AZ's Seroquel Legal Bill Is $1.1B and Getting Bigger

Let's look at the numbers behind AstraZeneca's Seroquel settlement with the U.S. Disrict Attorney in Pennsylvania. The headline number is $520 million, the amount AstraZeneca (AZN) will pay to end a probe of its marketing practices on the atypical antipsychotic, which allegedly resulted in off-label use of the drug in children and the elderly.

But the real cost to AZ is already much more than that, and the bill keeps growing. According to AZ's own disclosures, the cost of its alleged malfeasance on Seroquel will top $1.1 billion. Here's why:

In its Q3 2009 statement, AZ disclosed that the settlement was part of a $538 million "provision" that it had taken earlier -- meaning that when all is said and done, AZ expects the legal bill to go higher. In addition, AZ said its liability insurers have already begun to dispute paying the bill for the Seroquel mess, which prior to the settlement cost AZ $623 million in fees:

The insurers that issued the applicable policies for 2003 have reserved the right to dispute coverage for Seroquel-related product liability claims on various grounds, and AstraZeneca currently believes that there are likely to be disputes with some or all of its insurers about the availability of some or all of this coverage. As of 30 September 2009, legal defence costs of approximately $623 million have been incurred in connection with Seroquel-related product liability claims.

Those fees are to do with civil litigation, which is separate from the settlement with the Pennsylvania DOJ. AZ's Seroquel bills do not end there. The company also disclosed the current tally of Seroquel suits filed against it:

Suits pending: 14,444
Additional cases dismissed: 2,603
Of those, dismissed with prejudice: 1,635

If you compare those most recent numbers with the older ones here, you can see that new cases are arriving faster than they can be dismissed. That's not surprising -- the legal system moves slowly -- but it suggests that AZ has some way to go before it's out of the woods.

Lastly, AZ believes that despite signing a settlement with the DOJ -- which we have not yet seen and may contain damaging disclosures -- the company intends to keep fighting the civil plaintiffs. It said:

AstraZeneca intends to litigate these cases on their individual merits and will defend against the cases

Bottom line: AZ's Seroquel liabilities are currently $1.1 billion and heading north. How much will the company feel this pain? Not much. Q3 sales of Seroquel were $1.2 billion up 12 percent, and up 14 percent for the first nine months of the year.

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