From Wyeth ( WYE) and diet drugs, to Merck ( MRK) and Vioxx to Eli Lilly ( LLY) and Zyprexa, companies are forced to make careful calculations about mass product-liability lawsuits. No easy answers exist. Wyeth, or example, has set aside some $21.1 billion reserves, and paid nearly $19 billion, in diet-drug litigation and settlements. But the company continues to wrestle with another legal dilemma with the drugs Premarin, Prempro and Premphase. Plaintiffs' lawyers have filed approximately 5,400 lawsuits alleging that these hormone therapy drugs have caused breast cancer, strokes, ovarian cancer and heart disease. The lawsuits started after a large federal study warned in mid-2002 about the risks of invasive breast cancer in women taking the hormones estrogen and progestin. Prempro and Premphase contain both, while Premarin contains estrogen. Designed to assess if hormone therapy could prevent heart disease in healthy postmenopausal women, the National Institutes of Health-financed study concluded that this treatment "is unlikely to benefit the heart. The cardiovascular and cancer risks of estrogen plus progestin outweigh any benefits." The study didn't address short-term risks and benefits of hormones in treating symptoms of menopause. The Food and Drug Administration tells doctors and patients to weigh the risks, adding that hormone replacement "is the most effective FDA approved medicine for relief" of menopausal symptoms. This treatment should given at "the lowest dose that helps and for the shortest time," the FDA says. Wyeth's drugs are approved for treating menopausal symptoms, but they contain several black box warnings, the FDA's strongest alert. Because the Premarin family of drugs remains on the market, lawsuits against Wyeth are different than cases where companies removed their products, such as the pain reliever Vioxx or Wyeth's diet pills Pondimin and Redux.
"Wyeth must fight a two-front battle," says Elizabeth Chamblee Burch, assistant professor of law at the Florida State University College of Law. "On the one hand, it will worry about a never-ending litigation stream and have difficulty quantifying the risks. On the other hand, it will try to protect the Premarin and Prempro names." In the case of Lilly's schizophrenia drug Zyprexa, which also remains on the market, the drug's maker settled with most of the 31,300 claimants, paying $1.2 billion, and says it will fight claims by other plaintiffs, according to a recent filing with the Securities and Exchange Commission. Hormone-therapy plaintiffs could have a tougher time winning based on alleged side effects. Zyprexa plaintiffs claimed the drug caused or contributed to higher blood sugar or diabetes. Diet-drug plaintiffs alleged rare side effects such as heart-valve damage or dangerously high blood pressure in arteries of the lungs. In the hormone-therapy cases, claims involve illnesses that Wyeth's attorneys can try to attribute to many causes. "A longer latency period
for cancer makes proving causation more difficult since there is an opportunity for additional intervening factors," says Burch. "There are so many different causes for breast cancer," says Thomas Metzloff, professor of law at the Duke University School of Law. "The legal system wants something where causation is clear." The most successful plaintiffs' lawsuits, he says, involve "a signature illness" such as the diseases linked to Wyeth's diet drugs or the lung-cancer mesothelioma, which has been tied to asbestos exposure.
Wyeth says little about hormone-replacement therapy litigation, except to give a tally of trial results and lawsuit filings in its quarterly reports to the SEC. By March 31, Wyeth was defending approximately 5,400 lawsuits affecting 7,900 plaintiffs. Wyeth said it doesn't have a litigation reserve because it cannot estimate the potential liability or know for sure if there is a liability. Merrill Lynch analyst David Risinger recently told clients that Wyeth hasn't set aside a reserve because its $350 million insurance policy for the drugs hasn't been exhausted. "When the company has run through that insurance, it will need to expense defense costs," he said in a June 23 report. Risinger, who has a buy rating, doesn't own shares. His firm says it expects to receive or seek investment-banking compensation from Wyeth in the near future. Wyeth has won 22 of 27 cases thus far by jury verdict, summary judgment or voluntary dismissal by plaintiffs, according its latest SEC filing. All cases involved breast-cancer claims. Of the five losses, two cases were settled and two are being appealed. In one case, a judge ordered a new trial. Legal experts say an early victories by companies in product-liability suits discourage plaintiffs from filing weak cases while encouraging settlements. Merck is the prime exhibit for this strategy. Its fight-every-Vioxx-case approach and its ability to win more than it lost in early rounds led to a November agreement to settle most of the U.S. cases. Merck is paying $4.85 billion into a special fund, and it said it would contest other cases in court.
The settlement was a bargain on Wall Street. Many analysts feared Merck could have lost $10 billion to $20 billion. "Arguably, the strategy has paid off for Merck," says Darren McKinney, a spokesman for the American Tort Reform Association. "Tort reformers, generally, would like to see defendants fight all the way to verdict as a means of discouraging abusive and frivolous litigation in the future." The Premarin family was once Wyeth's biggest seller, peaking at $2.1 billion in 2001. By 2004, sales dropped to $880 million, but they have climbed back to $1.06 billion last year. Sales skidded after the federal research report was released in 2002 when early results showed increased risks of breast cancer. A follow-up study, published this year, said the risk of breast cancer could remain elevated "even years after stopping therapy." Wyeth said the follow-up report didn't detract from "the appropriate use" of hormone therapy. Wyeth said researchers "selectively" released information "without providing the full context of the data assessed." Wall Street analysts rarely mention these drugs in their recent reviews, most likely due to Wyeth's string of court victories, an uncertain legal climate and the fact that the company has many moving parts affecting its future results. Some moving parts are experimental alternatives to the Premarin family. "Perhaps more than any other major pharma organization, Wyeth's pipeline has been significantly impacted by an increasingly conservative FDA," says a June 23 report by Chris Schott of JPMorgan. Schott, who doesn't own shares, has a neutral rating. His firm has had a recent investment banking relationship.
"In 2007 alone, Wyeth experienced setbacks with Pristiq, Viviant, Aprela and bifeprunox that reduced or erased the commercial prospects of these assets," Schott explains. The FDA rejected bifeprunox for schizophrenia in August 2007. In July 2007, the FDA granted conditional approval for Pristiq, a non-hormonal treatment for menopausal symptoms. To gain final approval, Wyeth must conduct a clinical trial to assess potential heart and liver side effects. The trial is expected to take 18 months. In February 2008, the FDA approved Pristiq as a treatment for depression in adults. In May, the FDA granted conditional approval for Viviant to treat postmenopausal osteoporosis. In December 2007, the FDA gave tentative clearance for Viviant to prevent the disease. Final approval for both uses depends on Wyeth's answering the FDA's questions about risks of stroke and blood clots in leg veins, expected by year-end. Schott figures the FDA will act by mid-2009. Viviant could come to market in 2010, but Schott says Aprela has greater revenue potential. Aprela, which is still in late-stage clinical trials, combines Premarin and Viviant. Clearly, if the FDA rejects or restricts Viviant, potential sales of Aprela will be affected. Wyeth expects to seek FDA approval for Aprela in the middle of next year.