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Folks - This is not a news item but a chance to think together about issues of shared concern.
The following are often asserted by defenders of preemption:
1. Litigation stifles new drug development.
2. Litigation raises drug costs.
3. Litigation leads to danger "over-warning."
We have already heard from some FDA senior people that the last claim does not appear supported by the evidence. But let me ask you about the first two:
1. How would you design a study - what could and would you look at - to prove or disprove either proposition 1 or 2? Obviously, defendig lawsuits cost money. But that cost could impact a lot of different things.
How would we know, how _could_ we know, whether that cost impacted new drug development or drug costs? It would be nice to go from articles of faith and talking points - on all sides - to something resembling evidence.
Thanks for your good thoughts!
Thursday, January 15, 2009
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Bravo Justice in Michigan!
ReplyDeleteA seminal question in the quest for greater understanding!
As I don't have a good answer, I must wait for someone to shed light on the subject. I hope someone is out there.
Thanks, David. As is clear, my computer is "n-challenged"..., but I hope it was clear enough.
ReplyDeleteIn thinking about this, we should also keep in mind the possibility that litigation _helps_ new drug development by weeding out, in advance, drugs that would ultimately not succeed for safety reasons. In the overall, that would also make for more efficient use of resources.
But I am really interested in what a study would look like that could even begin to answer such questions. Would we have to have the minutes of whatever groups make development decisions and see how much potential litigation figured into their thinking? And, if so, would it be clear that the outcome was negative, positive, or something else? Or is there "external data" that would at least provide a hint.
For example, do countries with little or no such litigation do better with new drug development and innovation than the U.S.? Is there more "risk-taking" with good results?
Re: above, of course, I understand the market is international, with U.S. providing the lion's share of "consumers." Still, it litigation has a "chilling" effect on innovation, one might expect it to be _initially_ at least a bit less "chilly" in low-litigation environments.
ReplyDeleteLooking at number 2, off the top of my head...I suspect companies build litigation costs into the cost of the drug or device, but the negative press that a major class action suit brings is what they fear the most...unless, any publicity is good publicity. Even a lawsuit brings the company's name into the public's view. Given that fact, one would probably have to look at the company's overall profit and their pricing of all of their products (up, down or stay the same) following a major lawsuit. If their profits increase or stay the same, with no change in pricing, it may indicate that the lawsuit had no affect on the cost of the drug or device. Conversely, if the the company's pricing increased with little or no change in their profits, it would indicate that the price increase was necessary in order to compensate for money lost due to the lawsuit. It would be interesting to hear from someone in the pharma industry who could shed some light on this topic.
ReplyDeleteLaura, good idea but isn't the price determined by what the market will bear? So even if the company just wanted to make up for the money it lost it could or if the company had already anticipated some extra loss due to a suit it could keep the price the same or to bolster lagging sales it could reduce the price to increase volume.
ReplyDeleteI don't know, an economist would have to explain this one.
I think what we're learning so far is that, going by the usual variables, the situation is too complicated to draw even tentative conclusions. To make such points, we need a more convincing and honed research design.
ReplyDeleteIt might be interesting to see what happens to Lilly's share price before and after the recent Zyprexa settlement. There will be many other factors impinging, but it may at least provide a hint. And how share price is or is not correlated either with innovation or drug pricing is a further complex matter.
As I recall, Pfizer/Warner Lambert shares continued to rise, the Neurontin scam and settlement having no impact. Of course, they also had Lipitor in their pocket.
As of this moment, Lilly is down about 30 cents and has followed the trend of today's market - up in the morning, falling in the afternoon. Lilly's small drop is less that the DJ average.
ReplyDeleteAll of which suggests that the Zyprexa settlement had no impact whatsover on share price, positive or negative.
About how litigation might stifle new drug development. Doubtful. And if it does then the drug companies are none too smart. There is surely a separate pot from which litigation is covered. New drugs sell for a huge amount and if the interest earned on some of that money is not able to cover the cost of it's failures then you can only blame poor management. New drugs are on the market for awhile before they are yanked (if they ever are) from the market. Sock a percentage of those dollars away in a high interest bearing account and assume it will have to be used for one product or another. Beyond that, they must have liability insurance.
ReplyDeleteDoes anyone really believe that a suit based on one drug is going to keep drug makers from developing the next blockbuster which would earn them many times what they lost in punitive damages? The trick is to strive for excellence.
Overwarning seems more an issue with FDA not evaluating medications thoroughly before they send them to the consumer. They are not doing the manufacturers or themselves any favors in approving drugs that should never make it to the public. It is not completely the fault of FDA if the industry feels it should get away without full disclosure to those responsible for shoving those applications through.
There is a bit of irony here. Drug makers do not want to be restricted but they also do not want to be held accountable when an unsafe product hits the scene.
Sick or damaged consumers are far less capable of footing the bill when their lives come crumbling down around them. This is the only industry I can think of that feels justified in running off or killing off their own consumers. Alas, in the end, people will have to stop medicating except under the most extreme circumstances. To continue to medicate under the current program means to volunteer to be used as study participants in post marketing. It is no secret that drug makers are not going to select people who may suffer ill effects during earlier clinical trials. Do they not want to know how their product will play in the bigger arena?
If they don't want to know then they cannot expect a pass when they harm innocent product users.
For what it's worth (so to speak), Lilly shares gained .58 today, about the same as the Dow.
ReplyDeleteOverall, my sense is that Lilly has faired about the same over the past six months as the Dow. So, when things were looking good, or not good, re: Zyprexa does not seem to have impacted share price, whatever else.
In any event, since preemptors take it as articles of faith that lawsuits (a) suppress new drug development and (b) raise the price of drugs, I am still hoping someone will suggest fa credible study design that would help us determine this one way or other.
Justice
ReplyDeleteThis is probably more a talking point but it's interesting to note that in a previous post titled "...DDL," Harpy attached a link regarding Medtronics improved Sprint Fidelis Defibrillator; apparently the failure rate for the Sprint Fidelis Leads is over 6% as opposed to a failure rate of 1.8% for the previous Sprint Quattro Medtronics product line.
Combine the fact that the Judge tossed the case because of the premption statutes for Class III medical Devices, with the January 16 Article, "Medical Device Safety "has cancer"" by Gardiner Harris and a compelling argument has already been established opposing preemption.
Just a thought.
JimK
Jim - Thanks. Of course, I concur, but I would like to see how whether what are essentially empirical questions could actually be investigated. Or have been, in any credible way.
ReplyDeleteBeyond that, one could raise what is essentially a philosophic/ethics question. Let's say we learned - somehow - that a few more people live longer in a world without lawsuits than in the world with them.
Would that utilitarian calculus justify withdrawing legal rights to those actually injured by a drug or device? Is it only about "the numbers," whatever they are.
To further the argument, one might posit that if all the people with very expensive terminal illness were just "put away," there would be more medical resources, and lower costs, for the rest of us. And, indeed, there would be more "human life days" in aggregate than in our current system. (All this being postulated).
So would that justify using the ice flow? Would we all vote for that?
Justice,
ReplyDeleteAgain, good questions, really good questions.
I like your question:
"Let's say we learned - somehow - that a few more people live longer in a world without lawsuits than in the world with them.
Would that utilitarian calculus justify withdrawing legal rights to those actually injured by a drug or device? Is it only about "the numbers," whatever they are."
I would answer this no, the numbers are important to know but it is more than numbers. Giving up our legal rights drastically changes the dynamics between the citizen and the wealthy powers of corporations.
But I would still like to know the answer to your original question - Will the elimination of product liability law suits help or hurt the health and well being of the public?
Someone has argued that the example of vaccine manufacturer preemption is justification for the preemption of all drug and device manufacturers. Is this a fair comparison?
Just re: vaccine preemption, this is often misrepresented. There is only limited preemption for a limited number of mandatory vaccines. Patients maintain the right to bring suit if they win their case before the fed board, but they believe the compensation offered is insufficient and/or for any other reason.
ReplyDeleteSo, entirely unlike preemption in the drug and device arena, the right to sue remains, and there is at least a system for some kind of compensation.
Regarding the case of "putting away" people with very expensive terminal illness in order to enlarge the overall medical care pot - and positing more people will live longer and happier lives as a result - some will argue that taking away the right to sue bears no resemblance to taking away the right to terminally ill people to continue to live, whatever the utilitarian calculus.
ReplyDeleteI would say to those people that they have not spoken with the people I have, in Michigan, who have gone without the right to hold companies accountable for thirteen years. Becoming "disposable" - "collateral damage" to someone else's project - is killing of a different kind. And many of those people do feel, in essence, that they have become "socially dead" - that is, that whatever happened to them simply does not matter. In short, they themselves simply do not matter.
I have met no one who cares about "the money." What people care about is the social recognition that something bad happened; that there should be the chance to have it fairly reviewed, regardless of outcome; that there should be at least that much acknowledgment and recourse.
Justice
ReplyDeleteYour original question asks how one would design a study to prove or disprove that litigation stifles new drug development.
In the subsequent reply to my post you raised the question that if was possible to demonstrate that a few people would benefit, absent the threat of litigation, would that justify the withdrawal of an individual's right to legal action. David responded to this post and wrote that he believed that the numbers should not justify the abrogation of individual rights.
I agree with David's answer but it did raise the following question:
1) When and where did the Right to Private Action against a manufacturer originate?
David’s reply presupposes the fact that there is an inherent right to pursue an individual tort case against a manufacturer for Strict Liability in negligence cases. A review of the area of individual tort claims shows that this was not always the case. During the 19th Century Tort Actions were limited in that only the direct purchaser of a product could bring a cause of action against the seller; this premise was based on the English Common Law established in 1842 by Winterbottom v Wright; in Winterbottom the Plaintiff was injured due to a faulty repair on a Coach owned and operated by the Postmaster General. The Court ruled that since the Mr. Winterbottom did dot directly purchase the services from the repair contractor he did not have any standing to sue. He also could not sue the Postmaster General because of Sovereign Immunity. A return to the Winterbottom Doctrine would remove the Pharmaceutical Industry from direct liability and pass it along to the pharmacists whose defense would be that they did basically nothing wrong and are therefore exempt from liability.
In 1852 the Right to a private action was expanded, in NY to third parties in Thomas v Winchester (6 N.Y. 397). In Thomas, the Plaintiff purchased what he thought to be a harmless dandelion extract for his wife. The druggist purchased the dandelion extract from a manufacturer who inadvertently mislabeled the package and substituted Bella Donna for the Dandelion extract; and although the original purchaser was not injured the Court allowed the action to proceed and basically granted limited third party rights to injured individuals. The basis for the decision did completely negate the Winterbottom premise however it id expand the scope of litigation to include all products that were inherently dangerous.
That brings us to the next case that expanded the rights of individuals to pursue third party claims was also a NY Court of Appeals Case; the case was McPherson v Buick (217 N.Y. 382) and the decision was rendered on March 14, 1916. In McPherson, the Plaintiff was injured when component of his vehicle failed resulting in an accident in which the Plaintiff suffered multiple injuries. The Plaintiff sued the manufacturer of his Buick Automobile even though he had purchased the vehicle through a Second Party Vendor; under Winterbottom, the Plaintiff would have been excluded from bring an action against the manufacturer as he did not directly purchase the vehicle from the Manufacturer and the product was not considered inherently dangerous. However Justice Cardozo in Majority Opinion disagreed and expanded the original premise that limited suits to obviously dangerous items to include items whose dangers were not readily apparent and the verdict against Manufacturer was affirmed.
It is interesting to note in the dissent on McPherson that the Dissenting Justice cited several Federal Circuit Court opinions that reaffirmed the principles of Winterbottom. The case I found most noteworthy, as a citation, was Cadillac Motor Car Co v Johnson (221 Fed. Rep. 801) decided in 1915; the Court relying on the decision in Earl v Lubbock (L.R. 1905 [1K.B. Div.] 253) reaffirmed the principles of Winterbottom.
The final case was Escola v Coca Cola Bottling (24 Cal. 2d 453) decided in 1944; in Escola, a California Waitress while handing a bottle of Coca Cola had the bottle explode in her hands causing a gash in her right hand that required immediate medical attention. Coca Cola’s defense was the product was outside their control and there was no way of knowing if the injury was caused by improper bottling practices or that the Plaintiff was somehow culpable. In their defense Coca Cola introduced evidence that the bottles were subjected to rigorous testing by the original manufacturer and that they had met their duty of care. The Court disagreed and held for the Plaintiff. In the majority opinion written by Justice Gibson, his opinion relied on the facts of the case and essentially ruled that because the bottle exploded an inference of negligence could be drawn to support the negligence verdict. However, it was Justice Traynor who wrote a concurring opinion, introduced the Doctrine of Strict Liability. In his opinion he wrote that changes in society made it impossible for an individual to have the knowledge and means required to challenge large corporations and as a matter of Public Policy essentially shifted the burden from the Plaintiff to the Defendant.
It was in this final case that a large portion of our Product Liability cases derives their essence and although I can’t state this for a fact, Justice Traynor’s opinion laid the groundwork for the proliferation of Product Liability cases and may have ultimately led to the Medical Devices Exemption. So contrary to David’s implication the Right to a Private Action as we know it today is fairly recent in our history.
The item of interest in the above cases is that they were all initiated at the State Level; the other item of interest is that the Legislature in the early days of the FDA legislation considered the passage of laws preserving the right to a private action in State Courts but since that right was limited at the State Level and predated the 1944 Escola decision its lack of inclusion becomes less meaningful.
As your original question as to whether litigation stifles the development of new drugs; since the primary case law on this subject post dates the Escola Decision if I were to design a study to ascertain the effects on product litigation on the development of new drugs I would remove the strict parameters you set basing my study on drug products only and broaden the scope of my study and determine whether the increased Product Liability suits that followed Escola seriously undermined innovation in industries other then the drug field.
I realize, since I am not a lawyer or a law student, the above summary is somewhat simplistic and does not take into account all the case law on the subject or the most current Treatise on the Restatement of Torts. However, I do believe a study of the history of Product Liability can be useful in answering some of the questions posed here.
Anyway I thought it might be food for thought.
JimK
http://www.pointoflaw.com/products/overview.php
http://www.courts.state.ny.us/REPORTER/archives/macpherson_buick.htm
James - Great study on the history and reasoning surrounding the product liability issue! Thanks for sharing it.
ReplyDeleteAs you report in Judge Traynor's 1944 opinion that introduces the Doctrine of Strict Liability - "it (is) impossible for an individual to have the knowledge and means required to challenge large corporations" Therefore the Doctrine of Strict Liability was implemented to provide the knowledge and means to the individual.
Now 65 years later, the pharmaceutical industry and the FDA have concluded that not only does the individual lack the knowledge but that the tort system is also unable to garner the knowledge to challenge the large corporation. Conveniently this conclusion takes away the individual’s only means to challenge the large corporation. What we are left with is nothing. Total trust in the large corporation is our only option. This is certainly unacceptable.
To make us feel better the pharmaceutical industry has *proposed* to us that product liability actually causes decreased health by over-warning and higher drug costs. Leading us back to Justice's original questions.
One last thought about how to determine if this *proposal* is valid - If there were empirical evidence for this proposal don't you think that it would have been published by the pharmaceutical industry by now? Here is an industry that bases its existence on statistical analysis and science. How could we *not* have the data that supports their conclusions? I would think we would have this proof in spades by now. The burden of proof should be theirs not ours. Yet here we are groping for the data. Until proven I have to conclude that their theory is false.
Furthermore if the industry is in fact making false claims about drug/device safety, claims that ultimately seek to take away the American civil right to a day in court, claims that in reality are intended to protect and even expand their own profits at the expense of public safety, then we have a problem the likes of which we have heretofore not known in all of American history.
I call on the industry and the FDA to prove their claims.
By the way, here is a history of the FDA.
1902 – Biologics Control Act
1906 – Pure Food and Drug Act
1938 – Federal Food, Drug, and Cosmetic Act
1944 – Public Health Service Act
1951 – Food, Drug, and Cosmetics Act Amendments PL 82–215
1962 – Food, Drug, and Cosmetics Act Amendments PL 87–781
1966 – Fair Packaging and Labeling Act PL 89–755
1976 – Medical Device Regulation Act PL 94–295
1987 – Prescription Drug Marketing Act
1988 – Anti–drug Abuse Act PL 100–690 1990 – Nutrition Labeling and Education Act PL 101–535
1992 – Prescription Drug User Fee Act PL 102–571
1994 – Dietary Supplement Health and Education Act
1997 – Food and Drug Modernization Act 105-115
2002 – Bioterrorism Act 107-188
2002 – Medical Device User Fee and Modernization Act (MDUFMA) PL 107-250
2003 – Animal Drug User Fee Act PL 108-130
As you can see the FDA and the Doctrine of Strict Liability have worked in tandem for 65 years.
Great stuff, and obviously related to the semi-hypothetical case I posed above.
ReplyDeleteIn fact, there have been studies that purported to show that product liability suits (in general) have resulted in _less_ consumer protection overall. The problem is that the way the data is generated, organized, and interpreted is so biased toward this conclusion, that I do not believe it can be taken seriously (as often as Hoover, Heritage, the AEI, and the WSJ love to cite it.)
That is the problem with most such studies - the issue has become so drenched in ideology and obvious self-interest on one side or other that the likelihood of finding reliable studies is small to nil.
Still, it remains possible to ask, first, whether one _could_ design such a study fairly and, of so, what would it look like. Second, it is possible to ask whether, if there _were_ such a study that ended up confirming that product liability suits are correlated with _less_ good for consumers in the long run, would/should such a conclusion impact how we view those suits as a right. Or is the right or relevant claim separable from whatever utilitarian calculus of the "general good."
The following from a March, 2006, article in Business Week on "tort reform" that is relevant:
ReplyDelete"Problem is, much of the discussion has been distorted by hyperbole from both sides. Despite the alarmism from Corporate America, most of the big verdicts that become urban legends are reduced on appeal. Nor is there authoritative evidence that plaintiffs' lawyers are weighing down the economy. This is, in part, because there are no reliable aggregate data about the system. America's network of federal, state, and local tribunals is sprawling and undigitized. Nobody knows how many cases are filed each year or how they turn out -- especially since the vast majority are settled out of court. So any macroeconomic conclusions are speculative. When Bush claims that the annual "litigation tax" in America is $246 billion, it's a guess.
To the extent that reliable data do exist, they show no signs of broad systemic breakdown. The latest statistics from the Bureau of Economic Analysis indicate that legal services accounted for less than 1.5% of gross domestic product in 2003 -- a slightly lower share than in 1990. That means the legal industry has lagged the overall economy. Such slow growth suggests that lawyers are not reaping a bonanza from winning -- and defending -- big corporate cases. Moreover, the strong productivity gains in recent years undercut the argument that rapacious plaintiff lawyers are strangling growth.
Does this mean there's no case against the tort system? Not at all. Just that the strongest evidence of plaintiffs' lawyer misconduct doesn't rest on broad economic data. Rather, the real crisis lies in the proliferation of specific types of bogus cases -- ones in which nobody has been injured, no malfeasance has occurred, or regulators have already taken care of the problem. Despite their claims of being selfless safety advocates, plaintiffs' attorneys in 2005 are analogous to chief executives in 1999: Most of the players are making an honest living. But an unacceptably high percentage of them are stretching the rules."
Justice
ReplyDeleteGreat point from Business Week on stretching the rules; just ask anyone who has received $1.00 as a settlement for a Mass Tort Claim against the credit card industry.
As to the studies that purport to show that increased product liability lawsuits actually decrease consumer protection; the logic seems counter intuitive. However, I am sure that prior to the rulings in Mapp, Gideon and Miranda studies showed that the population at large was much safer. Hence, less rights more individual protection, except that is from the State and their Corporate overseers.
JimK
Justice,
ReplyDeleteYou are looking for what is right and good but if rightness does not benefit these companies they will find a way to make their cases for self preservation. What does each stage of drug development cost from planning to distribution and how is it more costly for a company who has recently gone through litigation. Is the additional cost in planning or in clinical trials or in actual production. It does not make sense that development costs go up because of litigation. That assertion would have to be supported to be disputed.
1. Litigation stifles new drug development.
Problem is in determining if projects did not go forth because of litigation or if the product was doomed for some mysterious internal reason. If the pipeline is there and moves are made according to plan, stifling is not occurring. By that logic, however, it would be easy enough to name a future product with no intent to pursue it, for the purpose of being able to claim any number of things from losses to litigation.
2. Litigation raises drug costs.
Litigation or no, there is no good way to dispute pricing causation information from planning through distribution.
3. Litigation leads to danger "over-warning."
There must be some truth in this if you think that one bad product caused a manufacturer to have to be more cautious with the next product. This is a good argument in favor of litigation if public safety is the main concern.
The assertions would have to be supported to be disputed. Can the industry support their own claims?
Anon. writes: "The assertions would have to be supported to be disputed. Can the industry support their own claims?"
ReplyDeleteExactly. To this point, I have not seen any credible studies which do support these claims, although they are made continuously (read the Levine briefs that support Wyeth - besides "chaos of conflicting standards," it is these claims that are reiterated constantly. (The "chaos" theory has even less empirical foundation, in my view).
Still, exactly because these are empirical claims, it would seem there might/must be some way to test them one way or other.
On the other hand, perhaps there are issues that are so complex, or involve so many variables, that it really is _not_ possible to prove one point or other. At that point, you end us with "faith-based policy." Is that where we are?
This is an interesting topic.
ReplyDeleteTo the claim litigation stifles new drug development, no it "should not" (italics do not work). That is an empty argument. It is like saying something along the lines of "We are going to bring a product to market, but if during the use of the product, a consumer is injured while using the product and it has been found that we were negligent in anyway, and are sued and the consumer wins,then we will be forced to reduce our activities on the market place." This is wrong on several fronts. A statement like the example I am giving makes me believe that the industry feels that there are too many "bogus" complaints filed and consumers are looking for "get rich quick schemes" so they, the consumer, are looking to be harmed. This conjures up the idea that there is also a complete lack of faith in our judicial system and would raise the alarm that the judicial system is incapable of discerning whether or not any claim of rights has merit at all - scary stuff!
To the claim that litigation raises drug costs - good, let's stay with that idea. Of course it does and it should be avoided and the only way to avoid it is for complete transparency!
To the claim litigation leads to danger over warning. Can someone expound on this? what is the danger of being over warned? You will sell less of one drug, but you will be less likely to be exposed to litigation costs because the risks would have been full disclosed.
Now, what if we had universal health care? What if the consumer were not directly paying for the drug or the device. How would this change the system. If it were be funded by tax payers dollars (just think of the health care system we could have today if we had not been footing the bill for Iraq - which was a completely bogus sham and ripping off of American taxpayers, but I digress)
great topic!
No, Justice, that is not what we are left with. The industry must prove their point.
ReplyDeleteIt is on the drug companies to prove they are being damaged in other areas by litigation. It has to be on them because they are the only ones who really know. They must support their claims. It is right and just that they must prove it. How many times have they held their consumers to prove they were damaged? No way it should be assumed that they are telling the truth without documentation.
It should not be up to us to help them decide how to prove it, because to do so will show them how to work the system. If the Supreme Court is willing to take them at their word then the anti-preemption cause is already lost and shame on the Justices for costing us our rights without enough evidence.
Then we can work toward dismantling their evidence.
ReplyDeleteAnon. - Makes sense to me! Likewise, Former's excellent commentary. Still, I want my students to put themselves in the role of those who would try to prove such assertions and wonder how anyone would. And also woder if anyone has. But I think you make a telling point. (And, as I recall, at least some of the Justices picked up on the fact that these were assertions without evidence.)
ReplyDeleteWhat I find also interesting is that the doom they foretell - lost innovation, higher drug prices, miraculous cures withheld, etc. - are precisely the arguments that were used agaist the FDA itself when today's preemptors were yesterday's deregulators.
If nothing else, they can be nailed for lack of creativity.
Boston Scientific securities lawsuit alleges known manufacturing defects with company's drug-eluting stent:
ReplyDeletehttp://www.msnbc.msn.com/id/29623116/
Interesting, so if you want to get around the MDA, the solution is, if you need a pacemaker or stent or any other device covered under the MDA, buy shares in the company that manufactures the covered device and if it fails your estate can proceed with a shareholder lawsuit.
ReplyDeleteHere's some light bedtime reading--the Boston Scientific securities litigation memorandum and order certifying the class action lawsuit:
ReplyDeletehttp://www.zimmreed.com/pdf/BSX-Class-Cert.pdf
Nice to see this thread come to life again....
ReplyDeleteI like the plan Jim suggests. Of course, I assume the share of any settlement received depends on how many shares you own in the first place...
Also interesting that, within preemptionworld, people can file suit if they are shafted financially but not if they are simply shafted.
I was being facetious of course, but I have no doubt that the bean counters for the funds that held shares in Medtronics for the period of time that Medtronics knew their new lead was reliable then their old lead are going back and looking at share price fluctuations and insider trading.
ReplyDeleteIt just goes back to that old standby; the Golden Rule; them that got the gold make the rules.
ReplyDeleteJust one more thing; the company that sells covered devices can offer a stock purchase warranty with every implant; it would do wonders for market capitalization.
ReplyDeleteI can see the marketing people and the geniuses that invented the CDS working on this as we speak, figuratively of course.
Jim--What is the "CDS"?
ReplyDeleteMeanwhile, back at the ranch, I am about to indoctrinate an innocent group of undergraduates into the rarefied world of preemption. And, yes, not only will it be fair and balanced, but I will push for the side that isnt mine.
That's not because I'm an otherwise good person or teacher (although I may be...). It's because it will help everyone be a better advocate, since most of the students will migrate toward the anti-preemption side anyway.
Also, this is incredibly complex stuff. Beyond being pro or anti, one has to talk about the full spectrum of preemption perspectives--the Sharkey model, the fraud exception model, the negligence model, etc etc.
If they come out understanding half of that, they'll be a few steps beyond most of the discussion on this issue.
Justice
ReplyDeleteA CDS is a Credit Default Swap; these are the financial instrument that is sucking money from the Government to help keep AIG afloat. Basically it's insurance that a particular financial instrument is not going to default. The fact is a buyer of a CDS did not even have to have a position in the instrument for which they were buying the insurance. It's like me buying Fire Insurance on your house. They are not really knew, if you know your financial history a similar scam was responsible for causing the Panic of 1907; back then speculators’ could buy insurance on the direction the market was going to take on a particular day; these bets were sold in establishments known as "Bucket Shops." States enacted laws which legislated Bucket Shops out of existence, however under the Commodity Futures Modernization Act of 2000; the Federal Government essentially invalidated the State Bucket Shop laws.
As far as your teaching method for preemption, I think that's a great method; I used to be an Arbitration Advocate on behalf of management and we had a fairly extensive database of Arbitration Decisions. When I prepared for a case my initial research always involved researching the cases we lost on the issue being advocated. I found it very useful in anticipating the opposition's strategy and was able to establish points on how the case at bar was not the same as the prior decisions or through an analysis of the previous decisions cite where the ruling Arbitrator was not presented with a particular argument when reaching a decision.
James, the plaintiffs in Public Employees’ Retirement System of Mississippi (PERS) v. Boston Scientific invoked the fraud-on-the-market theory. Are you familiar with this strategy and has it ever been used in a case involving medical devices? Do you think the theory will hold up in this case?
ReplyDeletePERS alleges that the company made misleading statements about its drug eluting stent, which was eventually recalled. PERS charges that the company's actions inflated the value of the stock artificially, which benefited the company executives and harmed the investors.
I understand that the cofounders of the company are selling shares:
http://www.boston.com/business/articles/2009/03/10/gorillas_everywhere/
What does this mean?
Nancy
ReplyDeleteI am not familiar with Securities Fraud Litigation but from reading the Memorandum and Order issued by Judge Woodlock it would appear to me that the "Fraud on the Market Theory" is only used in Securities Litigation and is simply a means used to gain Class Certification. So to answer your first question; this theory would not be relevant for medical devices.
As to your second question; the theory did work because the Judge granted Class Certification.
As to the eventual success at trial, that depends on the Judge or if applicable the Jury.
Below is a brief summary of what I learned from Reading Judge Woodlock’s Memorandum and Order:
The Judge’s Order outlines the various criteria required for a case to be Class Certified under the Fraud on the Market Theory.
The Judge's order also informs us that there are separate opinions within the Circuit Courts as to what level of proof is required for Class Certification to proceed with a Fraud on the Market Theory; for example in the 2nd Circuit the Plaintiff must demonstrate that a material fact was withheld from the investors and there is sufficient evidence to demonstrate that revealing this withheld evidence had a direct correlation on a Stock’s price decline.
In this case at least, The Judge ruled that there is sufficient evidence to proceed as a Class and that the Plaintiff successfully demonstrated that there may be a triable issue of fact.
A brief analysis of what the Court might look at:
I reviewed the price of the Stock during the relevant period and the share price for Boston Scientific in November 2003 was $34.00; the Stock rose to a high of $45.00 in June and declined from that point forward. However the Stock did not go straight down, it appears that immediately following the news the Stock dropped to $34.00, but by September had recovered to $39.78, essentially 11% off its peak price.
A review of Boston Scientifics Stock price as compared to an Exchange Traded Fund shows that while the ETF declined at the same point as did Boston Scientific, the ETF did show peaks and valleys, while Boston Scientifics Stock continued to decline.
An ETF is an Exchange Traded Fund that is made of stocks in a particular sector, in this case pharmaceuticals.
As to selling by insiders I looked at recent SEC filings and the Officers for Boston Scientific are selling. What I found interesting, at least in the filings I looked at, was the Officers were selling their shares at a little over $1.00 and the Stock is trading at approximately $7.00; Genworth Financial seemed to be the primary purchaser of the stock. I don’t have an explanation for why the Officer’s would do this, but it does seem to indicate to me that the Stock must only be worth a $1.00.
I know I rambled a bit and may have given more information then you really needed.
James, Thank you for this - details are good. I am going to mull this over now. Very interesting.
ReplyDeleteJames, this story is growing legs. The headlines read "Medical Device Stocks Rattled by Push for US Health Reform." Click on my name to read the article.
ReplyDeleteThe above link for the article "Medical Device Stocks Rattled by Push for US Health Reform" is no longer valid. You can find the same article here:
ReplyDeletehttp://online.wsj.com/article/BT-CO-20090312-713889.html?mod=wsjcrmain
The always reliable Wall Street Journal published the March 10 article on the Boston Scientific Securities law suit as well, here:
ReplyDeletehttp://online.wsj.com/article/PR-CO-20090310-906567.html?mod=wsjcrmain
Veterans are waiting over a year for surgeries in Dallas, Texas. Podiatry and orthopedics specialty surgeries have the longest wait times...
ReplyDeletehttp://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa090106_mo_veterans.ad6a15f5.html
I wonder how long veterans who volunteered for the stent study had to wait:
http://content.onlinejacc.org/cgi/content/full/j.jacc.2008.11.029v1
A Dallas-Fort Worth news crew convinced the VA to send 300 local veterans to private hospitals for surgeries, shortening wait times from a year to three or four months:
ReplyDeletehttp://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa090415_mo_waittimes.dbda7f8c.html