(Reuters) – A negative ruling in a fateful U.S. regulatory vote on Wednesday over GlaxoSmithKline Plc’s Avandia diabetes drug could spark a new wave of litigation and spell more difficulty for the company in court.
A U.S. Food and Drug Administration advisory panel weighing evidence of heart risks with Avandia will recommend whether the drug should be removed from the market, one of five options that include restricting its use or keeping the drug on the market without a heart-attack warning.
Safety concerns over heart risks have engulfed Avandia since 2007, leading to a steep sales decline for the company’s one-time second-biggest-selling drug and precipitating a flood of lawsuits.
Glaxo appears to be trying to move past the litigation. Bloomberg News, citing unnamed sources, reported on Tuesday that Glaxo has agreed to pay about $460 million to resolve about 10,000 of an estimated 13,000 lawsuits. A company spokeswoman declined to comment on the report.
The amount tallies with estimates from some Wall Street analysts that the company will ultimately pay less than $1 billion related to the litigation and that it is already adequately reserved.
But a vote by the FDA advisers to pull the drug could raise new problems, including possibly another rash of lawsuits against the company, plaintiffs attorneys say. Such an event could restart the clock that began ticking in 2007 that would allow more Avandia users to sue the company.
“It could open up a whole host of other potential claims because it could be a new triggering of statute of limitations,” said Joe Osborne, a Florida-based attorney whose firm represents more than 100 Avandia plaintiffs.
While some potential plaintiffs may have previously been reluctant to sue, some may be “encouraged now to do it if the FDA sort of confirms this is a bad drug and they’re not just reading lawyer ads,” said Michael Williams, an Oregon-based attorney who represented plaintiffs in litigation over the fen-phen diet pill combination.
Removal of Avandia also could build momentum in the courts against Glaxo.
“If the FDA is taking the drug off the market, the judges are going to think the plaintiffs’ claims are probably meritorious,” Williams said. “It is sort of a change in attitude for the judiciary.”
Further, said Osborne, “it significantly hampers GSK’s defense about the safety profile of the drug if they now can no longer claim it’s on the market.”
Glaxo also this week was hit with other potentially damaging disclosures about Avandia. U.S. lawmakers released internal company documents that they said show Glaxo sought to downplay scientific findings that raised questions about Avandia’s safety as far back as 2000, shortly after the drug was approved. Glaxo said the documents were being taken out of context.
“I think they’re going to be in for a very difficult time,” said Barry Knopf, a New Jersey attorney whose firm represented plaintiffs against Merck & Co over the withdrawn Vioxx painkiller.
“If anyone goes out and hides information which they are required to reveal that certainly opens them up for punitive damages,” Knopf said. “That can be significant.”
The litigation has drawn parallels to that faced by Merck over Vioxx, which Merck removed from the market in 2004. Both drugs were multibillion-dollar sellers that studies showed increased the risk of heart attacks.
Merck took an aggressive legal strategy, maintaining from the day of the Vioxx withdrawal it would fight on a case-by-case basis.
Merck won most of the cases that went to trial, which provided leverage when in 2007 the drugmaker entered into a $4.85 billion agreement to resolve most personal injury claims, far less than some initial estimates.
Glaxo, which has been more reticent to discuss its strategy, appears to be taking a different approach. It said in June it settled the first Avandia case that had been set to go to trial in state court in Philadelphia for an undisclosed amount.
That confirmation by Glaxo followed reports by plaintiff lawyers last month that about 700 cases had been settled for around $60 million. And this week emerged the report that Glaxo had settled more than half of the 13,000 cases the company is estimated by analysts to face.
The next state trial is expected to start in the fall, and the first federal trial is expected to start in Philadelphia in October.
In a statement to Reuters, Glaxo said it was “fully prepared to defend any litigation because we are confident that when courts and juries look at actual clinical data, the manner in which we communicated with the FDA and physicians, and our openness in posting studies on our website, the facts will support our position.”
Glaxo has set aside 2.3 billion pounds (about $3.5 billion) as of March 31 as an aggregate provision for legal and other disputes.
“We believe even in the worst-case scenario that if Avandia were to be withdrawn, Glaxo has probably made sufficient provisions for the settlements and legal costs that might arise,” RBS analyst Michael Leacock said.
While Vioxx was shown to double the risk of heart attack and stroke, evidence has indicated that Avandia might increase heart attacks by 30 percent or 40 percent, UBS analyst Gbola Amusa said. “Avandia may therefore have a fraction of the risk of Vioxx based on the scientific data put forward,” Amusa said.
Amusa, speaking before the report of the latest settlement, said the stock has underperformed by more than $6 billion based on expectations for the liability.
“This is a buying opportunity because it looks like the liability could be less than $1 billion,” Amusa said.
(Reporting by Lewis Krauskopf; Additional reporting by Susan Heavey in Washington, Ben Hirschler in London and Jonathan Stempel in New York; Editing by Richard Chang)