No easy cure for pharma litigation woesPosted On: Aug. 7, 2017 12:00 AM CST
Pharmaceutical manufacturers have long been viewed as a major source of liability exposure, and their risk profiles are getting more complex as they battle a range of liability issues on multiple fronts.
Allegations of overcharging, harmful drug side effects, lack of oversight of opioid distribution and accusations against brand name manufacturers by plaintiffs who have used only the generic versions of their drugs (see related story), have been made in various lawsuits.
In addition, pharmaceutical manufacturers have been the focus of regulatory actions related to the Foreign Corrupt Practices Act, while they also face litigation related to mergers and acquisitions, securities class actions and initial public offerings.
Meanwhile, they have also become a major focus of litigation funding firms, where plaintiffs tap into investment funds to finance their cases.
“Plaintiffs continue to sue corporate parents unnecessarily and inappropriately” and the pharmaceutical sector “encounters it more than anyone else,” said Kara Kapke, a partner with Barnes & Thornburgh L.L.P. in Indianapolis.
Allegations of pharmaceutical companies overcharging for their products date back several years. Recently, in April, plaintiffs sued Morgantown, West Virginiabased Mylan Specialty L.P. in U.S. District Court in Tacoma, Washington, in a putative class action over the price of its anti-allergy EpiPen, stating the company has increased its prices 17 times since it acquired the rights to market and distribute the drug in 2007.
Other well-established legal attacks on pharmaceutical companies include allegations that their drugs have harmful side effects.
For example, there have been upwards of 18,000 reported cases filed over blood thinner Xarelto, which has been blamed for causing heart-related issues, said Jim Walters, managing director, life sciences and chemical group at Aon Risk Solutions in Philadelphia.
The good news for pharmaceutical firms, he said, is that in June, in the first bellwether case, Leverkusen, Germany-based Bayer A.G., and New Brunswick, New Jersey-based Johnson & Johnson, which both produce Xarelto, were cleared by a New Orleans jury in connection with the 2015 death following a stroke of a woman who had taken the drug.
Another issue being watched is litigation over low testosterone medications, Mr. Walters said. Multidistrict litigation against several pharmaceutical manufacturers alleging testosterone replacement therapy causes cardiovascular injuries is in U.S. District Court in Chicago.
The opioid epidemic is a significant focus of litigation as well. According to an analysis by the Washington Post, as of last month, within the past year at least 25 states, cities and counties have filed civil cases against pharmaceutical manufacturers as well as the distributors and large drugstore chains that make up the $13 billion a year opioid industry. The suits generally allege that the drugmakers are responsible for widespread problems with opioid addiction.
In July, Mallinckrodt L.L.C., one of the largest manufacturers of oxycodone, whose U.S. headquarters is in St. Louis, agreed to pay $35 million to resolve allegations it failed to report suspicious drug orders, without admitting wrongdoing, according to the U.S. Department of Justice.
“Obviously, the opiate pain management area is one extremely challenging and big dilemma across the liability sector for the industry,” said Doug Carey, Norwalk, Connecticut-based US Life Sciences practices leader for Marsh L.L.C.
“It’s been a long-mounting issue,” but “the FDA is saying there’s no simple answer to reversing the epidemic,” Mr. Carey said.
Meanwhile, although talcum powder is not a medical product, pharmaceutical firms, which often produce it, have been the target of litigation filed by women charging the product has led to ovarian cancer, Mr. Walters said.
The largest defendant in these cases has been Johnson & Johnson, which has verdicts totaling more than $300 million in liability awards, he said.
But he pointed to the Supreme Court’s June ruling in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County et al., which held plaintiffs must have an affiliation with a jurisdiction before filing litigation there.
It will “make it a lot more difficult for plaintiffs to venue shop, if you will, across the board,” said Mr. Walters, noting pharmaceutical manufacturers have been a particular focus of forum shoppers.
Experts say large pharmaceutical companies generally obtain liability coverage through captives or self-insurance, while there is a robust, competitive market for smaller firms, including generic manufacturers.
Mr. Walters said with regard to insurance, “It’s sort of a tale of two cities.” Pointing to large “mega” settlements over the past two decades, he said, “There’s never been that much capacity available in the marketplace.
“I think a lot of the large policyholders have increasingly absorbed more and more of their product liability risk to the point where they’re self-insuring the vast majority of that in many cases,” he said.
“But it’s still a robust market for small companies,” including for generic firms, he said.
Meanwhile, the many consolidations in the sector are “often a driver for litigation” when two public firms merge, said Jennifer Sharkey, Boston-based area executive vice president/Northeast regional director, management liability practice for Arthur J. Gallagher & Co.
According to London-based Evaluate Ltd., which provides analysis for the pharmaceutical and biotech industries, pharmaceutical deals’ average size in this year’s first half was $1.44 billion.
The pharmaceutical sector’s initial public offerings are a frequent litigation target, Ms. Sharkey said. This is because IPOs are often developing a product that is in its early, clinical stages, and so are subject to stock price fluctuations, she said.
The FCPA is also an issue. In September 2016, for instance, Brentford, England-based GlaxoSmithKline P.L.C. agreed to pay $20 million to settle U.S.
Securities and Exchange Commission charges it violated the FCPA when its China-based subsidiaries engaged in paytoprescribe schemes to increase sales, according to the SEC.
Also in June, the U.S. District Court in Seattle refused to dismiss a putative securities fraud class action filed against Seattle-based Juno Therapeutics Inc. for allegedly “recklessly” failing to reveal patients were dying from the toxic side effects of its blood cancer drug in In re Juno Therapeutics Inc.
Pharmaceutical litigation has been particularly attractive to litigation funding, where third parties such as investment funds finance funds lawsuits rather than using the more common contingency-based agreements.
Jim Batson, investment manager and legal counsel for New York-based Bentham IMF, a litigation funding firm that focuses on commercial disputes, said it is important for litigation funding firms that “the defendant companies are able to satisfy” any judgments, and pharmaceutical firms “often fit that bill.”