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Despite Ala. Verdict, AstraZeneca's Potential Legal Bills Are $620M - 16% of Its Profits

By Jim Edwards

Updated on: October 16, 2009 / 12:54 PM EDT / MoneyWatch

The Alabama Supreme Court saved AstraZeneca $160 million by overturning a verdict against it that had found the company liable for overbilling Medicaid in an Average Wholesale Price scam. The same ruling vacated awards of $33 million against Novartis and $81 million against GlaxoSmithKline.

Download the ruling here.

In such alleged scams, Medicare reimburses at the AWP rate, so if AZ actually sold its drugs for less than that, doctors would be reimbursed for charges they never incurred. Such overpayments function like a kickback. The ruling said:

The State failed to produce substantial evidence that it reasonably relied on the misrepresentations and/or fraudulent suppression it alleged AstraZeneca, GSK, and Novartis engaged in in these cases.

AZ hailed the Alabama ruling, which said that as Medicaid had known all along that the AWP price was not the same as the net price, it was not defrauded:

"The decision of the Supreme Court of Alabama confirms AstraZeneca's longstanding position that the state's claims against the company are unfounded."

While the ruling is good news for AstraZeneca, the company's total legal liabilities are still in the $620 million range. Yesterday, it lost a case in Kentucky where a jury found the company liable for inflating reports of its AWP and benefitting from overbilled sales of its drugs. The verdict in the Kentucky case was only $14.7 million. AZ says it will consider an appeal:

AstraZeneca is disappointed by the jury's decision and is considering our options, including appeal. We continue to believe that the Commonwealth of Kentucky's claims against us are unfounded.

Doubtless the Alabama ruling will give AZ's lawyers cause to keep on appealing. Here's the current state of liabilities that potentially could all go against AZ:

Recently reported legal liabilities at AZ
Kentucky state court: $14.7 million for AWP violations.
Massachusetts federal court: $13 million in a Zoladex AWP case.
Seroquel legal costs, various jurisdictions: $593 million.
Total: $620.7 million

Not all of these liabilities will pan out, of course. Some will be reduced on appeal or plaintiffs will take settlements that are lower. But as it stands, the current bill is equivalent to 16 percent of all the profit AZ made in the first six months of 2009.

Image by Flickr user TheTruthABout, CC. Previously: