GlaxoSmithKline (NYSE: GSK), like a number of pharmaceutical companies before it, has run up against the truth about one of its drugs. According to The New York Times, “In the fall of 1999, the drug giant SmithKline Beecham secretly began a study to find out if its diabetes medicine, Avandia, was safer for the heart than a competing pill, Actos, made by Takeda. ” The study ended badly. Avandia posed significant heart risks.

The fate of Avandia will be left to the FDA. The fate of GSK’s balance sheet will be left to the courts as a number of class actions suits will undoubtedly be brought against the company for its concealment.

The news once again raises the question of how far drug companies will go to protect their profits on strong-selling treatments. It also puts another spotlight on the effectiveness of the FDA.The most notorious case of concealment in recent years were the actions taken by Merck (NYSE: MRK) to cover up problems it had with Vioxx. According to a 2o00 trial, both the FDA and Merck were aware that heart attacks were five times more likely in patients taking Vioxx than among those taking a similar drug. The FDA did not mention the problem in public for almost two years. The drug was responsible for a number of heart-related deaths.

Merck did not get off lightly. Nearly 10,000 lawsuits were filed against the company. Most were settled in 2007 for $4.85 billion. Merck lost its place atop the Fortune “Most Admired Companies” list, and the Justice Department began an investigation of the matter.

The second highly visible scandal involving a drug company cover-up in the last several years was a case where Pfizer (NYSE: PFE) was accused of selling Bextra for treatments other than that for which it has been approved by the FDA. Bextra was  marketed since 2005 and was pulled because of dangerous side effects such as asthma, heart attacks, strokes and serious skin reactions.

It is not news that drug companies will push as hard as possible to keep drugs which have large sales but potentially dangerous problems on the market. The extent to which management knows about the deceptions is hard to say. But the tone about ethics is always set in the executive suit. In the case of Avandia, the lawsuits may never show a direct involvement of the senior officers or GSK. They are still responsible.

Douglas A. McIntyre

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