Novartis Sets $700 Million Provision to Settle Bribery Allegations -- Update
July 18 2019 - 7:33AM
Dow Jones News
By Denise Roland
Novartis AG set aside $700 million to settle a long-running
lawsuit alleging the drugmaker treated U.S. doctors to lavish
dinners and other events in return for boosting prescriptions.
The case centers on 80,000 events Novartis held between 2002 and
2011 that federal prosecutors allege amounted to kickbacks
masquerading as educational meetings. Those included fishing trips
off the Florida coast, expensive meals at high-end restaurants like
Nobu in Manhattan, and trips to Hooters locations across the
country, according to court documents.
Novartis, which has denied wrongdoing, is currently in
negotiations with prosecutors to reach a settlement. Chief
Executive Vas Narasimhan said settling the matter was "consistent
with our efforts to resolve legacy compliance issues."
The case is the highest-profile of a number of allegations of
wrongdoing by the company in recent years, as Dr. Narasimhan, who
took the helm in early 2018, seeks to overhaul the drug giant.
The company disclosed the provision as it reported a strong set
of second-quarter earnings, prompting it to raise its full-year
guidance for the second time this year. It now expects sales to
grow by a mid- to high-single-digit percentage and for core
operating income to increase by a low-double-digit to midteen
percentage. Shares in Novartis gained more than 5% on the news.
Novartis attributed the gains to newer drugs like Entresto, for
heart failure, and Cosentyx, which treats a range of skin and
rheumatic disorders. It also highlighted Lutathera, a new kind of
cancer drug that delivers a dose of radiation to a tumor at close
range.
The encouraging performance of Novartis's newer drugs bolsters
Dr. Narasimhan's strategy to focus the company on high-value
prescription medicines. That has involved shedding eye-care
business Alcon, parts of the company's generic-drug division Sandoz
and exiting a consumer health-care joint venture with
GlaxoSmithKline PLC. At the same time, it has spent around $15
billion to bulk up its pipeline of new medicines through
acquisitions.
That strategy is currently facing a big test as Novartis seeks
to persuade insurers to pay for its newest treatment, Zolgensma,
which at $2.1 million is the world's most expensive drug. Zolgensma
treats babies with a disease called spinal muscular atrophy, whose
victims lack a gene essential for muscle control. It works by
providing a working copy of that gene.
To allay concerns over the cost, Novartis said it would offer
insurers the option to pay for the treatment in equal annual
installments over five years. The company also pledged to issue
partial refunds if the treatment doesn't work.
Dr. Narasimhan declined to provide details on how many insurers
have taken up those offers but said that plans covering around 40%
of Americans had so far agreed to cover Zolgensma. Novartis has
defended the price tag by comparing it to a treatment already on
the market, which would cost more in the long term because it is
taken for the duration of a patient's life.
In the three months to June 30, Novartis said overall sales rose
4% to $11.8 billion. Core operating income, a measure that strips
out certain items and is closely watched by analysts, climbed 14%
to $3.6 billion. Those numbers exclude Alcon, which was spun out of
the company in April.
Net income fell 73% to $2.1 billion, largely because the
prior-year figure included a $5.7 billion payment from Glaxo to buy
Novartis's stake in their consumer-health-care venture.
(END) Dow Jones Newswires
July 18, 2019 07:18 ET (11:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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