Glaxo to pay $750 million penalty

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- SB Pharmaco, a unit of health care giant GlaxoSmithKline, pleaded guilty to charges it sold "adulterated" drugs made at a now-closed plant in Puerto Rico, federal regulators said Tuesday.

Glaxo will pay a criminal fine of $150 million and civil penalties totaling $600 million to federal and state authorities, the U.S. Justice Department said.

SB Pharmaco manufactured and distributed drugs that did not conform to current "good manufacturing" practices, according to prosecutors. Under federal law, drugmakers are required to meet certain standards designed to ensure the safety and purity of drugs sold in the United States.

The drugs, made at a Glaxo facility in Cidra, Puerto Rico between 2001 and 2005, are Kytril, Bactroban, Paxil CR and Avandamet. They are used to treat infection, nausea, depression and Type II diabetes.

In addition, prosecutors said Glaxo knowingly made false claims to federal health care programs such as Medicaid regarding the drugs in question.

Glaxo (GSK) reported a $750 million charge in its second-quarter financial statement in July, after the company came to a tentative agreement to settle the charges with regulators. The company said it expects no additional financial impact from the penalties.

U.S. depository shares of the U.K.-based company fell 0.4% to $40.16 on the New York Stock Exchange.

PD Villarreal, head of global litigation at Glaxo, said the fines resolve "a significant and long-standing legal issue," adding that the company regrets failing to meet U.S. safety standards.

"GSK worked hard to resolve fully the manufacturing issues at the Cidra facility prior to its closure in 2009 and we are committed to continuous improvement in our manufacturing processes," Villarreal said in a statement.

Meanwhile, prosecutors said the case sends a message to the pharmaceutical industry that lapses in quality control will not be tolerated.

"The industry has an obligation to ensure that all rules, regulations and laws are complied with," said U.S. Attorney Carmen Ortiz. "To do less erodes public confidence and compromises patient safety."

The whistle blower in the civil case, Cheryl Eckard, will be awarded about $96 million of the fines that Glaxo will pay to the federal government. To top of page

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