The Curious Case Of AstraZeneca v. ACE

By GUEST BLOGGER | Published: JULY 31, 2013
by Mike Kelly and Andrew Dupre

Insurance contracts are a language game that must be played very carefully, as AstraZeneca learned.

From 2003 to 2012, AstraZeneca Plc was locked in one of the largest mass tort litigations in the United States, defending its blockbuster second generation atypical antipsychotic product Seroquel from allegations of failure-to-warn of risks of metabolic injury such as diabetes mellitus Type II.  AstraZeneca prevailed on the lone case to reach a jury, won an additional nine cases during pretrial proceedings nationwide–losing none, and then ended the litigation with a global settlement acclaimed in the business press as a “great deal,” at roughly 50% of what its competitors paid.  Yet through a curious twist, AstraZeneca’s insurance claim for the cost of its winning defense was rejected to the tune of £133 million.  AstraZeneca Insurance Company v. XL Insurance (Bermuda) Ltd. & ACE Bermuda Insurance Ltd. – a case of first impression under England & Wales law – has important implications for any company insuring US pharmaceutical mass tort risks.

Background

Over 23,000 plaintiffs in multiple US jurisdictions alleged that AstraZeneca’s atypical antipsychotic (colloquially, “AA”) product Seroquel, along with competing products in the  AA class such as Eli Lilly’s Zyprexa and Johnson & Johnson’s Risperdal, “caused” diabetes mellitus type II and related metabolic conditions, of which the relevant FDA product labels failed to adequately warn.

In 2005, Eli Lilly reportedly settled approximately 8,100 Zyprexa actions for $700 Million, long before any case was triable and after only a bulk first round of discovery. That settlement, however, required multiple reopeners to accommodate an ever-increasing number of new filings, and Eli Lilly reportedly settled approximately 18,000 additional Zyprexa actions for another $500 million in 2007.  Its total settlement value (sans legal costs) increased to a reported $1.2 billion, or $45,997 per case in 2007, not including the additional $1.4 billion Eli Lilly paid to settle the various criminal investigations.

AstraZeneca took the opposite course in its defense of Seroquel, declining to settle early and forcing the major US plaintiffs’ firms to put proof on the table to value their claims. Key to that strategy was that the plaintiffs were unable to stick to a story for how AAs supposedly cause metabolic injury.  The law firms driving the litigation first asserted that AAs cause diabetes through some unidentifiable direct mechanism; i.e. use the product, wake up with metabolic disease.  As the cases crawled through expert discovery, it became clear that theory would be deemed empty speculation, not admissible in any US court.  The claimant law firms thus changed horses midstream to allege that AAs cause weight gain and that the weight gain causes metabolic injury, a theory described as “indirect causation”.  The problem, however, was that no specific plaintiff could possibly prove that any specific pound they gained was caused by an AA product rather than factors such as diet, and no specific pound can be proven to cause a metabolic condition such as diabetes mellitus.  In other words, the claimant law firms could not prove their cases, and AstraZeneca knew it.

AstraZeneca won a series of court rulings while embarking on settlement negotiations. Between 2010 and 2011, under the aegis of mediator Professor Stephen Saltzburg of the George Washington University School of Law, AstraZeneca reported that it had settled approximately 28,461 Seroquel suits for $647 million or $22,732.86 per case.  Moreover, the vast press about the Seroquel litigation, along with subsequent FDA clarifications, set a firm date for any reasonable patient to be on notice of their claims, establishing a rock-solid statute of limitations defense to subsequently filed cases.

The business press hailed AstraZeneca’s defense of the Seroquel mass tort actions. Media outlets including Bloomberg termed the settlement “a great deal,” while the Wall Street Journal called it “a pleasant surprise for shareholders.”  AstraZeneca’s reported 2010 gross sales of Seroquel were $5.3 Billion, meaning that the company was able to end virtually all tort claims over the product for approximately 6.3 weeks of its sales value in 2010.

The Insurance Dilemma:  Too Good For One’s Own Good?

AstraZeneca insured its products liability risk through an eponymous Bermuda captive for the first £365 million of losses.  It subsequently reinsured a £133 million excess layer of coverage immediately above £365 million with ACE and XL, subject to a $100 million “per occurrence” cap.  The intended result was for ACE and XL to separately insure up to $100 million of AstraZeneca’s product liability exposure for Seroquel, among other products, in excess of losses of £365 million.

Unusually, AstraZeneca and its captive agreed to have their insurance contract governed by the law of England & Wales.  Bermuda form insurance contracts typically incorporate New York law with a London arbitration choice of forum.  For reasons unclear on the face of the opinion, these otherwise form contracts were modified to English law with High Court, Queen’s Bench Division Commercial Court as the choice of forum.  That choice carried through to the reinsurance policies with ACE and XL, who as reinsurers were liable to indemnify only a category of losses for which the captive insurer was originally liable.

ACE and XL rejected the indemnity demand. Their principal argument was that English law mandates coverage only for actual liabilities and not for settlement of disputed claims, however logical and winsome such a settlement may be.  Thus, the insurers argued that they owed no duty to cover the amounts AstraZeneca agreed to pay claimants in settlement.  Further and perhaps more disputatiously, the insurers argued that the right to recover cost of defense is contingent upon the legitimacy of the underlying claim.  Because AstraZeneca settled the Seroquel tort litigation having never been proven liable, i.e. from a position of negotiation strength, the insurers argued that they owed no duty even to cover AstraZeneca’s legal defense costs.  In sum, the insurers refused to pay anything at all because AstraZeneca had won the Seroquel mass tort litigation “too well.”

The insurers prevailed  Justice Flaux rejected AstraZeneca’s arguments that the reinsurance contracts must be interpreted within the context of the US pharmaceutical product liability litigation risk that they were meant to cover, and through norms of Bermuda insurance law.  Instead, the Court held that the incorporation of English law into the reinsurance contracts evinced a conscious choice to invoke a far narrower scope of coverage.  Because English law does indeed limit an insurers’ coverage obligation to only “actual” – rather than disputed – liabilities, the insurers owed no duty to cover the Seroquel settlement.  Moreover, because English law does not recognize the common law duty of an insurer to defend its insured present in all US jurisdictions, English insurers owe a duty to cover defense costs only upon an express undertaking to “sue and labour,” which was not present in these Bermuda form contracts.

Lessons

Should AstraZeneca v. XL stand on appeal, it will mean that an English law insurance contract, and all reinsurance policies derived from it, are worthless for settling US pharmaceutical mass tort liabilities not already lost in a trial.  To attain coverage for a global settlement, a manufacturer would have to prove that it would more-likely-than-not have lost the litigation underlying the coverage demand.  In other words, the company would have to prove – publicly – that its own product causes injury, a tack no rational pharmaceutical company would pursue.  Even to attain defense cost coverage would require either at least one straight trial loss or an arduously worded sue-and-labor rider that is otherwise foreign to standard Bermuda form insurance contracts.

Moreover, the right to coverage under English law, even in the face of a lost trial, is now dubious.  Assume for the sake of argument that a single plaintiff had won a trial in which she alleged that an AA product caused her diabetes mellitus.  That loss would not necessarily create a coverage obligation for a global settlement.  Diabetes has many causal factors, and an insurer could reasonably argue that the ability of Claimant 1 to prove causation does not extend to Claimants 2 through 23,000, rendering a global settlement a non-covered event.

The critical lesson learned for the pharmaceutical industry is the importance of not having form insurance contracts modified to English law.  In most cases, the problem faced by AstraZeneca should be avoidable by a simple default to Bermuda form insurance contracts incorporating New York law with a London arbitration forum. At the very least, pharmaceutical companies should be aware when entering into their insurance agreements that they must be careful to avoid coverage that will punish them for winning their litigation “too well.”

Michael P. Kelly is the Chairman of McCarter & English LLP, and was formerly AstraZeneca’s Delaware counsel who won the four dismissals that led the Seroquel products liability settlement, and was a lead negotiator of that settlement.  Andrew Dupre, also of McCarter & English LLP, is a solicitor of England & Wales who worked extensively on the Seroquel mass tort litigation.

http://blog.pharmexec.com/2013/07/31/the-curious-case-of-astrazeneca-v-ace/

A Lone Voice Raises Alarms on Lucrative Diabetes Drugs - NYT

LOS ANGELES — Dr. Peter C. Butler initially declined a request by the drug maker Merck to test whether its new diabetes drug, Januvia, could help stave off the disease in rats.

“I said, I’m not interested in your money, go away,” Dr. Butler recalled.

Merck no doubt now wishes it had. When Dr. Butler finally agreed to do the study, he found worrisome changes in the pancreases of the rats that could lead to pancreatic cancer. The discovery, in early 2008, turned Dr. Butler into a crusader whose follow-up studies now threaten the future of not only Januvia but all the drugs in its class, which have sales of more than $9 billion annually and are used by hundreds of thousands of people with Type 2 diabetes.

“I knew some stuff that I thought was a worry and I was obliged to pursue it,” said Dr. Butler, the chairman of endocrinology at the University of California, Los Angeles.

Based on his latest study, both the Food and Drug Administrationand the European Medicines Agency have begun investigations that could lead to new warnings on the drugs, or even to their removal from the market.

Or they could result in no action at all.

Dr. Butler faces powerful opponents in the makers of the drugs and many diabetes specialists, who say his studies are contradicted by other evidence.

“The data are inconclusive,” said Dr. Robert Ratner, chief scientific and medical officer of the American Diabetes Association. He said even if there were some excess risk, it would be “exceptionally low.”

Nancy Thornberry, who heads diabetes drug development at Merck, said that clinical trials, the gold standard of medical evidence, had found no increased risk of pancreatic disease from Januvia, even when results of trials were pooled to achieve greater numbers. “In fact, my mother takes sitagliptin,” she added, referring to Januvia by its generic name.

Questions about whether the drugs raise the risk of pancreatitis, a painful and possibly lethal inflammation of the pancreas, arose soon after the first one, Byetta, now sold by Bristol-Myers Squibb and AstraZeneca, was approved in 2005. The drugs’ labels already contain warnings about that. What is new and potentially more serious is a possible risk of pancreatic cancer, which is virtually untreatable and kills most victims within a year.

Many people in the field compare Dr. Butler to Dr. Steven Nissen, the well-known Cleveland Clinic cardiologist whose warnings about Avandia, a different type of diabetes drug, led to its being banned in Europe and highly restricted in the United States.

Both men have faced criticism from those who call them zealots. The F.D.A. is about to examine data suggesting that Avandia might not be so dangerous after all. Some critics say Dr. Butler overstates his conclusions and that his findings have not been replicated by others.

“Basically, no one in the entire world over the last 10 years, with thousands of animals,” has found what Dr. Butler found, said Dr. Daniel J. Drucker, a professor of medicine at the University of Toronto and a consultant to many drug companies.

Still, Dr. Butler is not easy to write off. He is a former editor of Diabetes, the flagship journal of the American Diabetes Association. And he has some defenders.

“He should be an American hero, actually, a rugged individualist who is not going to be browbeaten,” said Dr. Edwin Gale, professor emeritus at the University of Bristol in Britain, who recently wrote a commentary with Dr. Butler on the drugs.

Dr. Butler was born in Kenya to British parents, though he has worked in the United States since 1987 and is an American citizen. His wife, Dr. Alexandra E. Butler, a pathologist who occupies the office next to his, has also worked on some of the studies.

In the last month, lawyers defending drug companies against a lawsuit claiming that Byetta had caused a patient’s pancreatitis, subpoenaed virtually all of Dr. Butler’s records.

“I think the message here is they want him out of business,” said Brian Depew, a lawyer representing the plaintiff, Ross Hubert of New Hampshire, who claims that Byetta caused him to get pancreatitis. Dr. Butler said U.C.L.A. told him not to comment on the subpoena.

More than 100 lawsuits representing 575 plaintiffs around the country are claiming injury from Byetta, mostly pancreatitis, according to the latest quarterly regulatory filing from Bristol-Myers. Forty-three suits claim that Januvia caused pancreatic cancer, according to Merck.

Page 2 of 2

Other drugs in the class, called incretin mimetics, are Bydureon and Onglyza, which are also sold by Bristol-Myers Squibb and AstraZeneca; Victoza from Novo Nordisk; Tradjenta from Eli Lilly and Boehringer Ingelheim; and Nesina from Takeda. By far the biggest, though, is Merck’s Januvia and the related Janumet, which had global sales of $5.7 billion last year.

Dr. Butler said that after his group presented its rat findings to Merck, “I never heard from them again,” except from company lawyers asking when the study would be published.

He said that studies done by the drug companies that led to the drugs’ approval by the F.D.A. tended to use young healthy animals that would not be expected to get pancreatic cancer.

The concern, he said, was that the drugs work essentially by increasing levels of a hormone called glucagonlike peptide-1. That hormone might accelerate precancerous conditions already present in middle-aged people, much as the hormone estrogen might promote growth of nascent breast tumors.

Three other pieces of evidence raise possible concerns.

One is the side effects reported to the F.D.A., typically by doctors or companies, after a drug is on the market. Dr. Butler and colleagues found far more cases of pancreatitis and pancreatic cancer reported for the incretin drugs than for Avandia.

Public Citizen and the Institute for Safe Medication Practices, two watchdog groups, have since separately found the same thing. Public Citizen has already asked the F.D.A. to remove Victoza from the market.

But these reports are voluntary and can be unreliable. Also, when there is publicity about a safety risk, reports of that side effect can spike.

Several groups have looked at medical records of thousands of patients held by insurance companies. At least three of these studies have found no increased incidence of pancreatitis or pancreatic cancer. But a recent study found roughly a doubling of the risk of acute pancreatitis among users of the drugs.

But what has prompted the reviews by regulatory agencies has been Dr. Butler’s study of human pancreases obtained from 34 organ donors who had died for reasons unrelated to pancreatic disease. Seven of the donors happened to have taken Januvia and one had taken Byetta.

The pancreases of those eight people tended to have more precancerous lesions than the organs of the diabetics who had not taken those drugs, or those of the nondiabetics. There was also one case of a neuroendocrine tumor, a type of pancreatic cancer.

Also, the pancreases of the incretin drug users were heavier, with faster growth of certain cells. “There were strange growths” that “you’d never see in a normal human pancreas,” Dr. Alexandra Butler said.

Critics point out that the incretin users were much older than the other diabetics and had been sick longer than other diabetics. That, not the drugs, could have accounted for the findings, they say.

“There are enormous problems with this paper,” said Dr. Ratner of the diabetes association.

Dr. Fred Gorelick, professor of medicine and cell biology at Yale, said the precancerous lesions found were early-stage ones. Many middle-age people have these and they often do not lead to cancer. Still, he said, the study “raised several red flags.”

More information could come out in June when the National Institutes of Health will hold a two-day meeting on possible links between diabetes, diabetes drugs and pancreatic cancer. Dr. Butler will be one of the speakers.

And starting this summer, results will be coming from large randomized clinical trials meant to assess whether the drugs raise the risk of heart attacks. Those trials should also be able to pick up an increased risk of pancreatic cancer that might have been missed by the smaller trials used to win approval of the drugs.

So far the safety concerns have not substantially reduced use of the drugs, though there are signs of “possible softness” recently, said Mark Schoenebaum, a pharmaceutical analyst at ISI Group. He said the evidence of a risk was weak and that the F.D.A. would probably take no action.

Dr. Butler said he was not calling for the drugs to be removed from the market, though he does not prescribe them to his own patients. Rather, he said, studies should be done using M.R.I. scans to see if use of the drugs is enlarging the pancreases of patients.

“We have all these people out there taking these drugs,” Dr. Butler said, “and the problem is: What is happening to their pancreases?”

http://www.nytimes.com/2013/05/31/business/

a-doctor-raises-questions-about-a-diabetes-drug.html?_r=2&

AstraZeneca - Seroquel: "click to chat to a lawyer"

Click here!

Godlee has spoken: "The time has now come for this drug to be withdrawn from the market."

100,000 in the UK

AstraZeneca - Seroquel: BBC - Podcasts - File on 4

BBC - Podcasts - File on 4

Sugar Wars - gliptins: a great quote

"This is very, very bad news for anyone who has a diabetes drug under development. This has opened a Pandora's Box. They changed the rules in the middle of the game."

Source

Insider's view: Thank GSK (Avandia) and BMS (Pargluva). Oh, and Schering Plough (Vytorin).... for helping discredit surrogate endpoints.

AstraZeneca - Seroquel: "Paging Dr Pepper - you're wanted on the diabetes ward"

Patients taking AstraZeneca’s antipsychotic Seroquel have an almost 400% increased risk of developing diabetes, an endocrinologist has told a US court.

The court case is the first case to trial of about 9,000 US lawsuits against the Anglo-Swedish drugmaker over claims Seroquel (quetiapine) is linked to diabetes and other conditions.

Jennifer Marks, a Miami-based endocrinologist, is testifying in a pre-trial hearing on behalf of Linda Guinn, who claims the use of Seroquel caused her diabetes. “Seroquel is a substantial factor in diabetes and weight gain,” Marks told the court, a Bloomberg.com report said.

According to a 2004 study, published in a journal of the American Psychiatric Association, which compared newer antipsychotics with first-generation drugs, males who took Seroquel for at least 60 days had an increased risk in diabetes. Meanwhile, a US Food and Drug Administration study in 2004 found reports of high glucose levels matched an increase in Seroquel prescriptions between 1997 and 2002. Both studies, along with four others, were cited by Marks as evidence of a link with diabetes.

AstraZeneca defended the drug in an interview with Bloomberg. “This is a minute selection of the scientific data available on Seroquel. The totality of the evidence that has been presented to the FDA shows that Seroquel is safe and effective,” said spokesman Tony Jewell.

The company is aiming to bar the testimony on the grounds of contradictory studies. However, the company is facing problems in getting its once-daily extended-release version of the drug approved in the US for major depressive disorder after the FDA requested more information before it would consider approving the new indication.

Further details have not been disclosed.

By Katrina Megget
PharmaTimes

Glitazones - the heart of the matter

A class of oral drugs used to treat type 2 diabetes may make heart failure worse, according to an editorial published online in Heart Wednesday by two Wake Forest University School of Medicine faculty members.

“We strongly recommend restrictions in the use of thiazolidinediones (the class of drugs) and question the rationale for leaving rosiglitazone on the market,” write Sonal Singh, M.D., M.P.H., assistant professor of internal medicine, and Curt D. Furberg, M.D., Ph.D., professor of public health sciences. Rosiglitazone and pioglitazone are the two major thiazolidinediones.

In the editorial Singh and Furberg say, “At this time, justification for use of thiazolidinediones is very weak to non-existent.”

Oral drugs are given to control diabetes by lowering blood sugar.

But diabetics also experience elevated rates of high blood pressure and high levels of cholesterol and triglyceride, which “further compound their already increased risk of developing ischemic heart disease,” Singh and Furberg say. Heart disease and high blood pressure “represent conditions that are major precursors of congestive heart failure.”

About 22 percent of diabetics have heart disease. Among elderly patients with diabetes, more than half will develop congestive heart failure over a 10-year period, the editorial says.

The thiazolidinediones were approved for use based on the ability to reduce blood sugar.

In contrast, “we reported [in the journal Diabetes Care] in June 2007 that thiazolidinediones doubled the risk of congestive heart failure in patients with type 2 diabetes,” is says. “The increased heart failure appears to be a class effect.”

Singh and Furberg reported in The Journal of the American Medical Association in 2007 after an analysis of four long-term trials that use of rosiglitazone was associated both with increased heart attacks and a doubling of heart failure.

They said that results from three large randomized clinical trials published this past June all failed to demonstrate that intensive control of blood sugar reduces mortality or events from cardiovascular disease in patients with type 2 diabetes.

The three trials were ACCORD, ADVANCE, and the Veterans Affairs Diabetes study. In ACCORD, the patients who received intensive treatment to control blood sugar actually had more cardiovascular disease mortality than patients receiving standard treatment.

In ADVANCE, intensive control of blood sugar produced no benefit; there was no effect on cardiovascular events or deaths from cardiovascular causes compared to standard oral diabetes agents.

In the VA Diabetes trial, when intensive blood sugar control produced levels of blood sugar that were too low and led to loss of consciousness, that was a strong predictor of future cardiovascular events.

“The unfavorable findings from the three trials have not been fully realized by the medical community,” Singh and Furberg say.

They say that at a recent U.S. Food and Drug Administration advisory committee meeting, there was “overwhelming support for requiring reductions” of heart disease and heart failure “before approval of new oral hypoglycemic agents.”

Singh said in an interview, “Safer, cheaper and more effective treatment alternatives are available that do not carry these negative cardiovascular risks in patients with diabetes. The rationale for the use of the thiazolidinediones is unclear.”