In a number of recent cases, the Supreme Court has taken on the pharmaceutical industry, resulting in decisions with important implications for plaintiffs, drug manufacturers, and Americans who purchase pharmaceutical drugs.

On February 22, the Court held in Bruesewitz et al. v. Wyeth Inc. that the National Childhood Vaccine Injury Act of 1986, which created a no-fault compensation trust fund for unavoidable injuries resulting from vaccines, preempts all design defect claims against vaccine producers.

Although plaintiffs’ attorneys and advocates criticize the decision, injured plaintiffs can still receive compensation through the trust, which is funded by taxes on each vaccine dose. Pharmaceutical companies can now avoid costly litigation and often exorbitant jury verdict awards, which created an unstable vaccine market in recent decades. The victory, although significant for manufacturers who research and develop vaccines, still does not compensate for the Court’s 2009 decision in Wyeth v. Levine, in which it held that federal law does not preempt state law failure-to-warn claims against brand-name manufacturers. pills

On March 22, the Court decided Matrixx Initiatives, Inc. v. Siracusano, a case which opens up pharmaceutical companies to potentially vast liability under federal securities laws for failure to disclose adverse event reports (AERs). The unanimous Court rejected the bright-line rule urged by the drugmaker that statistically insignificant AERs are not material disclosures, and declared instead that “[a] lack of statistically significant data does not mean that medical experts have no reliable basis for inferring a causal link between a drug and adverse events.” In this case, the Court added, a reasonable investor would have considered these reports material. The Court, however, vaguely warned that “something more” than just the existence of AERs is required to determine whether a disclosure is material, but gave no guidance beyond the fact that “something more is not limited to statistical significance and can come from the source, content, and context of the reports.”

The decision will result in a number of negative consequences. It leaves open questions of what “something more” entails and when a manufacturer may be held liable for failure to disclose, leading to more litigation and undeserved, but inevitable, settlement pressure under the threat of burdensome discovery in securities litigation. The decision also will likely result in either greater liability for drug companies—potentially based on nothing more than a jury’s concern about a particular possible side effect—or inundating investors with immaterial AERs.

Most recently, on March 30, the Court heard oral arguments in PLIVA, Inc. v. Mensing, a case similar to Levine, but this time involving failure-to-warn claims against generic manufacturers. Generic manufacturers occupy a unique position because generic labels must be identical to those of the brand-name drug, so a generic drug company cannot change warning labels unless the FDA has approved a brand-name label change. Given the similarities between Mensing and Levine, the Court focused on the ways in which manufacturers can make changes to generic labels.

While PLIVA admitted that generic companies must disclose a lot of drug information to the FDA, the manufacturer argued that those duties run between the FDA and the company, and not to third parties. While Justices Scalia and Alito, who dissented in Levine, appeared sympathetic to PLIVA’s arguments that complying with both federal and state laws would be impossible, and that such laws actually conflict, Justices Breyer, Sotomayor, and Kagan seemed least sympathetic to the company’s concerns.

Although the Court will not issue its decision for months, it will probably rule in one of three ways [PDF]. First, the Court might find no preemption and hold the generic manufacturers liable, thus raising the price of generic drugs for everyone.  Second, it could find the brand-name company, which created the initial label off which the generic label is based, liable, although it did not manufacture the ingested product. Finally, the Court could find preemption and determine that an injured plaintiff has no recourse in the judicial system, thereby leaving Congress to remedy the situation. Each option has significant policy and legal implications for some group—whether it be plaintiffs, drug manufacturers, or Americans who purchase pharmaceutical drugs. No matter how the Court decides, someone will lose, and it is not entirely clear that any group will really win.

Sarah Duncan

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