October 26, 2010 6:48 PM

Covington Advises GlaxoSmithKline on $750 Million FCA Settlement

Posted by Brian Baxter

UPDATE: 10/28/10, 3:15 p.m. The Wall Street Journal has more on Cheryl Eckard's story here.

GlaxoSmithKline has agreed to pay $750 million to settle criminal and civil complaints accusing the company of selling tainted drugs from a shuttered Puerto Rican factory, The New York Times reported Tuesday afternoon. The settlement, which is the fourth-largest ever paid by a pharmaceutical company in U.S. history, calls for GSK to pay $600 million in civil penalties and $150 million in criminal fines as a result of quality control problems at the plant between 2001 and 2005.

Covington & Burling litigation partners Geoffrey Hobart and Matthew O'Connor and special counsel Mona Patel represented GSK in the matter. The firm is longtime outside counsel to the company, having advised GSK on its $253 million acquisition of Laboratorios Phoenix this past June.

The federal government began its own investigation of GSK in 2004 after Cheryl Eckard, a former global quality assurance manager at GSK, filed a qui tam (whistle-blower) suit under the False Claims Act against her employer in U.S. district court in Boston.

"She came to our law firm after having heard about our success in other qui tam lawsuits," says Neil Getnick, Eckard's lawyer and a managing partner of New York's Getnick & Getnick. One of those suits was the $257 million Medicaid settlement Getnick helped extract from Bayer Pharmaceuticals in 2003.

Getnick, who advised Eckard along with partner Lesley Skillen, says that Eckard's case against GSK stands on its own. While previous whistle-blower settlements against large pharmaceutical companies such as Pfizer and Novartis focused on the pricing and marketing of drugs, Eckard's suit involved claims of how those drugs were made. (Scott Tucker of Boston's Tucker, Heifetz & Saltzman served as local counsel to Eckard.)

"This is the first whistle-blower recovery for pharmaceutical manufacturing violations," Getnick says. "This case is far more serious because it focuses on the quality of the drugs that were being produced, and specifically says that what was once the largest plant in the world for GSK was producing and releasing adulterated product. So this is not only a case of financial concern, but also one of patient safety, and that's what separates it from every one up until now."

Eckard stands to receive $96 million from the settlement paid by GSK, according to a Justice Department statement. Skillen notes that that GSK's factory in Cidra, Puerto Rico, produced about $5.5 billion in pharmaceutical products annually for the London-based drug giant.

The GSK subsidiary pleading guilty to the charges, SB Pharmco Puerto Rico, entered a guilty plea on Tuesday. Getnick says that the state governments and the District of Columbia covered under the settlement will now execute their own 51 agreements, which could add to the whistle-blower windfall Eckard stands to receive.

The Justice Department filed its notice of intervention in the case on Tuesday, adopting the complaint filed by Eckard's lawyers.

"This is one of the rare, if not unique, situations in a case of this size and dimension that the government did not feel the need or desire to substitute their complaint on top of the one that the relator and relator's counsel filed," Getnick says.

Covington's Hobart did not respond to a request for comment. A GSK spokeswoman provided a statement to The Am Law Daily that says, in part:

"This settlement resolves a significant and long-standing legal issue facing the company," said Elpido "P.D." Villarreal, a GSK senior vice president and head of global litigation. "GSK worked hard to resolve fully the manufacturing issues at the Cidra facility prior to its closure in 2009 and we are committed to continuous improvement in our manufacturing processes. . . . We have not received an FDA warning letter at any plant since the Cidra facility was cited in July 2002."

Tony West, assistant attorney general in the civil division at Main Justice, led the government's investigation along with assistant U.S. attorney's Shannon Kelly and Susan Winkler in Boston and trial attorney Mark Josephs with the Justice Department's office of consumer litigation.

The Boston branch of the Justice Department has been among the most active in targeting misdeeds in the pharmaceutical industry, securing settlements with Bristol-Myers Squibb, AstraZeneca, and Johnson & Johnson. The office's former top prosecutor, Michael Loucks, joined Skadden, Arps, Slate, Meagher & Flom in May. His replacement, Carmen Ortiz, was confirmed in November 2009.

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