Markets

In Plain Sight: GSK's Avandia Mess Eclipses Federal Probe of Paxil Factory

By Jim Edwards

Updated on: July 15, 2010 / 12:24 PM EDT / MoneyWatch

GlaxoSmithKline (GSK) appears to be trying to get all its bad news out at once with its announcement of a $2.36 billion writedown for legal expenses. The charge includes costs for its recent Avandia woes -- it settled about 10,000 cases for $460 million -- but $750 million of it ends a Department of Justice investigation of its Paxil and Avandamet factory in Cidra, Puerto Rico.

If your reaction to that was, "Wait, what Paxil investigation?" you're not alone. In fact, the feds have been probing GSK's Cidra operations since late 2002, and the Avandia mess conveniently eclipses a scandal about the way Paxil (an antidepressant) and Avandamet (a diabetes drug that uses Avandia as an ingredient) were made. Here's the timeline:

In 2002, the FDA cited the Cidra factory being dirty and lacking quality control. Paxil pills could split apart or deliver too much or too little medicine.
In 2003, "the US federal government executed a search warrant at the Cidra facility and seized records relating to the manufacturing operations at the site," GSK said in its 2009 annual report.
In March 2005, U.S. Marshalls raided the factory and seized its supply of the antidepressant Paxil and Avandamet, a diabetes drug that uses Avandia as an ingredient. The feds used harsh language that suggested GSK was a scofflaw: "FDA and the Department of Justice will not allow drug manufacturers to ignore our high public health standards for drug manufacturing ... Once we discover a company is not following the standards, which were created to ensure safety and quality, we expect them to correct the deficiencies in an expedited manner."
In April 2005, the Boston U.S. Attorney's office sent several subpoenas to GSK requesting records from the factory, according to the annual report. Also that month, GSK signed a consent decree with FDA to correct its deficiencies at Cidra. The decree required GSK to post a bond of $650 million contingent upon GSK either reconditioning the seized drugs or destroying them and paying costs to the government. The bond was supposed to be cancelled. A bunch of people were fired as a result.
In July 2005, GSK said its Paxil manufacturing operations were back on track, but gave no details.
In July 2007, a federal whistleblower lawsuit was unsealed in Massachusetts relating to the Paxil factory, according to the annual report. GSK has not yet said that claim was settled.
In 2009, GSK closed the Cidra plant completely (and you can buy its old equipment for just $50 million: "Most equipment 2007-2008 models," the ad says.

What's interesting here is that taken together, there was clearly a huge scandal at its Paxil factory but because information about it dribbled out over a period of eight years it generated very few headlines. GSK's announcement today is a masterpiece of spin: It knows it's trapped in the headlines over the FDA's Avandia review, and it's using that to hide in plain sight what may have been an equally serious issue: The fact that, for years, its Avandamet and Paxil factory made such bad quality medicine that it was busted by the feds and had to be closed.

Related: