Abbott Unveils Breakup, Plans To Settle Alleged Marketing Misdeeds

Oct 19, 2011

Abbott Labs is splitting up. The diversified maker of medical products will become two companies: one focused on brand-name prescription drugs and the second on the other stuff, including medical devices, diagnostic tests and baby formula.

It's a big deal, and Forbes' Matt Herper explains the logic behind it: Investors aren't giving drugmakers much respect, so separating the businesses could give a lift to the future stock of the faster-growing non-drug business.

But there's some other darker news on the drug front that got overshadowed by the company's restructuring. Abbott said it's putting aside $1.5 billion to cover an expected settlement with the federal government of claims that the company went way too far in selling the seizure drug Depakote.

Some former Abbott employees filed a lawsuit, later joined by the feds, that alleges the company promoted Depakote for unapproved uses, such as treatment of Alzheimer's dementia, and that it paid kickbacks to doctors to boost sales.

In a release on company earnings, Abbott disclosed the potential settlement, saying that company expenses now include "$1.5 billion of litigation reserves" related to ongoing settlement discussions related to Depakote.

In an August filing Abbott said:

The United States Department of Justice, through the United States Attorney for the Western District of Virginia, is investigating Abbott's sales and marketing activities for Depakote. The government is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act, and the anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement to third parties. Discussions are ongoing in an effort to resolve potential civil and criminal claims arising from this matter. Abbott is unable to predict the outcome of this matter or to estimate the range or amount of possible loss and no loss reserves have been recorded for this exposure.

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