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What was that about bad pennies that keep on turning up? GlaxoSmithKline's shareholders got a jolt on Friday when U.K. regulators announced they were formally accusing the drugs group of delaying the emergence of cheaper generic alternatives to Seroxat, its widely used antidepressant medicine. Investors may recall that this matter was investigated by EU antitrust officials, but that the inquiry closed last year without any action. That, they probably assumed, was that. Instead, on Friday, GlaxoSmithKline shares slipped following the accusation by the Office of Fair Trading.
In fact, the two probes have always been separate. The now-closed European one followed an industry-wide investigation, which concluded that delayed introduction of generic medicines added €3-billion ($4-billion) to health care costs for European patients and taxpayers between 2000 and 2007. Initially, no names were mentioned, but the GSK inquiry was one of a number of follow-up cases pursued at EU level. By contrast, the British accusation relates to events in the U.K. market only between 2001 and 2004, ahead of Seroxat's patent expiry in 2006.
The regulator's case is that GSK accused potential generic rivals of patent infringement, but then reached deals that included payments in return for commitments to delay generic supplies. GSK denies this. It says the deals did permit competing products to launch before Seroxat's patent ran out.
Even if regulators prove their case, the financial damage should be readily absorbable given GSK's size. Operating profit topped £7.4-billion ($11.5-billion) in 2012. Global sales of Seroxat once ran at £2-billion a year, although they were down to £60-million in 2012. But in the U.K. market specifically, National Health Service spending on the drug in the relevant period is thought to have been about £100-million annually. U.K. competition rules allow for fines of up to 30 per cent of "relevant" sales over an infringement period – although defining those sales is complex and there could be follow-on damages claims on top. Still, allegations of intellectual property abuses by drug companies have dogged the sector for too long. More recent EU surveys have suggested improved behaviour. Investors – as well as taxpayers – should hope so.