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How Pfizer Hid a $2.3 Bill. Bextra Settlement in Plain Sight

BNET pointed out today that the announcement of Pfizer's acquisition of Wyeth formed a welcome distraction (for Pfizer) from the news that the company was also paying a $2.3 billion settlement to make the Department of Justice stop investigating the company's illegal promotion of discontinued Cox-2 painkiller Bextra. The company said the Bextra investigation had been "previously disclosed":

Fourth-quarter 2008 results were impacted by a $2.3 billion pre-tax and after-tax charge resulting from an agreement in principle with the Office of Michael Sullivan, the United States Attorney for the District of Massachusetts, to resolve previously disclosed investigations regarding allegations of past off-label promotional practices concerning Bextra, as well as other open investigations.

-- [there was also an] after-tax charge of $640 million resulting from the agreements in principle to resolve certain litigation involving the Company's non-steroidal anti-inflammatory (NSAID) pain medicines in third-quarter 2008

So why was the size of the settlement -- a 90 percent reduction in its net income -- such a nasty surprise if everyone knew it was coming?

The answer is that although Pfizer did previously disclose the investigation, it was disclosed to the SEC but not in Pfizer's press releases. And those disclosures didn't mention that the sum would be one of the largest Pfizer has ever paid to settle a case. It makes the Neurontin settlement look like laundry quarters.

The existence of trouble with the feds on the Bextra issue was first disclosed on Pfizer's 10Q quarterly earnings filing with the SEC for Q2 2008. It said:

The Department of Justice continues to actively investigate the marketing and safety of our COX-2 medicines, particularly Bextra, and more recently has begun to investigate the marketing of certain other drugs. These investigations have included requests for information and documents. We have been considering various ways to resolve the COX-2 matter, which could result in the payment of a substantial fine and/or civil penalty.
But Pfizer's earnings press release made no mention of the probe.

The same thing happened in Q3. Here's what Pfizer told the SEC:

The settlement agreements and agreements in principle [on unrelated Bextra cases] and the charge to earnings do not apply ... to the pending investigation by the Department of Justice of the marketing of the Company's COX-2 medicines, particularly Bextra. The Department of Justice investigation could result in the payment of a substantial fine and/or civil penalty.
But the press release contained nothing.

The settlement likely wraps up and seals documents that the feds have extracted from Pfizer in their investigation. Which means the chances of any enterprising journalist getting to tell the tale of what, exactly, Pfizer did to earn this massive fine, is slim.

The lesson here is clear: The news media (BNET included) lazily looked at the press releases and not the SEC diclosures, and thus didn't bother to ask the difficult questions. But also note that Pfizer didn't make it easy for us, either. The telling detail that Bextra's promotion was "off-label" only came with the merger announcement, not in the previous disclosures.

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