Two drug execs escape jail ... for now

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By G.W. Schulz

Two former executives at the San Francisco-based McKesson Corp. escaped prison sentences by the skin of their teeth late last week in this ongoing era of blind fury over corporate corruption. And McKesson's former blue suits have the indecisiveness of just one juror out of 12 to thank.

The two were acquitted on one count of securities fraud stemming from a $9 billion accounting scandal, but a mistrial was declared after the jury deadlocked 11-1 on three of the remaining counts. Four other executives were previously convicted in a scheme by which the company allegedly overstated revenue to the tune of $300 million during its merger with an Atlanta-based outfit called HBO & Co.

McKesson is one of the nation's largest prescription-drug wholesalers with revenue of $88 billion annually. It's current CEO, John Hammergren, makes more each year than even the head of Bay Area-based ChevronTexaco.

One juror told the Associated Press that the rebel holdout "got to the point where he didn't want to be talked to anymore." U.S. Attorney Kevin Ryan's office is determining whether to retry, which could still land the two men, Charles McCall and Jay Lapine, in jail for 10 years each.

The Guardian reported in late October that McKesson is in no small amount of trouble these days. The company, along with the New York-based Hearst Corp., which owns the San Francisco Chronicle, was charged by a group of unions in a civil suit filed in a Boston federal court last year of conspiring to inflate drug prices. Hearst owns a drug info publishing company based in San Bruno called First DataBank. The suit alleges that the effort caused consumers to overpay $7 billion for prescription drugs between 2001 and 2005. First DataBank has since settled, as we reported, but McKesson is still a major target of the lawsuit.

Big Pharma is nearly as profitable as Big Oil these days. The state of California pays out over $3 billion each year for prescription drugs through programs that benefit children and the indigent, while Santa Clara County alone -- as a smaller-scale example -- pays out nearly $35 million. (Santa Clara County sued a bunch of manufacturers and wholesalers a couple of years ago for allegedly rigging prices, but the case was recently tossed out of federal court in San Francisco.)

Defense attorneys for the former McKesson execs are calling last week's ruling a victory, but Wall Street didn't appear to see it that way. Value of the company's shares dropped by nearly a half following announcement of the news to $35. The company quickly informed the business press just a few days later of its $1.1 billion purchase of Georgia-based Per-Se Technologies and just as soon recovered $15 per share of the drop. Guess corporate ethics don't have to be much of a pain in the monetary ass after all.

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