Just hours after an advisory panel to the Food and Drug Administration voted that Avandia was safe enough to stay on sale despite concerns about possible risks to the heart, Britain's biggest drugmaker revealed that it will book a £1.57bn charge in the second quarter to settle a range of long-standing legal cases. The figure is in addition to an existing £2.3bn of provisions and includes settlements, agreements to settle and provisioning for cases dating back to the 1990s.
The charge will be £1.35bn after tax and analysts expect that it will slash second-quarter earnings-per-share by more than 26p, wiping out most of the group's profit for the period, but will provide more clarity going forward.
Dan Troy, general counsel at GSK, said it represented a "susbstantial proportion" of the company's outstanding litigation. He added that the charge reflected the company's ongoing efforts to resolve long-standing legal cases and the progress was helping the drugmaker to reduce financial uncertainty and risk for shareholders.
The news comes towards the end of a difficult week for GSK, during which it has been fighting to defend Avandia from claims that it can pose an increased risk of heart problems.
Having spent two days listening to evidence on the safety of Avandia, an expert panel on Wednesday voted to keep it on the market, but with increased restrictions or warnings. The FDA is not obliged to follow the advice of its panels, but often does.
Analysts said they saw the announcement of the legal charge so soon after the Avandia vote as a "clearing of the decks" on GSK's part after a period of uncertainty.
Mark Clark, an analyst at Deutsche Bank, said: "They already had these settlements lined up, they could have waited until second-quarter results, but given the Avandia vote, they thought they could use it as an overally tidying up exercise."
"I would characterise this news as positive because this year, the weakness in the stock has been due to investors sitting on sidelines because of unquantifiable fears about litigation," he added, saying that people could now view the stock on a proper ongoing basis again.
GSK's shares closed up 21½ at £12.03 suggesting that on balance, investors were feeling more upbeat.
Amongst the outstanding litigation is the settlement of the "substantial majority" of product liability cases relating to Avandia. Earlier this week, it was reported that GSK had settled around 10,000 of an estimated 13,000 cases for $460m, which was significantly less than some analysts had been expecting.
There had been fears GSK might have to spend as much as $6bn to resolve the claims, but in light of the favourable panel vote and reports of modest settlements, some analysts now think the bill could be $1bn or less.
GSK also said it had now fully resolved anti-trust litigation and settled the "vast majority" of product liability cases relating to its anti-depressant, Paxil. GSK has received numerous lawsuits and claims alleging that the use of Paxil has caused a variety of injuries, according to its annual report.
Many of these suits allege that the use of Paxil during pregnancy resulted in the birth of a child with birth defects or health issues. Others allege that patients who took Paxil committed or attempted to commit suicide and/or acts of violence.
GSK added yesterday that it had provisionally agreed to pay £500m to settle a probe by the US government into alleged manufacturing problems at a former plant in Cidra, Puerto Rico. "