Tuesday, July 3, 2012

The $3 Billion Footnote

Three billion dollars is a lot of money. But it depends.

You get an idea of how big big pharma is by looking at the reaction to yesterday’s report of a $3 billion settlement between GlaxoSmithKline and U.S. prosecutors.

Last month, JPMorgan was staggered by the news that it had lost $2 billion, or probably more, in a bad trading bet. Wall Street is big, but not big enough to just absorb a $2 billion hit.

But big pharma is big enough that a $3 billion settlement is all in a day’s work. News of the settlement didn’t weigh on GlaxoSmithKline’s stock. Instead, the stock was up 2 percent, near its 52-week high, during a mostly blah day in the stock market.

In other words, if the stock market reacted to the $3 billion settlement at all, its reaction was that GlaxoSmithKline got off easy.

The $3 billion settlement is being described as the largest pharma settlement ever, but it depends on how you look it. GlaxoSmithKline was settling three separate infractions, related to three separate products, all at once. This included pushing one drug to children, hiding data about the dangers of a second drug, and selling a third drug as a rapid weight loss scheme. And this is along with a laundry list of “minor” legal issues such as a pattern of illegally overcharging states for drugs. In its deal with prosecutors, it will plead guilty to three lesser infractions and pay $3 billion in a combination of penalties and restitution, so that’s less than $1 billion each. Looked at that way, it is perhaps not the largest pharma settlement ever.

Large corporations are eager to settle cases such as these so they can remove the corresponding footnotes from their financial statements. Every potential penalty or liability has to be noted in the fine print following the tables of financial results. With this settlement, GlaxoSmithKline can surely erase a dozen such footnotes.

A dozen footnotes. Three billion dollars. And that’s cheap, according to the stock market. How big is big pharma? Yeah. It’s that big.