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Two UK pension funds are vying to lead a US class-action lawsuit against GlaxoSmithKline (GSK), accusing the pharmaceutical giant of misleading the market over its controversial diabetes pill Avandia.
North Yorkshire Pension Fund and Avon Pension Fund, local government schemes that together manage more than £3 billion in assets, have both applied to be lead plaintiff in the case – a US term for the institution fronting a lawsuit on behalf of other investors.
Although UK funds frequently join US class-action lawsuits as minor players, it is highly unusual for them to seek such a prominent role.
The funds have jointly appointed Coughlin, Stoia, Geller, Rudman and Robbins, a New York law firm, to represent them.
The lawsuit seeks unspecified damages related to a slide in the group’s share price that followed a study published in May in the New England Journal of Medicine claiming that Avandia raised the risk of heart attack by 42 per cent.
The findings, denied by GSK, wiped about $18 billion off its market capitalisation.
The two UK funds are understood to be claiming they suffered losses of roughly $5 million as a result.
“We are joining [the lawsuit] because it is in our members’ interests to do so,” Neil Sellström, of the North Yorkshire fund, said.
“We monitor class actions and when one is launched against a company where we hold or have held the shares, we assess its merits and get involved where we think it is appropriate.”
Avon confirmed its involvement in the lawsuit but declined further comment.
A German and a US group are also seeking to act as lead plaintiff.
A judge is expected to make a final decision on which group to pick next week.
Both UK funds have indicated they will remain involved in the case in a lesser role regardless.
The lawsuit, originally filed inNew York on June 11 by the law firm Kaplan Fox, alleges that GSK “engaged in a scheme to deceive the market and a course of conduct that artificially inflated GSK’s stock price”.
It claims that GSK “failed to adequately disclose” important information about the risks of the drug and accuses the company of “fraud” and “deceit”.
A spokesman for GSK said that the company believed the lawsuit had no merit and would vigorously defend itself.
Kaplan Fox is seeking damages on behalf of all investors who bought shares between October 27, 2006 and May 21, 2007.
Prescriptions of Avandia have fallen 45 per cent in the US since the findings were published.
The company is awaiting a decision from the US Food and Drug Administration on Avandia, GSK’s second top-selling drug, which generated £1.4 billion in 2006.
The group is expected to impose more stringent labelling for the drug.
Dissatisfaction with GSK’s share price, which remains at similar levels to 2003, has led some investors to call for a break-up of the group or a sale of its consumer arm.
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Pharmaceutical companies have perfected the art of positive spin and they have done a good job on many doctors to whom they sell drugs. Here's an example, do you need a new blood pressure monitor for your surgery or what are you doing for dinner tonight? I had to educate my doctor as to the side effects of Simvastatin. I had been informed that the statin was "a very safe drug with very few side effects" by my doctor, I was later to find out, that he was very wrong!
Patients and health services can be mislead by pharmaceutical companies but when investors lose money, they take the companies to court!
Your drugs may not work but we will invest as long as you can keep a lid on the fact! My heart bleeds for those investors who have lost money. Perhaps in future the extremely well paid research analysts working in finance will earn their keep and blow the lid on what these companies are doing but that doesn't make money, does it??
Graham Wharton, St. Albans, uk
Why stop the pensions from exercising their rights as shareholders? While I'm not familiar with all the details of the case the article suggests the possibility that GSK failed to provide timely and sufficiently accurate disclosure of the risk of its product being dissapproved. Any shareholder (and the markets in general) have a vested interest in encouraging transparency. Likely, given the static share price, this is the end result of long-term shareholder resentment at how the board has been operating. If a lawsuit is required to establish a corporate culture of transparency and proper governance, so be it.
Trev Hande, Vancouver, Canada
I am a diabetic type 2 and also have a heart problem. I have been on AVANDAMET (UK name for Avandia) for a year. I am very much better. It is one of two tablets I am on that has improved my health. I hope GSK win their case. Modern medication is powerful so must have some side effects. It is up to each patient to inform their doctor if they experience any problem.
Raymond, Haslemere, England
It's about time people started looking at the figures sensibly - and at their own motivations - before launching automatic attacks on Big Pharm. The fact is that the 42% increase in risk pertains to a tiny subset of all the people who take Avandia: in fact, considerably less than 1% of all Avandia-takers. The remaining 99% - who do not develop heart problems of the type where Avandia may increase the risk - are not the subject of study. What is never mentioned is that Avandia is actually very good at helping the body deal with blood sugar - and so reducing all the other hazards relating to diabetes. No doubt other drugs will be developed that do the job better - and even more safely - but that is the nature of progress. So far as I can see, GSK have never concealed anything - the risk Avandia created for a very small number of people has been known since 2000. The litigants here are just trying to take advantage of a complex medical problem: why not give the money to drug research?
Frank, London,
Scandalous waste of money. Public money at that. The only people who have done any misleading are the the journals and researchers responsible for publishing badly constructed studies and results based on statistical artifact. That these Local Authority Pension funds are prepared to gamble their member's money on a tenuous cause, to say the least, should be the subject of decent investigative journalism to uncover the motive.
Brian Kriss, London, UK