Bloomberg News

Abbott Said to Agree to Pay $1.3 Billion for Depakote Suits

October 21, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 21 (Bloomberg) -- Abbott Laboratories agreed to pay at least $1.3 billion to settle claims by the U.S. government and 24 states alleging the company illegally marketed its Depakote epilepsy drug, people familiar with the accords said.

Abbott executives, federal prosecutors and state officials reached a tentative agreement calling for the drugmaker to pay about $800 million to resolve civil claims over Depakote and about $500 million in criminal penalties for marketing the epilepsy medicine for unapproved uses, said three people familiar with the settlement who declined to be identified because the agreement hasn’t been made public. Abbott said earlier this week it was reserving $1.5 billion to cover costs of the potential settlement.

“Settlement negotiations are ongoing,” Scott Stoffel, a spokesman for Abbott, said in a phone interview today. He declined to comment further. Charles Miller, a U.S. Justice Department spokesman, had no comment on the settlement.

The Abbott Park, Illinois-based company said Oct. 19 that it will split next year, with one company selling medical products and the other prescription medicines. Powered by Humira, an anti-inflammatory with $6.5 billion in annual sales, the new drugmaker may attract a bid from Merck & Co., Roche Holding AG or Bayer AG, said Jeffrey Holford, a Jefferies Group Inc. analyst.

Third-Biggest Settlement

The settlement would be the third-largest illegal pharmaceutical marketing accord in U.S. history, behind the $2.3 billion Pfizer paid in 2009 over the marketing of its Bextra painkiller and other drugs and the $1.4 billion Eli Lilly & Co. paid the same year over sales of its Zyprexa anti-psychotic medicine.

Abbott fell 19 cents to close at $53.86 in New York Stock Exchange composite trading. The shares fell about 1 percent earlier in the day. They’ve gained more than 12 percent this year.

Justice Department officials said in June they were “engaged in active settlement discussions” with Abbott over its Depakote marketing practices. In February, the government joined cases brought by former Abbott employees alleging the company engaged in so-called off-label marketing starting in the late 1990s. The suits contend the illegal sales practices resulted in false claims being submitted to government health programs.

$1.4 Billion Sales

The whistle-blowers claim the drugmaker marketed Depakote for unapproved uses including agitation and aggression in patients with dementia, autism, sexual compulsion and other disorders.

Federal regulators only approved Depakote for the prevention of migraines, treating acute manic episodes in bipolar patients and halting seizures in adults and children.

Under U.S. law, a doctor can prescribe a medicine for any condition as long as it’s licensed by the U.S. Food and Drug Administration and is proven to be safe and effective. Drug companies aren’t allowed to promote a drug for uses other than those approved.

Sales of Depakote “rocketed to over $1.4 billion per year” as a result of improper marketing, according to a complaint filed in February by ex-Abbott sales representative Meredith McCoyd. “Compensation for senior executives soared as well.”

Abbott began marketing to elderly patients with Alzheimer’s and dementia in about 1998, McCoyd said in the complaint. Abbott knew that Depakote “was unapproved for the treatment of Alzheimer’s, did not work to treat the disease and was actually dangerous for use by the elderly,” McCoyd said.

Whistle-Blower Accords

McCoyd’s suit was initially filed under seal in 2007, under the rules of the federal False Claims Act. Three other whistle- blower suits, also claiming off-label marketing, were consolidated with McCoyd’s suit in federal court in Abingdon, Virginia.

McCoyd filed the suit on behalf of the federal government, 24 states, the District of Columbia and the city of Chicago. The U.S. and the states joined McCoyd’s claim in February.

The $1.3 billion settlement would also resolve the whistle- blower claims. The final settlement could be announced as early as December, the people familiar with the accord said.

The whistle-blowers will share at least 15 percent of the federal civil recovery portion of the settlement, according to federal False Claims Act provisions. They also will receive shares of some money paid to the states, said Patrick Burns of Taxpayers Against Fraud, a Washington nonprofit group that backs whistle-blower suits.

‘Global’ Settlement

“This settlement will be a global one, including the federal government and all states, unless they opt out, which is unlikely,” Burns said in a telephone interview today.

It’s the second illegal marketing settlement the government has reached with a maker of an epilepsy drug. In 2004, Pfizer Inc.’s Warner-Lambert unit pleaded guilty to federal criminal charges over illegal marketing of its Neurontin epilepsy drug and paid a $430 million to resolve both criminal and civil claims over the medication.

The Depakote case is U.S. ex rel. McCoyd v. Abbott Laboratories, 1:07-cv-00081, U.S. District Court, Western District of Virginia (Abingdon).

--With assistance from Alex Nussbaum in New York. Editors: Andrew Dunn, Stephen Farr

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net .


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