Did Glaxo Violate Its Corporate Integrity Agreement?
The ongoing bribery scandal that GlaxoSmithKline GSK -0.7% faces in China may have generated sensational headlines, but its shares have mostly traded in the same narrow range since the episode erupted (back storieshere and here). Although Glaxo execs say it is not yet possible to estimate the financial impact, it is worth noting that China generated in the low single digits percent of total company revenue.
But there is one way in which this mushrooming controversy could cause Glaxo some trouble. As part of its $3 billion settlement last year to resolve civil and criminal charges of selling drugs for unapproved uses and withholding clinical trial data, among other things, the drugmaker signed a Corporate Integrity Agreement, which required creating an internal compliance program to monitor business practices.
A violation could lead the US Department of Health and Human Services Office of Inspector General to seek to exclude the drugmaker from contracts with federal healthcare programs, such as Medicare and Medicaid. This is big business, of course, and so any whiff of trouble that could impact the CIA has investors on alert.
On a conference call this morning to discuss the latest earnings, Glaxo CEO Andrew Witty was asked whether Glaxo staff believe the scandals in China would have an effect on the CIA, since it is known that US authorizes are probing the drugmaker for violations of the Foreign Corrupt Practices Act. Witty, however, breezed past the question without offering a response.
We asked the HHS OIG, and this is what a spokesperson provided us: “Our CIAs focus on US laws, especially those relating to Federal health care programs (including Medicare and Medicaid.) However, if conduct that happened overseas also violated applicable US laws, we would assess whether the situation implicated any CIA provisions.”
In other words, an impact cannot be ruled out.
To what extent, if any, the worst-case scenario for Glaxo might occur – exclusion from dealings with federal health care programs – remains unclear, of course. The feds, however, are loathe to pursue an entire company, especially a large drugmaker that sells a plethora of medicines that, in some cases, may not be easily afforded or obtained from other suppliers. This would hurt purchasers and patients.
Just the same, the prospect that the feds are keenly aware of the circumstances understandably has the drugmaker on edge, and this will likely be the case for some time, especially as Glaxo operations are put under a microscope in other locales. Perhaps the feds would seek to exclude an executive or two instead of the entire company. For now, though, investors may not want to be entirely sanguine about the outcome.