Wednesday, August 28, 2013

J&J’s DePuy Unit Considers Record-Setting $3 Billion Hip Settlement

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In March, Johnson & Johnson lost its first DePuy Articular Surface Replacement (ASR) trial to the tune of $8.3 million. Not surprisingly, the device manufacturer continued to deny liability for defective ASR hip implants following the verdict and announced plans to appeal. But now the company is rumored to be contemplating a potentially record-breaking settlement of pending hip implant cases.

According to Bloomberg, sources familiar with the DePuy litigation say that the company is considering a $3 billion global settlement. The rumored settlement would resolve up to 11,500 U.S. lawsuits, involving the controversial ASR hip replacements.

ASR Controversy

In 2010, J&J’s DePuy unit recalled 93,000 ASR implants after data from the National Joint Registry of England and Wales showed an abnormally high failure rate for the devices. Data from the British joint registry and other medical organizations showed that more than 12 percent of the devices failed within five years.

In 2011, the British registry’s data projected the devices could fail in almost one-third of patients who had the implants for six years.

At the time, J&J challenged the data. But according to The New York Times, pre-trial testimony in an ASR lawsuit shows that DePuy estimated failure rates at 37 percent.

Pretrial testimony also shows that DePuy had internal discussions about high concentrations of metal ions in ASR patients. Such concerns are consistent with the claims of plaintiffs who have sued J&J and DePuy over severe, sometimes permanent, injuries from the chromium and cobalt devices.
The lawsuits allege that the ASR’s defective design caused friction between metal-on-metal ball and cup components that shed metallic debris. Injured people claim the debris caused inflammation as well as painful bone and tissue damage.

Possible Uptick in Settlement Expectations

A year ago, unidentified sources close to the litigation told Bloomberg that J&J had negotiated a $600,000 settlement of three ASR cases in Nevada. Litigation settlement amounts typically remain private under the terms of settlement agreements. But if the sources were accurate, the first settlements in the ASR saga clocked in at $200,000 per case.

A University of Michigan business professor who studies the pharmaceutical industry told Bloomberg that the rumored settlements were “at the low end of what the company should have expected.”

According to Professor Eric Gordon, the expected range is $200,000 to $500,000 per case. He also indicated that J&J would benefit from “anchor[ing] settlement expectations at the low end of the range.” He estimated that it would ultimately cost J&J up to $2 billion to resolve all of the cases.
But if sources for the most recent settlement rumors are correct, settlement expectations may be rising. If J&J ultimately agrees to a $3 billion global settlement, the average settlement per claim would be $300,000 per case.

That amount is also 50 percent higher than amounts previously discussed during negotiations. It would also shatter the current record for hip implant settlements, which was $1 billion paid by Switzerland-based device maker Sulzer.

Likely Concern Over Trial Outcomes

If there is indeed an uptick in settlement expectations, it’s likely related to concerns over upcoming trials. According to Bloomberg’s sources, J&J’s settlement negotiations would be affected by the results of seven trials scheduled between September and January.

The outcome of the first ASR trial in March is also a likely factor. A Los Angeles jury ordered J&J to pay more than $8.3 million to a retired Montana prison guard. Loren Kransky alleged that J&J and DePuy failed to warn surgeons and patients about risks associated with the ASR implants. Mr. Kransky’s case was not scheduled to be the first trial, but was moved up due to his terminal cancer diagnosis.

Although his lawyers did not expect him to live through the trial, he was able to hear the jury’s verdict. After more than five days of deliberation, they awarded him $338,000 for medical expenses and $8 million for pain and emotional suffering.

The jury declined to award punitive damages, which could have potentially bolstered J&J’s outlook about upcoming trials. It may also have been encouraged when a Chicago jury ruled in its favor in a case filed by a nurse. But J&J likely understands that future juries could have different, more costly views on liability and punitive damages.

According to The New York Times, evidence in the Kransky trial included internal J&J documents showing that surgeons warned company executives about design flaws. They also urged the device maker to slow or stop implant sales. Even worse, evidence presented at trial showed that J&J considered redesigning the ASR to reduce risks, but ultimately didn’t feel the costs were justified.
This and similar evidence is expected to be presented to a federal jury when federal bellwether trials begin. The first trial is scheduled for Sept. 9. Evidence may include testimony heard in the Kransky case that DePuy sold ASR devices despite being aware as early as 2008 of reports by an English surgeon that the implants release high levels of metallic ions, especially in women.

Notably, the plaintiff in the first federal trial is a 57-year-old mother and small business owner. Earlier this month, she filed her list of 95 potential witnesses with the court.

The outcomes of the federal bellwether trials are expected to have far-reaching impacts on other cases pending in both state and federal courts. J&J may be willing to adjust its own settlement expectations to avoid a series of unfavorable verdicts. The impact of those verdicts could be especially damaging for J&J as the most severe cases go to trial.

California plaintiffs’ attorney Matthew Davis recently told Bloomberg that there is “a significant subset of clients who got very badly hurt by the device.” These cases involve dual hip revisions or long hospital stays from severe infections. According to Davis, juries could potentially return seven-figure awards in those cases.

In 2012, there were about 8,000 ASR pending hip lawsuits, including 6,000 cases designated as federal multidistrict litigation (MDL) and 2,000 cases in California, Nevada and other state courts. An estimated 11,500 cases are currently pending in courts across the nation, including more than 650 cases centralized in a state court in New Jersey, where J&J is headquartered. It also includes 7,860 federal cases pending in MDL No. 2197 in the U.S. District Court for the Northern District of Ohio.
More than 160 MDL cases have been resolved or otherwise removed from the MDL since its creation

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