GlaxoSmithKline to take record $3.5 billion 4th-qtr charge due to Avandia

In an announcement to the London Stock Exchange yesterday, pharma giant GlaxoSmithKline (LSE: GSK) revealed that it expects to take a legal charge for the fourth quarter of 2010 of a record-breaking £2.2 billion ($3.49 billion) - equal to an after tax cost of £1.8 billion). The news saw GSK’s shares fall 2% in afternoon trading yesterday, before closing the day down 1.6% at £12.05.

The charge primarily relates to additional provisioning in respect of the investigation by the US Attorney’s Office for the District of Colorado into the group’s US sales and promotional practices and for product liability cases regarding the firm’s diabetes drug Avandia (rosiglitazone). The drug was suspended last year by the European regulatory agency and severely restricted by the US Food and Drug Administration on the basis of cardiovascular side-effect risks (The Pharma Letter September 24, 2010).

The after-tax cost of £1.8 billion is more than the £1.45 billion the drugmaker had been expected to make in net income during the three months to December 2010, according to Thomson Reuters consensus forecasts, thus likely more than wiping out fourth-quarter earnings at the drug major. The charge also comes after a £1.57 billion hit taken in the second quarter, which was also related in part to claims surrounding Avandia.