(Updates share price in second paragraph.)
April 8 (Bloomberg) -- Takeda Pharmaceutical Co. and Eli Lilly & Co. were ordered to pay a combined $9 billion in punitive damages after a federal court jury found they hid the cancer risks of their Actos diabetes medicine in the first U.S. trial of its kind.
Osaka, Japan-based Takeda was ordered to pay $6 billion by the jury yesterday in Lafayette, Louisiana. Its shares fell 5.2 percent to close at 4,572 yen in Tokyo, the biggest decline since Dec. 27. Indianapolis-based Eli Lilly, Takeda’s partner, was ordered to pay $3 billion, though Takeda may wind up paying any final judgment in the case under an agreement between the companies. Lilly dropped 2.2 percent to the equivalent of $57.32 in German trading. It fell as much as 1.7 percent in New York Stock Market composite trading, before closing at $58.58.
“I hope Takeda executives in Japan heard what this jury had to say loudly and clearly,” Mark Lanier, a lawyer for former Actos user Terrence Allen, said after the verdict. The jury earlier awarded $1.5 million in compensatory damages to Allen, who blamed the drug for his bladder cancer.
Takeda, Asia’s largest drugmaker, faced the Actos claims after it scrapped development of another diabetes drug this year when research linked it to liver damage. More than 2,700 Actos suits have been consolidated before U.S. District Judge Rebecca Doherty in Louisiana for pretrial information exchanges, according to court dockets. Doherty presided over Allen’s trial.
The $9 billion jury award, the seventh-largest in U.S. history based on data compiled by Bloomberg, will probably be reduced because the U.S. Supreme Court has said punitive verdicts, imposed for bad conduct, must be proportional to the awards of compensatory, or actual, damages that underlie them. The court has said that in limited cases, punitive awards that amount to ten times a compensatory award would be acceptable.
Of the 10 largest U.S. punitive verdicts previously awarded against corporations, all were either reversed or substantially reduced, according to data compiled by Bloomberg. None were paid at the amounts assessed by the juries.
“The judgment is so out of line with actual damages that it shows a runaway jury, not a verdict that is likely to stand, even if an appeals court believes Takeda and Lilly wrongfully hid the risk of cancer,” Erik Gordon, professor at the University of Michigan’s School of Law and Ross School of Business, said in an e-mail.
Takeda and Lilly officials said they’d appeal the jury verdict, which may be the largest single award in U.S. history over a drugmaker’s mishandling of a product.
“Takeda respectfully disagrees with the verdict and we intend to vigorously challenge this outcome through all available legal means, including possible post-trial motions and an appeal,” Kenneth Greisman, general counsel for Takeda’s U.S. unit, said in an e-mailed statement. “We also believe we demonstrated that Takeda acted responsibly with regard to Actos,” he added.
Candace Johnson, a spokeswoman for Eli Lilly, said in an e- mail that the company is confident Actos is an important option for the treatment of type 2 diabetes.
“While we have empathy for the plaintiff, we believe the evidence did not support claims that Actos caused his bladder cancer,” Johnson said. “We intend to vigorously challenge this outcome through all available legal means, including possible post-trial motions and an appeal.”
Atsushi Seki, an equities analyst at Barclays Plc in Tokyo, said in an interview today that any efforts to reduce the verdict should be watched carefully. The market is taking about 40 percent to 50 percent of the payment into account today in connection with Takeda’s shares and that’s an overreaction, Seki said.
Lilly’s shares also shouldn’t be down, said Mark Schoenebaum, an analyst with ISI Group LLC. “LLY is down today (and underperforming) on fears that it will owe billions of dollars in payments due to a lost court case,” he said in a note to clients. He said that Lilly’s indemnity agreement with Takeda should eliminate any exposure to the massive verdict.
Allen sued both Takeda and Eli Lilly over Actos. Lilly served as Takeda’s U.S. partner in selling and marketing the drug over a seven-year period starting in 1999. While that partnership ended in 2006, Lilly continued to have rights to sell Actos in parts of Asia and Europe, as well as in Canada and Mexico.
After the verdict, Lanier exchanged celebratory high-fives with members of his legal team outside the courtroom. He said evidence presented in the trial showed Takeda agreed to indemnify Lilly for any legal liability tied to Actos. That means that Takeda will probably be on the hook alone for whatever the final amount turns out to be.
Bruce Parker, a lawyer who represented both Eli Lilly and Takeda in the two-month trial, declined to comment as he was leaving the courtroom.
The Louisiana jury is the fourth panel to have weighed allegations that Takeda marketed Actos knowing it could cause cancer and failed to properly warn doctors and consumers about the risks.
Last year, state juries in California and Maryland ordered Takeda to pay a total of $8.2 million in damages to former Actos users. Judges in both states threw out the verdicts. In December, state court jurors in Las Vegas rejected claims the company failed to properly warn consumers about the risks of Actos.
Actos sales peaked in the year ended March 2011 at $4.5 billion and accounted for 27 percent of Takeda’s revenue at the time, according to data compiled by Bloomberg. Actos has generated more than $16 billion in sales since its 1999 release, according to court filings. Takeda now faces generic competition from Ranbaxy Laboratories Ltd.
The verdict comes as both companies battle rising competition from cheaper generics. Takeda has seen earnings decline due to generic competition on Actos, once the world’s best-selling diabetes medicine, and Lilly has seen treatments for pain and schizophrenia lose market share to lower priced copies.
Takeda, which traces its origins to a medicine wholesale business opened in Osaka in 1781, has been making acquisitions and hiring senior executives from overseas to globalize its business in recent years.
It has hired French national Christophe Weber as chief operating officer and plans to name him chief executive next year, which would make him the first non-Japanese leader in Takeda’s history. Takeda in February predicted net income will fall 24 percent to a 15-year low of 100 billion yen ($971.5 million) for the year ending March 2014, on revenue of 1.69 trillion yen. Lilly in January reported that fourth quarter sales fell about 2 percent to $5.81 billion.
In addition to the federal court suits, Takeda and Lilly face thousands more claims over Actos in U.S. state courts. Takeda faces more than 3,400 Actos cases in Illinois courts alone, Hunter J. Shkolnik, a lawyer representing former users of the drug in those cases, said in an e-mail.
Lawyers in an Actos case that began in state court in Las Vegas in February have said they are seeking more than $1 billion in compensatory and punitive damages for two women who blame the drug for their bladder cancers.
Allen alleged in the Louisiana case that he developed bladder cancer after taking Actos for more than five years starting in 2006. Lanier had said before the trial he was seeking at least $15 million in damages for the former hardware- store manager from Attica, New York.
Allen alleged in his lawsuit that Takeda executives ignored or downplayed concerns about the drug’s cancer-causing potential and misled regulators about its risks to protect billions in sales.
Takeda didn’t provide a specific warning about Actos’ cancer risks until 2011, seven years after experts said the bladder-cancer link became clear and 12 years after the drug went on the U.S. market, Lanier said.
Takeda executives said in e-mails that Actos “was vital to the company’s survival” and that prompted the drugmaker to drag its feet in acknowledging the medication’s cancer risks, Lanier said.
Takeda officials intentionally destroyed documents about the development, marking and sales of Actos, Lanier said. The company ditched files of 46 former and current employees, including those of top executives in Japan and U.S. sales representatives, he said.
Because Takeda failed to properly protect the Actos documents, Doherty penalized the company by instructing jurors they could infer that the files may have buttressed Allen’s claims the company wrongfully hid the medication’s health risks.
“The breadth of Takeda leadership whose files have been lost, deleted or destroyed is, in and of itself, disturbing,” Doherty wrote in a January ruling that opened the door for jurors to hear about the destroyed documents.
After deliberating for about four hours yesterday, jurors found Takeda and Lilly “failed to adequately warn” about Actos’ bladder-cancer risks and that the drug caused Allen’s disease, according to court filings.
Jurors also found Takeda and Lilly executives “acted with wanton and reckless disregard” for patients’ safety in their handling of the drug and that justified a punitive damage award against both companies.
“This verdict sends a message that you must put the health and safety of Americans ahead of profits or American juries will have the courage and resolve to hold global corporations accountable,” Neil Overholtz, a Florida lawyer who represents former Actos users, said in an e-mailed statement.
The consolidated Actos cases in Louisiana are In Re Actos (Pioglitazone) Products Liability Litigation, 11-md-02299. Allen’s case is Allen v. Takeda Pharmaceuticals North America Inc., 12-cv-00064, both in U.S. District Court, Western District of Louisiana (Lafayette).
--With assistance from Margaret Cronin Fisk in Detroit and Drew Armstrong in New York.