Abbott Laboratories Inc. pleaded guilty and agreed to pay $1.5 billion to resolve allegations that it illegally promoted the drug Depakote. The development highlights the risk of investing in managers who put profit ahead of doing right.
The Food and Drug Administration approved Depakote to treat epileptic seizures, bipolar mania and migraines only. In 1999, Abbott discontinued a clinical trial of the drug for treating dementia after some elderly study participants experienced somnolence, dehydration and anorexia. Then the company allegedly marketed the drug in nursing homes as a way to treat aggression in dementia patients between 1998 and 2006. It also allegedly misbranded Depakote as a treatment for schizophrenia, the U.S. Department of Justice said in a statement Monday.
The recent lawsuit isn’t the only one to hit. For example, Abbott allegedly inflated the prices of products such as its oral antibiotic erythromycin in order to get larger reimbursement payments from federal healthcare programs. The company was among other pharmaceuticals to settle claims over the matter and agreed to a $126 million penalty, the U.S. Department of Justice said in December 2010.
In the Monday statement, Acting Associate Attorney General Tony West said “those who put profits ahead of patients will pay a hefty price.”
Laura J. Schumacher, Abbott’s executive vice president and general counsel, said in a statement Monday that the company “takes its responsibility to patients and health care providers seriously.” She also said her company has established “robust” compliance programs to ensure that its marketing meets the needs of health care providers and legal requirements.
Of course workers in the health industry are also highly likely to care about the public health. And yet CEO Miles D. White took home more than $25 million in actual pay for the fiscal year 2011. Surely at least some of that money could have funded cancer research, given the seriousness with which Abbott takes its responsibility. Instead, many hundreds of thousands have gone toward things for White such as deferred pension plans, his personal use of corporate aircraft, and security to keep him from harm’s way.
Moreover, the Abbott board is allowing him to put his own apparently significant needs above those of his shareholders. His total summary compensation in fiscal 2011 is more than four times the median for other named executive officers. In another sign of who’s more important at Abbott, the company does not have a formal policy that would allow for the recovery of executive compensation in the event of fraud.
“This is about past conduct that occurred many years ago,” said Melissa Brotz, a spokeswoman for Abbott. She added that the people who had knowledge of what the DOJ investigated and were responsible for it are no longer with the company.
But the board, by definition, is also responsible. GMI has given Abbott an F on its corporate governance since at least March 2012 and a D since July 2006. While the company has not significantly underperformed the S&P 500 in the last three years, GMI considers Abbott overvalued relative to its continued high ESG risk. Abbott’s financial statements reflect an AGR score of 41, indicating higher accounting and governance risk than 59% of companies.
Investors can feel reassured that on many occasions, White’s best interest is indeed aligned with theirs. But that can only be some of the time.
Region: North America
Sector: Pharmaceuticals – Diversified
Market Cap: $97,470.4mm (Large Cap)
ESG Rating: F
AGR: Average (41)