Who’s Suing Novartis AG (ADR) (NVS), And Why?

Price to pay
What could happen if the charges against Novartis are found to be true? At minimum, the company would probably pay steep penalties.

As part of its 2010 agreement, Novartis paid $422 million. That penalty pales in comparison with the $2.3 billion Pfizer Inc. (NYSE:PFE) paid in 2009. Pfizer had been accused of illegally marketing its painkiller drug Bextra. The company’s settlement came just a few years after it signed a corporate integrity agreement and paid a $430 million fine for allegedly marketing epilepsy drug Neurocontin.

GlaxoSmithKline plc (ADR) (NYSE:GSK), though, paid an even higher amount — $3 billion — to settle a Department of Justice lawsuit in 2012. Of that amount, $2 billion addressed civil damages for Medicare and Medicaid, including resolution of kickback allegations for several drugs. Glaxo also paid $1 billion in criminal fines related primarily to misbranding two drugs.

Should Novartis AG (ADR) (NYSE:NVS) ultimately be forced into a settlement over the current lawsuits, the amount would quite likely run into the billions of dollars. It could be worse than that, though. The federal government could ban the company from Medicare, Medicaid, and other federal health care programs. It seems much more likely that Novartis would agree to a settlement than allow that scenario to unfold, however.

Judging from the experience of Pfizer Inc. (NYSE:PFE) and GlaxoSmithKline plc (ADR) (NYSE:GSK), pharma stocks recover pretty quickly from large settlements. Shares of Pfizer Inc. (NYSE:PFE) actually closed the year higher after it settled the lawsuit with the government in September 2009. Likewise, GlaxoSmithKline plc (ADR) (NYSE:GSK)’s stock is nearly 20% higher than it traded after its legal settlement in July 2012.

The charges against Novartis AG (ADR) (NYSE:NVS) still must be proved in a court of law. Even if the allegations stick, investors probably don’t have to worry too much over the long run. Certain restaurants might be less profitable, though.

The article Why America Is Suing This Pharmaceutical Behemoth originally appeared on Fool.com and is written by Keith Speights.

Fool contributor Keith Speights and The Motley Fool have no position in any of the stocks mentioned.

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