Drug distributor to plead guilty in fraud case

INDIANAPOLIS- Bindley Western Industries Inc. has agreed to settle a federal fraud case by pleading guilty to one count of conspiracy involving its dealings with Nevada and California nursing homes.

The nation's fifth-largest wholesale drug distributor is accepting responsibility for the actions of two former employees, both of whom have admitted wrongdoing, said Larry Mackey, an Indianapolis attorney representing the company.

Bindley officials said they decided to settle the case to avoid the distraction and expense of a long legal proceeding. The company declined to provide details of the settlement, saying it is still subject to court approval, but took a $25.8 million charge against first-quarter earnings to cover the cost.

''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 Indianapolis 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 a grand jury investigation in Las Vegas.

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. The investigation focused on sales by a small division in San Dimas, Calif., from 1995 to 1997.

Bindley fired one manager at the operation two years ago for allegedly violating the company's ethics policy. Another resigned last October, during the investigation.

The managers, who were not identified, have since admitted wrongdoing, Mackey said.

The fraud case involves Bindley's dealings with so-called institutional pharmacies in California and Nevada which serve nursing homes and other long-term care providers. Such pharmacies typically get drugs at prices below wholesale, on the promise that they will not resell them.

Bindley said the $25.8 million after-tax charge will cover the financial settlement in the case, plus the cost of its internal investigation.