Big pharmacy company settles Vegas criminal probe

Tuesday, April 25, 2000 | 10:16 a.m.

SUN STAFF AND WIRE REPORTS

Indianapolis pharmaceutical company Bindley Western Industries Inc. announced Monday it plans to settle with the government in a criminal investigation of sales it made to so-called "grey market" pharmacies in Nevada and California.

Bindley, the nation's fifth-largest wholesale drug distributor, will settle the Las Vegas federal grand jury investigation by pleading guilty to one count of conspiracy.

The grand jury was investigating claims Bindley defrauded pharmaceutical companies by selling drugs to certain customers it knew were improperly reselling them for a profit.

Bindley Western said the settlement is expected to be approved by the court within 60 days. The company said it took a $26.3 million charge to cover the amount of the settlement plus expenses associated with an internal investigation.

Bindley Western announced last month that it was the target of a grand jury investigation into sales made by its Southern California office from 1995 to 1997 to certain pharmacies in Nevada and California.

The pharmacies targeted were "closed door" pharmacies that can purchase drugs at below wholesale prices, but are allowed to resell them only to their own long-term patients, such as nursing home patients and assisted-living patients.

The U.S. Attorney's Office in Las Vegas is investigating whether these pharmacies purchased drugs from Bindley Western, then resold them at a profit, rather than distributing the drugs to their customers. The two Bindley Western managers involved in the sales no longer work for the company.

In a joint statement, three members of Bindley Western's audit, ethics and compliance committee stated that the "costs and management disruptions associated with the government's investigation, which could continue for several more years if these issues were litigated, have weighed heavily in our decision and recommendation (to settle)."

The company did not admit wrongdoing in the incidents.

Bindley Western did not say if a grand jury investigation was continuing against Nevada pharmacies.

"It's a good decision, backed by the market," said John Ransom, an analyst for Raymond James Financial Services. "Clearly, they wanted to get this issue behind them and put a cap on their potential liabilities."

The company also announced Monday that first-quarter earnings, before the special charge, rose 25 percent to $12.1 million. Sales increased by that same percentage, reaching $2.5 billion.

Including the charge, the company had a $13.7 million loss for the quarter.

Bindley's stock gained $2 a share, or 15.5 percent Monday on the news, closing at $14.87. The jump in Bindley's stock price restored nearly half of the $139 million in market value that disappeared March 27, when the company disclosed it was the subject of the grand jury investigation.