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September 1, 2003

Bad Medicine

By Robert Lenzner and Rob Wherry
Forbes Magazine

Plaintiff lawyers have squeezed Wyeth for billions over its faulty weight-loss drugs. Now the company is pushing back with allegations of greed and wrongdoing.

One of the costliest drug recalls in history is turning very, very ugly. Wyeth Corp. pulled its faulty diet pills, Redux and Pondimin, in 1997 and has paid out $13 billion in claims since. (Redux was the dexfenfluramine and Pondimin the fenfluramine, the "fen"s of the fen-phen combo.) But even the deepest pockets reach their breaking point. In late July a delegation from the army of fen-phen tort lawyers met with Wyeth's lawyers across a Dallas conference room table. The plaintiffs proposed to settle all existing claims globally for another $15 billion. Wyeth's legal team walked out, rejecting the number as absurd. No deal, no more talks.

A week after they walked, Wyeth's defense lawyers endorsed a withering legal counterstrike to prove bogus a huge portion of the 153,000 claims. They're out to humiliate the plaintiff bar and its expert doctors by handing their evidence over to law enforcement officials and medical licensing boards. "Only a fraction of the actual claim forms submitted will result in a payment," says a company financial statement.

Failure to raze the mountain of claims could mean disaster. Wyeth has repeatedly underestimated the extent of its liabilities. Chief Executive Robert Essner has only $1.7 billion in cash reserves for the 70,000 individual cases against the company. Also, there's only $2.1 billion in the AHP Settlement Trust (American Home Productswas Wyeth's old name), set up to settle the 83,000 class claims.

So far the plaintiffs have won 6% of the Trust cases, averaging $400,000 awards to users with moderate heart valve damage. If the rest of the Trust cases break the same way, it's goodbye Trust, and open season on Wyeth's own coffers. "The company believes that there is no basis to change its reserves to cover the remaining obligations," Wyeth says in its latest quarterly report. But Wyeth's chief financial officer said in July that additional reserves may be required.

Tens of thousands of claims flooded the Trust during the month prior to the May 3 deadline for inclusion in the Trust. One trial lawyer, who requested anonymity, pegs Wyeth's exposure at $40 billion. "It's a gang bang," he says.

Joseph Langston, a Booneville, Miss. lawyer who represents 5,450 cases, charges that Wyeth committed fraud on the public by promising its over-the-counter pills would let you "lose weight without adverse effect."

But momentum has shifted strongly to Wyeth ever since November, when Philadelphia Federal District Court Judge Harvey Bartle III reviewed the claims left against the AHP Trust and, finding gross irregularities, authorized that they all undergo audits by independent medical experts. The Trust's policy had been to randomly audit 15% — a big mistake.

Judge Bartle threw out 78 claims submitted by two New York firms seeking $50 million. Linda Crouse, the Kansas City, Mo. doctor who had reviewed 53 of those claims, admitted that she was rarely in the room when the echocardiograms were performed and had spent less than seven minutes reviewing each case. Yet she got $2.7 million in fees from plaintiff law firms for reviewing 10,000-plus exams in a ten-month period. "Her practice resembled a mass-production operation that would have been the envy of Henry Ford," wrote the judge.

In early August lawyers for the AHP Trust filed papers with the court warning that they plan to sue any lawyers or doctors who had caused the trust to pay illegitimate claims. They are going to refer illegal or unethical conduct to the cops or medical licensing boards. The Trust has established a hotline for informants.

The trial lawyers are now turning on one another. Several of the hundreds of firms suing Wyeth moved last week in Judge Bartle's court to disqualify Levin, Fishbein, Sedran & Berman, the Philadelphia firm leading their own team. "They have accused us of disloyalty in an effort to get us to shut up or to remove us," says senior partner Michael Fishbein.

He agrees with Wyeth that there are widespread abuses and that a very large number of claims won't qualify. But he still says there could be enough legitimate claims to bust the AHP Trust.

Several months ago Wyeth and Fishbein's firm negotiated an amendment to the trust that will push any unpaid claims out to federal courts on a case by case basis. The litigation is going to go on for a long, long time. Who knew that Redux and Pondimin, drugs that grossed $500 million the last year they were on sale, would cost $15 billion--and counting?

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