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UK OFT Questioning GSK's Reputation

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Reputation is an idle and most false imposition; OFT got without merit, and lost without deserving.” ~ William Shakespeare

The share price of GlaxoSmithKline (LSE:GSK) plunged 12.0 pence to 1646.0 by mid-afternoon following allegations by the Office of Fair Trading (OFT) that GSK may have illegally delayed the introduction of generic drugs in order to preserve the profitability of its own anti-depressant Seroxat (paroxetine).

The investigation is not exactly new.  “The OFT investigation covers matters that have already been investigated by the European Commission in 2005-2006.  The issues were also reviewed in the European Commission’s 2008-2009 Sector Inquiry.  Neither investigation resulted in any sanctions against the company.”

The heart of the matter is that GSK allegedly entered into what the industry would call “supply agreements,” but which the OFT would call “pay for delay,” arrangements with Alpharma, Generics UK and Norton Healthcare.  Part of the issue is that, originally, GSK “challenged the generic companies with allegation that their products would infringe GSK’s patents,” so whatever agreements were reached between GSK and the others might be construed as either a settlement to avoid litigation or even as a payoff.  Ann Pope, a spokesperson for the OFT said, “The OFT’s provisional view is that these agreements included substantial payments from GSK to the generic companies in return for their commitment to delay their plans to supply paroxetine independently.”

The fly in the ointment is actually not the agreements at all.  If it were, surely the EC would have pursued the matter further than it did.  What has the UK watchdog’s  dander up is that the NHS, which was GSK’s single largest customer for Seroxat, is upset that, as a result of the agreements, it had to pay the going price to GSK rather than being able to realize a significant cost savings by purchasing the generic versions.

GSK released a statement saying that it “supports fair competition and we very strongly believe that we acted within the law, as the holder of valid patents for paroxetine, in entering the agreements under investigation.  These arrangements actually resulted in generic versions of paroxetine entering the market before GSK’s patents had expired.”

One would think that GSK would have a fairly sound case, since it was able to convince the EC that there was “no harm, no foul.”  I believe that it will not ultimately be GSK that ends up with egg on its face.  If there is anyone who will require a fash-washing at the end of this, it will be the OFT, for acting at the behest of the NHS.  Which is why the OFT has been careful to frame its allegations with phrases like “provisional view” and statements like, “No assumption should be made at this stage that there has been an infringement of competition law.”

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