Besides simply selling pills at a profit, Forest Labs appears to engage in what's known as transfer pricing - a highly complicated way of avoiding taxes by creating overseas subsidiaries that, in Forest's case, are used to hold patents and facilitate transactions out of reach of the US Treasury.
To illustrate the complexities, Bloomberg News attempted to follow the mysterious trail of dollars generated by Lexapro, Forest's wildly popular antidepressant, an effort that involved visiting not only a manufacturing plant in Ireland, where tax rates are lower, but also revealed subsidiaries in Bermuda and The Netherlands that appear to function merely as convenient shells.
By playing the avoidance game, Forest cut its US tax bill by more than one-third last year and various international tax benefits boosted its net income by 31 percent, according to an analysis of its tax footnotes. The IRS tagged Forest once before for failing to properly value its US marketing operations and paid an undisclosed amount to resolve the dispute, but the drugmaker apppears undeterred.
The issue, however, is generating heat and drugmakers will have to take notice. Glaxo, for instance, settled a case four years ago by paying $3.4 billion and more cases appear likely. “Transfer pricing is the corporate equivalent of the secret offshore accounts of individual tax dodgers,” Senator Carl Levin, a Michigan Democrat and chairman of the Senate’s Permanent Subcommittee on Investigations, tells Bloomberg. “Now that progress has been made in addressing offshore tax abuse by individuals, transfer pricing is an issue that deserves scrutiny.”
8 Comments
Forest makes money lots of way.
One way is transfer pricing which may eventually get them nailed under the new IRS whistleblower program which pays whistleblowers 15-30 percent of the amount collected (NOTE: Potential Forest Labs IRS whistleblowers can contact me on this matter if they are looking for a free legal referral and have solid physical, visible information).
Another way is through off-label marketing of antidepressants Celexa and Lexapro to children, as well as the illegal marketing of Levothroid. Forest Laboratories has set aside $170 million to settle a False Claims Act case related to kickbacks paid to doctors for prescribing these drugs for off-label purposes. DoJ has joined that case, and $170 million in fines represents the floor, not the ceiling, on what they will ultimately owe.
Of course, it's no secret how Forest Labs works. They are famous for being in the "payola medicine" business. In fact, back in July of 2005, when California passed SB 1765, its pharmaceutical marketing disclosure law, Forest self-disclosed that it had a "limit" of $7,440 PER DOCTOR PER YEAR for free meals, ball game tickets, and other promotional offers to doctors. Figure out how many pharma reps visit doctors, and you **might** begin to understand the engine driving Forest and other pharmaceutical company sales.
Patrick Burns http://wwww.taf.org
You are citing a news story without the proper facts. Lexpapro IS indicated for adolescent MDD (depression) ages 12-17.
Hi RxMan,
I realize you were directing your comment toward the previous commenter, PBurns. So I offer the following only for the sake of clarifying any misunderstanding about the chronology concerning Lexapro and pediatric use.
The US Justice Department cited Forest in Feburary 2009 for allegedly marketing Lexapro for unapproved pediatric use. The next month, the FDA approved Lexapro for major depressive disorder in adolescents aged 12 to 17. The links to these two press releases are found below...
http://www.justice.gov/opa/pr/2009/February/09-civ-163.html
http://www.frx.com/news/PressRelease.aspx?ID=1268211
Hope this helps, ed
RxMan,.. I take it someone hit a nerve, could it be that you feel guilty over prescribing Lexapro to the Wee Little Ones, and you are somehow trying to justify it by, being touchy with others who bring up the subject
Forest's MO for many years was to license European products that have been kicking around for years, do one trial for US approval, then market them. Citalopram (Lexapro) is an example of this. Their relationship with Lundbeck fed this pipeline very nicely.
Absolutely disgusting! The average American citizen is paying much more than they need to in taxes while the ultrarich US companies escape most of their taxes! I think that the government should squeeze all of them and have them pay at least the past 5 years of taxes that they escaped from. Now that will put a dent in the deficit!
Sounds like good old-fashioned tax evasion! What would they do to a citizen? Make them pay back taxes and a fine! The government should do thi to Forest and any other company that employs this strategy.
What a shocker! Pharma being accused of doing something illegal! perhaps a bigger shocker would be if they did anything ethical.