GlaxoSmithKline's $3.4 Billion Charge on Avandia

GlaxoSmithKline is taking a huge hit in the amount of $3.4 billion that it is charging off due to the litigation and settlement involving its diabetes drug Avandia. The drug is known to cause heart attacks and apparently GSK's former CEO knew about it way back when.

When will companies learn that it is cheaper to do the right thing that get slapped for doing the wrong thing?

Bnet has more:

GlaxoSmithKline (GSK)’s $3.4 billion legal charge on the diabetes drug Avandia probably isn’t the last of the costs the company will record against this drug. That means Avandia will probably be a loss maker for GSK, proving that former CEO Jean-Pierre Garnier’s 1999 failure to follow up on worries about heart attack deaths associated with Avandia was a strategic disaster for the company, costing it billions in actual dollars and billions more in lost-opportunity dollars.

When the dust has settled, GSK would probably have been better off stashing its development and marketing costs in a savings account rather than spending them on Avandia, some back-of-the-envelope math reveals.

Picking through GSK’s disclosures, two things emerge:
  • The charges aren’t over yet even though GSK suggested in previous statements that the “substantial majority” of its Avandia problems were dealt with.
  • When all is said and done, GSK will probably have lost money on Avandia even though it earned more than $16.3 billion in revenues during its lifetime.

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