GlaxoSmithKline (GSK)â€™s $3.4 billion legal charge on the diabetes drug Avandia probably isnâ€™t the last of the costs the company will record against this drug. That means Avandia will probably be a lossmaker for GSK, proving that former CEO Jean-Pierre Garnier 1999 failure to follow up on worries about heart attack deaths associated with Avandia was a strategic disaster for the company, costing it billions in actual dollars and billions more in lost-opportunity dollars. Avandia had only been on the market for one month in 1999 at the time the CEO raised concerns in an email to his staff, yet the drug remained on the market until 2010.
1.Â What are some examples of opportunity costs this drug had for the company?
2.Â Based on the article by Edwards, what types of contingency disclosures do you think the company should disclose for 2011?
3. Â According to the 2010 article by Edwards, what settlement was made in July?Â How should that be reported in the accounting records?
Edwards, J. (2011). How GSKâ€™s CEO Ignored His Own Worries and Wasted $16B on a Failed Diabetes Drug, BNET.com, January 18 (Retrievable online at http://www.bnet.com/blog/drug-business/how-gsk-8217s-ceo-ignored-his-own-worries-and-wasted-16b-on-a-failed-diabetes-drug/7094?tag=mantle_skin;content)
Edwards, J. (2010) Glaxo CEO Worried in Email Over Heart Attacks From Avandia â€” in 1999, BNET.com, July 13 (Retrievable online at http://www.bnet.com/blog/drug-business/glaxo-ceo-worried-in-email-over-heart-attacks-from-avandia-8212-in-1999/5110?tag=content;drawer-container)