Lawyers

Do massive jury awards change corporate behavior?

By Chris Rangel MD ⋅ September 3, 2006 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

A comment on my last post about the recent $51 million Vioxx jury award reiterated the ‘ol apparent myth about punitive damages.

With such a high award, [Merck] will think twice before they dare introduce a drug with a side effect. That’s the theory at least.

A theory. Yea, but that’s all that is. The reality is that even such massive out of proportion awards like that seen in this case have never been proven to change corporate behavior in the development of harmful products. Case in point; the tobacco industry has been sued for millions (individual cases and class action suits) and billions ($9.8 Billion per year for 25 years to be paid out to the states to cover the health costs of smoking) but in 2001 US cigarette sales totaled about $102 Billion including about $10 Billion in net profits.

Yet tobacco remains the single deadliest consumer product causing over 400,000 deaths (1 in 5) per year in the US and producing up to $75 Billion per year in health care related costs and $82 Billion per year in economic loses. Even the massive class action suit brought by the states does not come close to covering these smoking related costs. It’s too easy for the tobacco companies to pass the costs of awards on to the consumer.

The situation is similar for Merck and Vioxx. Even though the arthritis painkiller was taken off the market in 2004 (unlike tobacco), sales of Vioxx were massive, $2.5 Billion in its last year on the market. But this represents only 11% of Merck’s total revenue. So far the total amount of jury awards (after reductions to comply with state statues on award limits) in the few cases won against Merck have been less than Merck could earn on investing the 2.5 Billion at 5%!

And it’s not clear cut that Merck intentionally covered up the increased cardiovascular risks of Vioxx from the FDA. Vioxx was approved in 1999. In November 2000 the VIGOR Study was published that compared the gastrointestinal safety of Vioxx vs Naproxen. But the hint of increased cardiac risk was already evident. From the abstract of the VIGOR study;

“The incidence of myocardial infarction was lower among patients in the naproxen group than among those in the rofecoxib group (0.1 percent vs. 0.4 percent; relative risk, 0.2; 95 percent confidence interval, 0.1 to 0.7); the overall mortality rate and the rate of death from cardiovascular causes were similar in the two groups.”

Naproxen had not previously been known to have a cardio-protective effect and so this study should have set off alarm bells at the FDA but nobody, not the FDA, not the New England Journal, and not even self appointed anti-Vioxx crusader Cardiologist Eric Topol called for a study to specifically look at the cardiovascular risks of Vioxx. In 2002, warnings about possible increased cardiovascular risks were sent out about Vioxx to patients and physicians and Merck went on to earn Billions off the drug.

Merck did not intentionally set out to make a harmful product but they did choose not to evaluate early safety concerns because they weren’t required to and obviously they didn’t feel concerned about litigation enough to do safety studies. Their primary goal was to make money and Vioxx had the potential to make them Billions.

Because of the sheer amount of potential income involved in the development of a “blockbuster” product, individual claims and even class action litigation appear to have an extremely limited (if any) effect on ethical corporate behavior. The paradox is thus; In order to be truly punitive, jury awards in product liability cases against huge corporations must be massive, like on the order of Billions, not millions. But the idea that any injury could be worth Billions in compensation is excessive even for most judges and juries in our jackpot driven system.

Ironically the one area where the threat of litigation may affect corporate behavior is in the development of niche products like medications for rare or infrequent diseases. Because the expected revenue from such medications would be limited and far less than a blockbuster like Vioxx there is the potential for litigation to damage the company far beyond the relatively small income of these specialized drugs. One of many criticisms of the pharmaceutical industry is that they concentrate too much research on potential blockbuster and “me-too” drugs instead of treatments for lesser-known conditions. The threat of litigation may be compounding this problem.

It appears massively simplistic to believe that corporations would “think twice” before developing a dangerous product. Ironically, corporations not only think twice, they have entire risk and prediction analyses about the potential liability of every consumer product. If the risk is too high then they stop. If the sales from a product are likely to exceed losses from any successful litigation then they proceed.

Companies don’t really care if a few people get hurt using their products as long as profits are not hurt as well. Ensuring that as few people get hurt as possible is not the job of a company, as bad as that sounds. It’s the job of regulatory agencies in government. But in our country we prefer as little government as possible. We prefer the lottery system. If we get injured we sue and we might win! But don’t expect the company to change.

Caveat emptor.