AZ - Seroquel: what's the latest

The third quarter 2010 includes legal provisions totalling $473 million related to ongoing product liability litigation for Seroquel. Of the $473 million, $203 million relates to the agreements in principle that have already been reached to date to resolve more than 18,250 claims. The balance of $270 million is an additional reserve, which is the aggregate of estimates for settlement costs of outstanding US claims that have not yet been resolved and are still subject to mediation and the anticipated future defence costs associated with resolving all or substantially all of such remaining claims (see Note 5).


Sales and marketing practices

It was previously reported that AstraZeneca reached a civil settlement with the US Attorney’s Office and the state attorneys general National Medicaid Fraud Control Unit (NMFCU) to resolve an investigation relating to the marketing of Seroquel, pursuant to which the United States received $302 million plus accrued interest and participating states would receive a proportional share of up to $218 million plus accrued interest. In September 2010, AstraZeneca entered into individual settlement agreements with forty one states and Washington, DC for an aggregate amount of $210 million. The remaining states have declined to join in the settlement. AstraZeneca can reclaim the portion of the total settlement designated for the non-joining states.
Also as previously disclosed, the Commonwealth of Pennsylvania and the states of Arkansas, Montana, New Mexico, South Carolina, Mississippi and Utah have sued AstraZeneca under various state laws generally alleging that AstraZeneca made false and/or misleading statements in connection with the marketing and promotion of Seroquel. On 24 September 2010, the Commonwealth of Pennsylvania voluntarily dismissed its lawsuit.

It was previously reported that the Seroquel MDL Court dismissed a lawsuit brought by the Pennsylvania Employee Benefits Trust Fund (PEBTF) that alleged improper marketing practices relating to Seroquel and that PEBTF elected to forgo a federal appeal and instead filed an appeal with the Pennsylvania Superior Court relating to the dismissal of an earlier-filed state court action. On 25 August 2010, PEBTF voluntarily dismissed its appeal to the Pennsylvania Superior Court.

Product liability

As also previously disclosed, AstraZeneca Pharmaceuticals LP, either alone or in conjunction with one or more affiliates, has been sued in numerous individual personal injury actions involving Seroquel.
As of 27 September 2010, AstraZeneca was defending 10,471 served or answered lawsuits in the US involving 22,404 plaintiff groups. To date, approximately 2,973 additional cases have been dismissed by order or agreement and approximately 1,902 of those cases have been dismissed with prejudice. AstraZeneca is also aware of approximately 162 additional cases (approximately 3,655 plaintiffs) that have been filed but not yet served and has not determined how many additional cases, if any, may have been filed.
On 20 September 2010, the court presiding over the Delaware Seroquel litigation issued an opinion dismissing three cases on the basis that the claims were time-barred under the statute of limitations. Plaintiffs have sought reconsideration of the decision.

At present, trial dates remain pending in multiple jurisdictions, including Delaware, New Jersey, New York and the Federal District Court for the Middle District of Florida, beginning mid 2011 and continuing through 2012.

Judge Anne Conway, who is presiding over the Seroquel federal Multi-District Litigation, ordered the parties to mediate their claims with a court-appointed mediator. On 30 August 2010, the MDL Court withdrew its suggestion of remand in order to facilitate mediation progress. On 31 August 2010, the JPML vacated the conditional remand order and removed discussion of remand from the calendar for its 30 September 2010 session. AstraZeneca remains committed to a strong defence effort, but will also continue to participate in good faith in the court-ordered mediation process.

As of 27 September 2010, the mediation process has resulted in agreements in principle on monetary terms, subject to various subsequent conditions, approvals and agreement on non-monetary terms, with the attorneys representing 18,268 claimants. The specific terms of those conditional agreements in principle are by agreement, and at the request of the mediator, confidential at this time. The parties are finalising written settlement agreements in respect of the claims that have been resolved in principle. The mediation process is ongoing with regard to other claims.

During the quarter, a provision amounting to $473 million has been established in respect of the Seroquel product liability claims.

With regard to settlement agreements in principle that have been reached to date with various plaintiffs’ law firms, as of 30 September 2010, AstraZeneca has reserved $203 million to resolve 18,268 US claims. At present, we are unable to predict the precise timing of any actual payments to the settling claimants, as the agreements are likely to take several months to implement.

With regard to outstanding US claims that have not yet been resolved and are still subject to mediation, AstraZeneca has taken an additional reserve in the amount of $270 million, in the aggregate, in respect of both (a) settlement costs for those claims and (b) anticipated future defence costs (currently estimated to be over several years) associated with resolving all or substantially all of such remaining claims.

The amount of this provision is subject to a number of significant uncertainties and is based on AstraZeneca’s best estimate of: (1) the number of claims that are outstanding and may be subject to mediation (2) the financial terms of any future agreements to settle claims not subject to settlement agreements in principle at the balance sheet date and (3) the likely cost of defending those claims and finalising settlement agreements through substantial completion. Each of these estimates is subject to future adjustment based on multiple variables, such as the number of asserted claims, the success of future mediations, and further developments in the litigation. It is therefore not possible at this time to provide any reasonable indication as to when remaining claims may be settled. Furthermore, it is possible that the actual cost of ultimately settling or adjudicating the Seroquel product liability claims may differ significantly from the total amount provided.

As of 30 September 2010, legal defence costs of approximately $732 million have been incurred in connection with Seroquel-related product liability claims.

AstraZeneca has product liability insurance dating from 2003 that is considered to respond to the vast majority of the Seroquel-related product liability claims. This insurance provides cover for legal defence costs and potential damages amounts. The insurers that issued the applicable policies for 2003 have disputed coverage for Seroquel-related product liability claims on various grounds. In April 2010, AstraZeneca settled its claims against several of its insurers for legal costs incurred defending the Seroquel-related product liability claims immediately in excess of AstraZeneca’s self-insured retention of $39 million for an amount approximately equal to the receivable that had been recorded and as a result there will be no further impact on Group profit arising from this insurance settlement.

AstraZeneca currently believes that there are likely to be disputes with the remainder of its insurers about the availability of coverage under additional insurance policies. As of 30 September 2010, legal costs of approximately $117 million have been incurred in connection with Seroquel-related product liability claims which AstraZeneca believes to be covered by these additional insurance policies. However, the combined amount charged to the income statement to date in respect of legal costs and settlements which AstraZeneca believes to be covered by these additional policies, including the $473 million provision in the third quarter of 2010, now significantly exceeds the total stated upper limits of these insurance policies.

Whilst no insurance receivable can be recognised under applicable accounting standards at this time, AstraZeneca believes that it is more likely than not that further insurance recoveries will be secured under the additional policies, but there can be no assurance of this or the amount of any potential future recovery.