Avandamet tablets didn’t always have the mix of active ingredients approved by the Food and Drug Administration.

Under the civil settlement, GlaxoSmithKline agreed to pay $600 million to the federal government and to states based on a percentage of the Medicaid claims they filed for the four drugs, including more than $8 million that will go to Massachusetts’ Medicaid program. Eckard, the whistle-blower, will receive about $96 million.

In a separate plea agreement in the criminal case, the company agreed to pay a $150 million fine. “The success of this whistle-blower case will change the way drug companies run their manufacturing facilities,’’ said New York lawyer Neil Getnick, Eckard’s attorney. “The takeaway for corporate America is that dedicated employees who try to do the right thing can’t be silenced and made to go away.’’

Robert Weisman can be reached at weisman@globe.com.