Xarelto Settlement Is a Missed Chance to Stanch the Bleeding

(Bloomberg Opinion) -- I can’t say I’m terribly surprised that nobody wants to talk about the Xarelto settlement announced early last week. It doesn’t make any of the participants look especially good.

Xarelto is a blood thinner that Bayer AG developed and that Janssen Pharmaceuticals Inc., a subsidiary of Johnson & Johnson, markets in the U.S. Introduced in 2011, it quickly gained blockbuster status, generating $6.54 billion for the two companies in 2017. A few years after it hit the market, it also became the subject of lawsuits, when some patients complained that the companies had failed to warn them of a serious possible side effect: excess bleeding. And not just a few lawsuits — an astounding 25,600 suits have been filed, according to J&J’s 2018 annual report.

The companies agreed to settle those suits last week. They will pay $775 million to the plaintiffs; assuming that most of them accept the deal — and their lawyers are certainly going to encourage that! — the litigation will disappear. Bayer and J&J have agreed to split the payment, with each doling out $387.5 million.

Given the size of the two companies — J&J’s revenue last year topped $80 billion, while Bayer’s was just under $40 billion — the settlement amount is pocket change. Last week’s announced deal had no effect on the companies’ stock. (They each have other, more pressing litigation problems: Bayer has lost two suits claiming that its weed killer Roundup causes cancer; J&J is facing lawsuits related to its marketing of opioids.)

Yet despite the settlement’s relative insignificance, the Xarelto litigation should trouble anyone who cares about how the legal system can be abused. This is a settlement that should never have happened — because these lawsuits should never have been filed. At the very least, the litigation should have ended once it became clear that the plaintiffs had no case.

But that’s not how it works, and hasn’t for decades, ever since the trial lawyers realized that if they acted in concert, they had a high likelihood of landing a big payday, even if the facts were not on their side. This has become the business model for the plaintiffs’ bar.

Trial lawyers are constantly on the lookout for products they can sue over. The large firms especially have lots of overhead and upfront costs, so they have to keep feeding the beast. In the case of Xarelto, there have been instances of excess bleeding; it is a well-known side effect of a new class of blood thinners, which also includes Boehringer Ingelheim’s Pradaxa, and Eliquis, co-marketed by Pfizer Inc. and Bristol-Myers Squibb Co.

Once the lawyers have a product in their sights, the next step — and this is key — is to find not just a handful of people who believed they’ve suffered harm as a result of using the product. They also need tens of thousands of “victims.” How do they find them? By advertising. According to the Wall Street Journal, in 2016 alone, plaintiffs’ lawyers bought an unbelievable 129,000 ads seeking Xarelto clients.

“Have you or a loved one been prescribed the blood thinner Xarelto as a treatment for reducing the risk of stroke?” one such advertisement begins. “Remember, these drugs are linked to serious and potentially fatal health problems, including serious and sometimes fatal internal bleeding.” Naturally, the ad also raises the possibility of a nice payday if the victim joins the litigation. In 2017, one Texas attorney told the Wall Street Journal that his firm was spending $20 million a year on Xarelto ads.

Once there’s a critical mass of cases, they are consolidated by the judiciary and a handful go to trial. These are often called “bellwether cases,” because their collective outcome will determine how much money the corporations will have to pay to make the litigation go away.

There were six bellwether Xarelto cases. The plaintiffs’ central contention was that the companies’ warning labels were insufficient, given the bleeding the drug could sometimes cause. Bayer and J&J argued that there were plenty of warnings, all approved by the Food and Drug Administration, and they were more than sufficient. The plaintiffs lost all six cases.

Do you see now why I find this litigation so troubling? In terms of the evidence, the trial lawyers had a losing hand — any kind of sane judicial system would have them leaving the field of battle, a defeated army.

But in the judicial system we operate under, the mere fact that the lawyers were able to sign up over 25,000 clients guarantees that they’ll make millions no matter what the outcome of any actual trial. What’s six negative verdicts when you’ve got thousands and thousands of cases lined up behind them?

In their statements, both Bayer and Johnson & Johnson’s Janssen subsidiary stressed that the settlement did not mean that they were admitting they had done anything wrong. Rather, the Janssen statement said, “it is the right thing to do for patients and their doctors.” The statement continued:

Even in the face of meritless allegations, and even while winning in court, complex litigation demands an enormous amount of time and resources. Because of this litigation, our talented scientists and researchers, our employees and many doctors across the country have had to spend numerous hours answering questions from plaintiff lawyers, compiling documents those lawyers have asked for, and otherwise being pulled away from their passion for patient care. As a healthcare company, we want to spend every moment we can improving lives and finding new cures.

OK, that last sentence was a bit of corporate puffery. But the rest of it really does explain why companies settle meritless suits. When you throw sand in the gears of commerce, those gears will eventually grind to a stop. Lawsuits like the Xarelto cases are nothing but sand that needs to be removed.

I emailed three of the top plaintiffs’ lawyers who brought Xarelto cases; none responded. Maybe they sensed that I was going to ask them how much their take is going to be. Using the usual rule of thumb — 30 percent — they’ll get a whopping $233 million. That would leave, on average, a less-than-whopping $20,000 per victim.

But the companies aren’t talking either. Details of the settlement have to be ironed out, and I supposed they don’t want to say anything that might cause it to fall apart.

I do understand why J&J and Bayer settled the litigation. But I wish they hadn’t. When a loser like the Xarelto litigation can generate $233 million in fees, the plaintiffs’ bar has every incentive to find the next product it can bury in lawsuits — regardless of whether the product actually harms anybody.

The only way this practice will end is if deep-pocketed companies like J&J and Bayer decide to fight them, once and for all.

Boehringer Ingelheim has also settled its blood-thinner suits. Pfizer and Bristol Myers have not; last week, an appeals court upheld the dismissal of 60 Eliquis lawsuits.

To contact the editor responsible for this story: Stacey Shick at sshick@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is co-author of “Indentured: The Inside Story of the Rebellion Against the NCAA.”

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