The global pharmaceutical companies with their deep pockets have been the target for damaging lawsuits and class actions. They've been accused of misleading labeling and the withholding of testing data of certain drugs, of failure to conduct adequate or appropriate clinical trials and exerting unethical pressure on intermediaries before and after the drugs were released to the public. These legal actions have resulted in billions of dollars being paid out to thousands of drug users, as well as millions to plaintiffs' lawyers.
The most current and prominent drug product liability lawsuit has been litigation involving Vioxx, the cox-2 inhibitor painkiller manufactured by Merck & Co. Following reports that the drug could cause heart attacks and strokes, it was pulled from the market in September 2004. In one of the latest trials, a New Jersey jury awarded $9 million in punitive damages to a man who said Vioxx caused his heart attack. This is the first punitive damage award in New Jersey since the punitive law was changed in 1995, and is in addition to $4.5 million in compensatory damages. The plaintiff's lawyers charged that Merck's withholding vital data was deliberately meant to harm.
In August 2005, Merck lost another trial in Texas that gave $253 million to the heirs of a man whose death was believed to be from taking Vioxx. Yet in July 2006, the drug company scored a victory when a jury found that the medication was not a major factor in the heart attack of a New Jersey woman.
At last count, Merck faces more than 13,000 Vioxx-related lawsuits. It has vowed to fight them one by one, and plans to appeal those it has lost. But Vioxx is just one of a host of drugs and medical devices that are being hauled into court for causing harm rather than good.
PRODUCT LIABILITY VACUUM
The upsurge of lawsuits against the chief pharmaceutical companies has produced almost a vacuum of available product liability insurance for them.
Starting in the late 1990s, the entire life-sciences products liability market changed dramatically. Self-insured retentions climbed significantly--especially for the major pharmaceutical companies where upward of $500 million or more for these retentions is not uncommon.
In addition, insurers and reinsurers now start their negotiations with a long list of products they intend to exclude--everything from individual "problem" drugs such as FenPhen and Vioxx, to broad categories of drugs such as "Hormone Replacement Therapies" and "All Weight Management Drugs."
On top of all this, market prices for product liability coverage can be as high as 10 percent to 20 percent of a limit, according to Jim Walters, national managing director of Aon's life sciences and chemical group.
"And available capacity has dropped from over $1 billion to as low as $200 million to $300 million," he says. "All this has led the larger pharmaceutical companies to question the value of the insurance product and, in many cases, they have stopped buying conventional risk transfer."
As a result of heightened product liability litigation, some insurers have exited the life-sciences market, others have raised rates and reduced limits, and some have intensified the underwriting evaluations or adopted a combination of these various measures, according to Jill Wadlund, vice president, Chubb & Son, and casualty manager of life sciences, Chubb Commercial Insurance.
"The largest pharmaceutical companies have seen the most dramatic changes in cost and availability," she says. "Many cannot find the limits previously available, and the cost and retentions are significantly higher. Some have chosen self-insurance."
"Prudent insurers need to work very hard in the evaluation process," she continues. "Maintain disciplined pricing and work closely with insureds to enhance their risk management efforts by providing insight from lessons learned in litigation."
Letha Heaton, senior vice president, Markel Corp., says, "Interestingly enough, product liability insurance is one of our fastest growth areas both in premium and number of policies. Granted, Markel is a very small player. We work with mid to small pharmaceutical companies that don't have FDA approval yet for a new drug. We do look at all the quality control and clinical tests, examine their financial position to determine if they can assume the risk of developing a new drug.
"They have to have product liability before they can begin development and research for a unique product," she says. "This insurance provides protection through a whole chain of events right through to its introduction in the market, and beyond."
Heaton adds that Markel provides a policy on a claims-made form. "Claims-made is becoming more popular with high-risk-factor products," she says, "not just drugs."
MORE DRUGS WITHDRAWN
The major reason for this product liability disaster is the increase in the much-publicized drug withdrawals and the resulting litigation. Between 1977 and 1997, there were just nine products withdrawn from the market, according to Aon Risk Services. From 1997 to 2005, only nine years, the number jumped to 15. Experts point to many factors causing this explosion in drug litigation that results from harmful reactions to certain drugs. Among the factors responsible for this unfavorable environment are the direct-to-consumer advertising and other sales efforts. They mean bigger launches and less "ramp-up time" to identify and warn about potential problems. "When I worked for a pharmaceutical company," Heaton says, "you couldn't do general product advertising. You could only promote your drug with the medical profession, and they were the ones who decided which drugs would best benefit their patients. Now millions of us are entertained nightly with ads for drugs that we may think we need and ask our doctors for, demand they give them to us."
Having doctors be intermediaries between the drug companies and patients, some experts believe, puts too great a burden on doctors, and it results in drugs being prescribed that result in harmful contraindications.
"The fact is that doctors are not chemists, they are biologists," says Heaton, "and the whole business of interaction of drugs is not something they know very well. The doctors are really going to have to become educated about what drugs clients are taking."
Another factor is the Food and Drug Administration's faster drug approval. In defense, the FDA says it takes action quickly when problems are identified once the drug is on the market.
Bringing a new drug to market still requires the expenditure of enormous amounts of capital, years of testing and clinical trails, and proceeding step by step through the arduous approval process required by the FDA until the product is allowed to be sold to the public. But even though the approval process is designed to identify all possible harmful side effects from a new drug, obviously not all negative reactions from the drug are found before it is put on the market. Statistically, with more people taking a specific drug than ever before, the chances of more users having a bad reaction to that drug increase exponentially, Aon's Walters says.
"Considering the countless permutations of possible drug interactions," he says, "it is almost impossible for a pharmaceutical company introducing a new product to test for all those combinations and permutations prior to launch. A drug could never become available to treat an illness if clinical trials to isolate and examine for all the potential drug interactions had to be performed." He says that possibly the only realistic way to diminish injurious side effects from a drug is for manufacturers to spot trends "when the product is in the marketplace and to react promptly to examine and deal with those trends."
Todd Gattoni, partner in the products liability practice group at law firm Dykema, says there is no one-size miracle drug that provides a 100 percent benefit without complications of some sort on someone at some time.
Because the cost of developing and marketing a discrete drug is so high, the pharmaceutical companies are very keen to have the FDA approve it quickly.
"I do not think drugs are approved too quickly," says Wadlund. "Clinical trials will not catch all possible side effects as a general rule. What is critical is the ongoing surveillance once the product is approved to allow for quick action, if necessary."
"The goals of pharmaceutical companies should be to meet not just the technical aspects of the regulations," Wadlund continues, "but the spirit and intent of the regulations. Companies need to have a realistic view of the litigation environment and physician and patient behaviors."
Heaton of Markel expects there will be continued pressure to get a drug more quickly to the global market. "Twenty years ago it would take four to five years to get a new drug approved by the FDA," she says. "Now that is down to two years. The FDA approval process has been compromised to get certain drugs out on the market quickly. The demand is so high and the benefit so great that delaying approval can cost lives."
The current administration, Walters says, has taken the position in a few cases that once the FDA approves a drug, the manufacturer should not be held liable for a resulting problem. "That position has not been upheld to my knowledge, but I applaud the position. There is precedent for government intervention in the pharmaceutical industry. In 1986, the federal government, fearing a public health crisis, instituted what is known as the Vaccine Injury Compensation Program, or VICP. The law created a no-fault- type system, whereby a patient who received one of the vaccines on its list and experienced one or more of the common side effects or injuries is forced to first go to the VICP for compensation.
"If the award is unsatisfactory," Walters adds, "the patient still has the option to reject the settlement and sue the manufacturer. Since the time it was instituted in 1988, the incident of suits filed against vaccine manufacturers has dropped dramatically, and injured patients are receiving appropriate compensation, much faster than they would have through normal legal channels."
NEW FOCUS OF LAWSUITS
While the extremely well-funded and organized plaintiffs' bar continues its concentrated attack on pharmaceutical companies, Gattoni at Dykema says one of the things that is really cutting-edge with class-action litigation is an emerging trend of importing foreign class actions to the United States. Instead of a class action being transferred from one state to another where the settlements have been more favorable to plaintiffs, he explains, "now we are seeing alliances between U.S. plaintiff trans-Atlantic firms and U.K. law firms."
"A case involving 20,000 heart devices in the European Union--instead of the case being filed in a foreign country, the law firms in Europe have formed alliances with U.S. attorneys," Gattoni says. "This is troublesome because they are avoiding less favorable laws in Europe that do not allow punitive damages, and selecting to proceed in a small county court house in Minnesota. Motions are being heard now as to whether the case should be sent back to a European court."
Walters sums up the concerns surrounding these mammoth settlements against pharmaceutical companies: "Our biggest fear is that the lack of appropriate and sufficient risk transfer will contribute to the stifling of innovation in the industry," he says, "a result that would clearly be detrimental to us all."
RONALD GIFT MULLINS
lives in New York City.
September 1, 2006
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