(Bloomberg) — Novartis AG (NYSE:NVS) agreed to pay $390 million to settle a lawsuit in which the U.S. government claimed the Swiss company paid kickbacks to pharmacies to boost sales of some of its prescription drugs and reported lower-than-expected third-quarter earnings.
Europe’s biggest drugmaker reached a preliminary agreement with the U.S. Department of Justice, which sought $3.3 billion in fines and damages. A measure of profit called core net income fell 2 percent to $3.06 billion, missing the $3.13 billion average of 10 analyst estimates compiled by Bloomberg.
The stock declined as the Alcon eye-care unit acted as a drag on growth for a second straight quarter, causing sales to fall short of analysts’ estimates as well. The Basel, Switzerland-based drugmaker had to disclose the legal settlement before it’s final along with earnings because it set aside $400 million to cover its cost in the third quarter, Chief Executive Officer Joe Jimenez said.
“We are not admitting liability, we are also not denying it,” Jimenez said in a telephone interview. “We are just settling it and putting it behind us.”
The U.S. sued Novartis over two drugs, Exjade and Myfortic, claiming the company had referred patients to specialty pharmacies and paid kickbacks in the form of rebates to get those pharmacies to recommend the drugs to patients and to increase sales. Novartis said in a statement today the agreement covers claims on the two medicines, one designed to remove excess iron from the blood of transfusion patients and the other to prevent rejection of kidney transplants, as well as another three: Tasigna, Gleevec and TOBI.
The settlement is the latest by the Justice Department in a group of suits targeting drug companies with claims they cheated the government through fraudulent marketing practices. In 2012, GlaxoSmithKline PLC (NYSE:GSK) agreed to pay $3 billion to resolve criminal and civil claims that it illegally promoted two drugs and failed to provide clinical data on another.
Beginning in 2005, Novartis gave pharmacies rebates to recommend Exjade and Myfortic to patients over generic alternatives, or to keep dispensing them, U.S. officials said. Specialty pharmacies also submitted thousands of fraud-tainted reimbursement claims to Medicare and Medicaid for the two drugs, the government said.
Novartis said in a court filing that the program was intended to encourage patient compliance with doctor-prescribed treatments, and that policies were reviewed and approved by the drugmaker’s lawyers. The settlement lets it avoid a trial that was set for Nov. 2 in Manhattan federal court.