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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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July 3, 2012

The GlaxoSmithKline Settlement

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Posted by Derek

You'll have heard that GlaxoSmithKline has paid out three billion dollars in a settlement on illegal marketing practices, misreporting of safety data, and other violations. Needless to say, GSK does not have a spare three billion lying around that's not being used for anything; they'd be a lot better off if they hadn't put themselves 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 their $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:

“Whilst 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 ten 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.

Comments (32) + TrackBacks (0) | Category: Business and Markets | Regulatory Affairs | The Dark Side


COMMENTS

1. Anonymous on July 3, 2012 8:35 AM writes...

Three billion, well I guess that is three drugs that won't get discovered and developed. Pharma is definitely screwed-up and the reasons why are obvious from this settlement.

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2. SP on July 3, 2012 8:38 AM writes...

So does Thorpe get the whistleblower award of 20% or so? I'd gladly trash my 23 year career in return for $600M.

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3. schniber on July 3, 2012 8:38 AM writes...

We are all seems to be living in the fantasy land, where we make enough money to keep everyone in our division employed until their retirement

We all know thats not the case in last decade or so.

Companies are taking dubious practices because they dont seem to find any other ways to make the enough money to keep the business running and shareholders happy (Not that I am saying its right). Unproductive R&D is certainly part of the reason (indirectly if not directly)

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4. schniber on July 3, 2012 8:41 AM writes...

We are all seems to be living in the fantasy land, where we make enough money to keep everyone in our division employed until their retirement

We all know thats not the case in last decade or so.

Companies are taking dubious practices because they dont seem to find any other ways to make the enough money to keep their business running and shareholders happy (Not that I am saying its right). Unproductive R&D is certainly part of the reason (indirectly if not directly)

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5. BestPractice on July 3, 2012 8:49 AM writes...

As you rightly point out, Sir Andrew has taken a very firm line on this and is to be commended not only for his wholehearted apology but also for his very considerable efforts to make GSK drugs available for areas of unmet medical need in resource-poor countries. This entire episode is extremely unfortunate and is, frankly, the last thing that the industry needs right now. However, although we cannot undo the past, we can learn from it and ensure that it is not repeated. Anyone who has even a passing acquaintance with Sir Andrew will be aware of how acutely embarrassing this sorry state of affairs will be to him and his team but, looking forward, I think GSK will be viewed in a much more positive light in the years to come. There is a realization across the industry that past practices have done great disservice to an industry that should be primarily concerned with delivering life-saving medicines rather than raking in undeserved profits.

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6. Ben Zene on July 3, 2012 9:06 AM writes...

Just put Bob Diamond in charge of corporate governance and all will be well.

Oh and does anyone actually agree with number 5. "There is a realization across the industry that past practices have done great disservice to an industry that should be primarily concerned with delivering life-saving medicines rather than raking in undeserved profits". Which industry is he talking about?

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7. startup on July 3, 2012 9:08 AM writes...

Expect site closures.

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8. Nick K on July 3, 2012 9:25 AM writes...

#5: The legendary GSK troll (aka Agilist, Iskra, Open2innovation etc) strikes again!

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9. Nick K on July 3, 2012 9:40 AM writes...

#1: Spot-on comment. The main victims of a fine like this are the (innocent) employees, the shareholders, and the customers. Why are the senior managers responsible for this fiasco not being prosecuted? It can be done: remember Enron?

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10. alig on July 3, 2012 9:44 AM writes...

@ SP: Only 1 billion of the settlement is available for whistleblowers to get a percentage. The percentage will be split among the many whistleblowers in this case. It will turn out to be many millions, but far south of 600. The articles about Thorpe say he has bounced between jobs and has been often unemployeed for the past ten years, mostly because he chose to report GSK to the authorities. Ten years of hardship for the chance of a reward. The reward needs to be substational to get people to risk the hardship.

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11. Hap on July 3, 2012 9:48 AM writes...

4: Pharma was finding reasonable numbers of drugs and making reasonable amounts of money, at least in part because of its R+D. When what it was making it was not enough, the combination of job cuts and overselling (Vioxx?) wasn't exactly going to make money in anything more than the short run. Starving R+D and increasing the safety barriers to new drugs (through overselling or selling for unapproved indications) helped create the lack of productivity of R+D.

If investors are unsatisfied with yields, liquidation or gradual sale of assets seems like a much better strategy for everyone. Instead, the financial responses (to bad news or just not enough money) are likely to be rewarding to upper management, and destructive to everyone else. Talk about "moral hazard".

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12. anon2 on July 3, 2012 9:51 AM writes...

First of all GSK does have the resources to pay this; they have set aside funds, already having taken a write-off in anticipation of this one-time $3b "expense". To note---no big drop of stock price on release of the settlement.

Second, don't be fooled by Witty's promotion of greatness in self-image. This is the same guy who was in charge while James Murdoch was kept on as a member of the GSK Board until the most recent election of members. Witty has integrated himself to be a young-Turk member of the UK's exclusive business elite; hence getting his "Sir" title. But take a quick, simple look a bit more deeply than just skimming the surface, and beyond the advertising of self-proclaimed greatness and goodness, the guy brings little to the company's long-term prospects.

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13. Petros on July 3, 2012 10:09 AM writes...

Nearly half the year's R&D budget

But isn't there a league table of the fines major pharma has clocked up for illegal marketing?

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14. Disgusted on July 3, 2012 10:26 AM writes...

Surely the real point of all this is the complete betrayal of patients not just by GSK reps but also by venal doctors who peddle potent drugs to the vulnerable. What has happened here is a disgrace but what is even more disgraceful is that GSK probably think they've gotten away with it. Sure, they've lost $3bn but as was stated above, no one knows how much they made from this racket. As for learning from the past, remember the plant in Cidra, Puerto Rico and the Cheryl Eckard story! (http://www.guardian.co.uk/business/2010/oct/27/glaxosmithkline-whistleblower-wins-61m).
Just check out some of the protagonists mentioned there:
Janice Whitaker (then and still senior vice president for global quality)
Diane Sevigny (Director still there) Eckhard's immediate boss
Stephen Plating left in 2005 now a "consultant"
Also David Pulman - President, Global Manufacturing and Supply (GMS), he's still there!
So much for accountability! All these people were allegedly alerted but what happened even after criminal prosecution!

#12 Anon2 is spot on about Witty, other comments, apart from #5, all spot on too. Witty himself came from sales and is a PR man, nothing else.

There really needs to be criminal prosecution of individuals in order to stamp out this criminal and immoral behaviour.

Banks are rightly getting it in the neck at the moment but the likes of GSK deserve even more opprobrium for pushing dodgy drugs on the vulnerable!

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15. KW's hairdresser on July 3, 2012 10:48 AM writes...

Great to hear from you BestPractice! Can you tell us how many scientists are going to get the axe to "pay" for this fine?

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16. NoDrugsNoJobs on July 3, 2012 11:10 AM writes...

Don't hate the player, hate the game! I still wonder why we have all these fines in the US and not so much elsewhere. I guess pharma doesn't market to doctors in single payer healthcare systems?

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17. ex-GSK on July 3, 2012 11:18 AM writes...

Thanks to "Disgusted" for bringing up the record. Having been in research at Glaxo, GW and GSK for 20 years and listened to numerous apologies after similar fines in the past, the veracity of the latest round is somewhat suspect. It is always the same routine - claim you are changing the incentives on the sales force, pay the fine and then see what you can get away with now. Any pretense that the industry has a higher calling is just as transparent as their commitment to innovative R&D. They are committed to making money and only if regulated and fined into submission will they pretend to follow the rules. Until some execs do time for these actions, they will continue unabated. Only the shareholders are paying for this one.....I doubt anyone at GSK is held accountable.

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18. heteromonomer on July 3, 2012 12:10 PM writes...

Well... how many responsible execs paid from their own pocket or did jail time? Exactly how does this work as a deterrent for the bean counters in current management? I mean how!?? I don't get it, would someone please explain?

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19. Anon on July 3, 2012 1:37 PM writes...

From Derek:

Team player" is one of those phrases that should put a person on their guard.

Correction. When you hear "you're not being a team player" from higher-ups, run for the hills.

The pharma industry is not a ballgame. It needs independent thinkers.

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20. overthetop on July 3, 2012 1:40 PM writes...

Nothing like another anti-GSK story to bring all the haters out. I suppose that is to be expected when there are more ex-GSK R&D employees than current ones.

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21. Hap on July 3, 2012 2:04 PM writes...

Well, having more ex-GSK R+D employees (recent) than current ones certainly implies that there'll be lots more bad headlines in the future for GSK.
If you're a drug company, don't you have to have drugs?

I don't think lots of people hate GSK in particular, but 1) when you make lots of bad decisions, then there's lots of bad news for people who don't like you, 2) laying off lots of people (in a bad economy) means that there are going to be lots of people who won't like you for a long time, and 3) if people keep getting paid for making expensive bad decisions while people with nothing to do with those decisions get cashiered for them, you're not going to get a reputation for just behavior. The forthright apology won't help if GSK goes back to doing the same things for the same reasons.

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22. ExBuilding6 on July 3, 2012 2:10 PM writes...

overthetop - hard to be pro-GSK after reading a story like that! I'm a former GSK guy and I know for a fact that there are a lot of good people there who are committed, hardworking, and honest. But they must feel let down once again by the upper management. One more thing, this may not be the end of the story, I'm sure there will be lot's of legal action from the victims of this mis-selling. A shameful chapter if ever there was one.

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23. TJMC on July 3, 2012 5:12 PM writes...

As a bench scientist who went & got an MBA way before it was popular (yes, I know this forum trashes such), I found one of the most useful and powerful courses was Ethics (a requirement in the program.)

From the course, it became apparent that it was not only ethical to comply with existing laws AND PRINCIPLES, IT MADE GOOD BUSINESS SENSE. Example after example was laid out that firms that acted without considering the INTENT, (not the letter) of the law, were heavily smacked down by society and consumers. And the losses were always much greater than previous monies "won". That $3B penalty will accompany lost good will from MDs and patients, as well as regulators for a decade or more. Add that to the litigation costs and distractions for ten years and you can see where this can "start to hurt...".

I guess this will be yet another classroom example of bad ideas, practices, leadership and business management. Too bad ethics and these lessons are not "required training" in all firm(s) comprising what we used to call "ethical pharmaceuticals".

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24. Ex-GSK on July 4, 2012 5:10 AM writes...

What this sad tale makes clear is the disconnect between R&D scientists at GSK, who are on the whole driven by science and a genuine desire to improve people's lives, and the management culture at GSK, which is driven by empire-building and bonuses. When sales and marketing run a company, this is what you get. $3 billion is a lot of money even for GSK, but it's a lot less than they earned from selling these drugs. Will they learn a lesson? Perhaps it's unfair to single out GSK for criticism, they are just the latest Pharma company to get caught, they are a business and like all businesses are driven by the need to make a profit and keep shareholders happy. It's wishful thinking to expect that they will never again be tempted to step over the line into unethical, even criminal activities if there is more profit to be had. The answer is the same for this problem as it is for the banking industry - regulation, with teeth, and management accountability that extends to criminal prosecusions. Why won't that happen? Because both sectors have cozy relationships with government and will threaten to move elsewhere if any politician challenges the status quo. Although if they fail to discover any new drugs and get massive fines every other year then it won't be long before GSK don't exist, which would be one solution.

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25. Anonymous on July 4, 2012 6:30 AM writes...

Some good points about all this over on CafePharma
http://www.cafepharma.com/boards/showthread.php?t=506328

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26. another ex-GSKer on July 4, 2012 6:55 AM writes...

Agree with many comments here, just a comment on the reasons (but not an excuse). The timing of the offences (late 90's to mid-2000's) was one when SB/GW/GSK were in dire straights. GW may have staggered on with Advair to keep it going, but SB had nothing other than Avandia and patent expiring Paxil. This must be a consideration when senior management persuaded themselves to overlook complaints - self deception is easier with an existential threat hanging over you.

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27. BigSky on July 4, 2012 5:57 PM writes...

I know that it's just a pitch in the dirt but Herper at Forbes really had to make a stretch play by bringing up the malaria vaccine canard. A decades-old derivative of SKB's Hepatitis B platform 're-purposed' for malaria precisely to garner positive association with the GSK brand when they foul their nest again.

As a vaccine it doesn't really work but as a publicity prop it can be rolled out, like Herper does, to mitigate the damage. Doesn't hurt to grab the ankles of the Gates Foundation either.

I admit that it wouldn't have sounded as puckered for Herper to state that Witty is deflecting attention from systemic bad behavior using someone else's money on an effort at third world redemption that is 25 years old and doesn't even work. But it would have been accurate.

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28. David on July 5, 2012 3:52 AM writes...

Our drugs don't work on most patients.
http://www.independent.co.uk/news/science/glaxo-chief-our-drugs-do-not-work-on-most-patients-575942.html
How long will it be before doctors learn this truth about Glaxo products!!!
And not just Glaxo products...all the other big players like Pfizers, Merck, Eli Lilley, etc.
Of course he omits to tell what drugs don't work and what drugs do. And how many kill people or cause
the patient to become even sicker. Or the falsified studies, or the illegal marketing practices, or as in
the $3 billion fine KNOWINGLY PRODUCING DUD DRUGS FOR YEARS!!!!
He also omits the political corruption, the propaganda campaigns, bribing doctors. Doctors must make more from bribery than the actual practice of medicine!!
And isn't it interesting when it is found out in the US that drugs are killing people and are then withdrawn
that no one in the UK dies from these same drugs or in other countries round the world. Isn't it time that
changed and drug companies are held to account here. Or maybe people think it doesn't happen here.

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29. LongLiveTheMBA on July 5, 2012 11:32 AM writes...

Is any of this surprising? Do we expect anything different when MBAs take over what should be a primarily science-driven industry?. About the only way pharmaceutical research can survive now is for every single scientist in every Big Pharma company to hand over their resignation. As hard as it would be, it's only when every scientist in Big Pharma makes it crystal clear that he or she will no longer tolerate this management-engineered corruption and soul-wrecking that Big Pharma will come to its senses and revolt against the MBA infestation. What's ironic is that the kind of management-trashing diatribes which would have seemed extremely socialist two decades back now seem only logical.

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30. Anonymous on July 5, 2012 7:00 PM writes...

@7, startup:

You are right on the money. Just look what happened at Roche Nutley after their CETP inhibitor bit the dust. Yes, the Nutley closure was probably in the works for some time but this provided a real sense of urgency! My guess is the Philly area is going to experience a major event and one of those sites will have to close. I'm ex roche. My friends, get your CV's updated and on the street ASAP.

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31. Sisyphus on July 5, 2012 7:52 PM writes...

So this is how Barry, Harry and Nancy are going to pay for the ACA? Give the feds drugs at cost or they will crush you with lawsuits.

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32. exGlaxoid on July 9, 2012 2:26 PM writes...

As another ex-GSk scientist, I had no idea how marketing worked until after I left R & D and then did some other work in pharma. I can say that I saw a lot of signs of previous questionable actions on the part of sales and marketing people, the top management, medical groups, as well as doctors. There were all sorts of doctors being hired as consultants, speakers, and other jobs, which to an outsider appeared more like kickbacks and bribes to prescribe.

While I did meet many people who appeared to be very ethical and concerned for the patients, I also meet many managers that would have sold their mother for a high enough price. And most of the problems came from the top. I never once meet an administrative assistant, lab tech, scientist or other lower paid person who made any decisions on the way sales persons were paid or which doctors were hired to do what. Those decisions were done by Directors and VPs. But the people being laid off are mostly the people at the bottom, as well as most everyone in R & D.
In fact, the people I saw that were far and away the most responsible were either kept or moved to other companies to become CEO.

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