Drug Makers: New Targets of Class-Action Lawsuits


Class-action lawyers, many of them veterans of the tobacco wars, have set their sights on a lucrative new target: the pharmaceutical industry.

Drug makers in recent weeks have been hit with lawsuits accusing them of blocking cheaper generic versions of lifesaving medications. The suits assert that drug makers used loopholes in the law to stymie competition and unfairly inflate prices of drugs used to treat cancer, heart conditions and other serious maladies.

Working in tandem with plaintiffs' attorneys are activist state attorneys general, a combination that helped extract billions of dollars in settlements from cigarette makers. So far, government lawyers have announced one lawsuit, but say other filings are likely.

For plaintiffs' lawyers, the potential payoff won't approach the $246 billion Big Tobacco agreed to fork over in 1997 and 1998 to settle a raft of suits. But it is large. Thomas Sobol, co-lead attorney for one consumer coalition, predicted plaintiffs would reap "hundreds of millions" of dollars. Add to that millions more that attorneys general are likely to seek in reimbursement for state Medicaid programs.

The potential bonanza has produced unusual alliances, uniting consumer organizations and their longtime adversaries, health insurers, against a business that is fast becoming the health care industry's new Public Enemy No. 1. Drug wholesalers and such retail chains as Eckerd drugstores and Albertson's supermarkets have filed suits.

"They've learned from tobacco," said UC Hastings School of Law professor Marsha Cohen, noting the tobacco industry's tab shot up because states joined the fray. "As more parties join the suit, the more expensive it is to fight it."

Analysts believe the pharmaceutical business can withstand the legal onslaught. It is a hugely successful global industry with vast economic resources. But in painting the industry as manipulative and greedy, the suits are fueling demand for reforms with a deeper impact on drug makers.

At least 17 states, including California, have passed or are considering laws that would mandate lower prices for Medicare recipients. A Vermont law lost a legal challenge Friday, but similar legislation in Maine prevailed in court.

Beyond that, Congress is weighing legislation that would close loopholes in a 1984 law known as Hatch-Waxman. Many of the recent plaintiffs' suits claim pharmaceutical firms abused provisions of the law to extend their patents and prevent competition.

The industry has responded to the assault with a lobbying and public relations effort that includes TV ads touting the industry as a producer of vital medicines. It maintains price regulation is unwarranted.

The Pharmaceutical Research and Manufacturers of America said overall drug prices rose 3.9% last year. Spending was up by 14.9%, the industry said, because Americans are using more medications that, while costly, help them avoid expensive hospital stays. It argues that, while spending is up, prescription drugs account for only 8% of health care expenditures. That figure is up from 5.5% a decade ago.

Such arguments aren't likely to help drug makers win over juries. At trial, scientific wonders likely will take a back seat to purported misdeeds of pharmaceutical firms, law professor Cohen said. Pharmaceutical economics and the finer points of patent law are difficult to grasp, she said, while alleged rip-offs are not.

To be sure, there is no assurance that any of the cases will be accepted as class actions, a process that could take years. But after witnessing the travails of the tobacco industry, drug makers "should take the suits seriously," Cohen said.

The latest salvo in the drug wars came this week, as 29 consumer groups accused Schering-Plough and two other drug makers in court of conspiring to prop up the price of potassium supplement K-Dur20. The companies denied the allegations, which previously surfaced in a Federal Trade Commission complaint lodged against them.

Schering-Plough said it would fight the FTC charges and class-action lawsuits. Schering-Plough spokesman William O'Donnell said the pacts were legal and actually facilitated the launch of generic versions of K-Dur20 before Schering-Plough's patent expires in 2006.

The consumer organizations are part of a Boston-based coalition called the Prescription Action Litigation Project (PAL), which has filed two other drug-pricing suits. Two law firms representing the coalition shared in the $637.5 million in fees awarded nine firms that participated in the California tobacco cases.

They are San Francisco-based Lieff, Cabraser, Heimann & Bernstein, which represented 21 California cities and counties; and New York-based Milberg, Weiss, Bershad, Hynes & Lerach, lead counsel in Cordova vs. Liggett, a major private case. A third firm representing the coalition, St. Louis-based Carey & Danis, is a Milberg, Weiss spinoff.

Racing them to court is a second consumer coalition known as Stop Patient Abuse Now, or SPAN. It is represented by Washington-based Cohen, Milstein, Housfeld & Toll, which sat out the tobacco wars but participated in such high-profile cases as 1997's $176.1-million sex discrimination settlement from Texaco.

The 35-member SPAN group is suing Bristol-Myers Squibb for allegedly manipulating the price of anti-anxiety medication BuSpar. The PAL group has filed suits making similar allegations, which Bristol-Myers said it will fight.

The two consumer camps maintain they aren't rivals. But they are pursuing different strategies that could trigger a showdown between attorneys.

PAL's attorneys primarily are filing their suits in state courts that allow triple damages in so-called indirect payer litigation. California is among the states that do so. Consumers fall into that category because they do not buy drugs directly from manufacturers.

SPAN is using federal court, where antitrust laws also allow triple damage claims. Lieff, Cabraser attorney Eric Fastiff contends that state courts treat consumer cases more favorably than federal courts. But Daniel Small of Cohen, Milstein maintains SPAN's case is solid.

His strategy is a bet that BuSpar cases, including PAL's, will be consolidated for pretrial purposes in federal court. A transfer to Washington, where Cohen, Milstein has two BuSpar cases filed--the second on behalf of a health insurer--could give the local firm an edge.

The stakes are huge. Class-action lawyers typically shoulder the costs of suits and, if victorious, may get as much as a third of any award. A lead attorney garners a larger chunk of prestige--and fees.

But consumer organizations represent only one front in the multi-pronged legal assault on the pharmaceutical industry. Companies at every point in the distribution chain are taking aim at drug makers. Suits filed over the blood pressure medication Cardizem CD offer clues as to how the drug wars will shape up.

Those suits allege that Aventis SA and Andrx conspired to block introduction of a low-cost generic, allegations each drug maker denies. Plaintiffs include health insurers Aetna and Blue Cross of Wisconsin, Albertson's and distributors Bergen Brunswig and McKesson.

The cases, filed in courts around the country, are being consolidated for pretrial purposes in federal court in Detroit. Attorneys general in 14 states, including California, also have fielded suits, seeking damages of $100 million.

Class-action attorneys privately acknowledge that FTC investigations have provided fodder for litigation. Besides K-Dur20, the FTC investigated pricing of Cardizem CD and the hypertension drug Hytrin, also a subject of private suits. Cases involving Hytrin and Cardizem CD have been settled, and no drug maker admitted wrongdoing. The agency recently announced additional investigations involving as many as 30 brand-name drug makers and 60 generic firms, likely grist for civil complaints.

But plaintiffs' attorneys maintain they've also done their own digging. Sobol, a partner with Lieff, Cabraser, said his client, PAL, is preparing to file as many as half a dozen suits based on its research. That should give his clients a leg up in the litigation frenzy to come.

"It is now just a free-for-all. No one is unwilling to fire the next volley," said Michael E. Criden of Hanzman Criden Chaykin & Rollnick, which, along with Cohen, Milstein, represents HIP Health Plan of Florida in drug-pricing suits. "You are going to see a flood of actions."

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