Current Trends in Tort Reform and Pharmaceuticals Manufacturers’ Liability: Michigan’s Combination Product Exception

Pharmaceuticals Litigation Overview

Pharmaceuticals litigation is usually expensive, lengthy, and sensitive. Over the past thirteen years, pharmaceutical companies have paid billions of dollars to settle U.S. federal lawsuits alone. In particular, litigation under products liability doctrine have accounted for the majority of settlements per dollar from January 2009 to May 2011, totaling $8.6 billion. Although many of these cases were brought by enforcement agencies such as the Department of Justice, class action lawsuits are increasingly common. These class actions often receive wide media attention and thus damage a pharmaceutical company’s goodwill. For example, in June 2010, GlaxoSmithKline (GSK) paid $2.36 billion to resolve 10,000 cases in class action lawsuits over Avandia, a treatment for type 2 diabetes, when GSK had just, in December 2009, paid $1 billion to settle a class action over Paxil, a treatment for depression. These settlements are not necessarily motivated by the underlying merits but rather by a commercial interest in limiting litigation expenses and preserving reputation in an industry especially sensitive to reputational risk arising from product side effects.

 

The FDA & Tort Reform

Regarding drug safety, the FDA, with its array of new drug approval processes, is the main regulator of pharmaceuticals manufacturers. States’ tort systems, however, is another important source of regulation, with e.g., state statutes crafting the various claims available to plaintiffs and limits to those claims. Although in the 1990s the FDA saw itself as complementing state tort regulation of pharmaceutical products, the FDA has increasingly taken a leading role. Against a backdrop of debate about whether FDA approval of pharmaceutical products should preempt state law, a wave of tort reform in the early through mid-2000s limiting pharmaceutical liability among the various states has yielded to the FDA’s arguments that the states should not second-guess the FDA’s expertise.

The goal of tort reform is to limit parities injured by pharmaceutical products from bringing civil lawsuits against pharmaceuticals manufacturers. Whereas, previously, plaintiffs may have had leverage in pushing pharmaceuticals manufacturers to settle out of court, tort reform statutes have raised a rebuttable presumption against certain claims, thereby often keeping these claims out of court in the first place. Three states illustrate the effects of these tort reform statutes: Texas, South Carolina, and Michigan.

Texas’s tort reform statute, enacted in 2003, protects manufactures from expensive and possibly meritless claims in Texas’s courts. For example, Tex. Civ. Prac. & Rem. Code § 82.007(a) establishes a rebuttable presumption in products liability cases that pharmaceutical companies are not liable for failure-to-warn claims when the FDA has approved the warnings in the package inserts under sections 82.007(a)(1) and (a)(2). Moreover, the statute specifies, in sections 82.007(b)(1)-(5), the only ways that a plaintiff may rebut that presumption, including the fraud-on-the-FDA exception in 82.007(b)(1). Recent litigation in 2014 seeking to challenge this statutory immunity from failure-to-warn claims has been unsuccessful. These statutes, therefore, have practically eliminated failure-to-warn claims against pharmaceuticals manufacturers from Texas.

Spartanburg County, South Carolina, in contrast, is home to many contingency-fee lawyers hired by South Carolina Attorneys General to use their home state’s plaintiff-friendly courts to sue pharmaceuticals manufacturers. In fact, Spartanburg is among the jurisdictions that the American Tort Reform Foundation calls “Judicial Hellhole[s].” For example, 2011 was a record year for assessing penalties against pharmaceuticals manufactures as the county assessed a $327 million penalty against Johnson & Johnson subsidiary Janssen Pharmaceutica Inc.

 

Emerging Trends

Michigan, with its robust tort reform statute, such as Mich. Comp. Laws § 600.2946(5), has also rarely seen pharmaceuticals litigation, until recently. In a January 21, 2014 decision, the U.S. Court of Appeals for the Sixth Circuit in Miller v. Mylan Inc. (In re Estate of Kelly), 741 F.3d 674 (6th Cir. Mich. 2014) held that manufacturers and sellers of “combination products” are not statutorily immune from liability under Michigan’s tort reform statute. A March petition for rehearing en banc was denied in Miller v. Mylan Inc., 2014 U.S. App. LEXIS 4884 (6th Cir. Mar. 13, 2014). Thus, this is the first time that Michigan’s courts have allowed for pharmaceuticals manufacturer’s liability in almost 20 years.

Thus, an important question is: what is a “combination product?” 21 C.F.R. § 3.2 in (e)(1) defines “combination product” as including “[a] product comprised of two or more regulated components, i.e., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity.“ Moreover, (e)(2) defines a “combination product” as including “[t]wo or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products.” Given these broad definitions, Michigan’s ruling could arm any plaintiff in a case involving a product with a mechanical component such as any “[p]refilled syringes, insulin injector pens, metered dose inhalers, [and] transdermal patches” with a colorable claim by qualifying under Michigan’s “combination product” as defined under (e)(1) or any “[d]rug or biological product packaged with a delivery device” as defined under (e)(2). In fact, these definitions cover a large swathe of emerging pharmaceutical products.

 

Impact on Industry and Access to Healthcare

The products liability risk that Mylan presents is likely to impact pharmaceuticals manufacturers’ research and development (R&D) pipelines just as R&D has begun to recover from a decades-long slump. Combination products are a source of innovation in the industry, are in many large pharmaceutical companies’ portfolios, and are especially important to smaller pharmaceutical companies producing smaller portfolios of products and relying heavily on those fewer products for growth. R&D in the pharmaceuticals industry is a grueling, discouraging, and expensive process. The industry often illustrates the R&D process as a pipeline in which typically tens of thousands of compounds during an initial drug discovery phase lasting three to six years funnel down into an average of six compounds chosen for six to seven years of clinical trials. This process leads to only one FDA-approved medicine. Thus, very few researchers ever experience the glory of discovering an FDA-approved medicine.

Within this R&D pipeline, combination products, which combine mature technologies in biotech, nanotech, and medicine, are driving development of blockbuster drugs in the industry. Specifically, these combination products treat cardiovascular diseases since about 90% of this market is related to cardiovascular medicine. According to Nature, the areas that have potential for growth in the next ten areas include “tissue engineering, microelectrical mechanical systems, biomaterials, gene and protein delivery, targeted medicine, drug-device combinations and high-throughput technologies.” These are exciting areas for growth that may face increased risk of liability under Mylan.

Mylan may be especially problematic because these combination products already face higher development and manufacturing costs than do conventional molecular or biologic pharmaceutical products. Thus, increased risk of liability may deter manufacturers, especially smaller manufacturers, from pursuing innovation in the first place. These smaller manufactures, however, are likely the industry players most likely to innovate. The Mylan court might be drawing a distinction between traditional products and cutting-edge pharmaceutical products and seeking to impose greater state oversight on these potentially riskier combination products. We are likely to see a return to the debate as to whether the states should defer to the FDA’s expertise in regulating combination products or whether the state courts play a vital role in monitoring the effects of the FDA’s decisions as patients use these combination products in those states.

At the end of the day, the case law is still limited and this is still an isolated case in Michigan, but since many states followed Michigan’s statute in drafting their own tort reform statutes on pharmaceuticals manufacturers’ liability, those states may follow Michigan again. Although Michigan’s Supreme Court has final say when interpreting Michigan’s statutes, the Sixth Circuit’s holding has not been successfully challenged. If other states do react, then increased legal risk will likely deter pharmaceutical companies from pursuing innovative combination products that may have benefited patients who had no other viable treatments. Moreover, as legal risk grows, medical malpractice and health insurance premiums are likely to rise in response, thereby limiting access to healthcare.

 

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