New Rule Forces Pharma To Disclose Lawsuit Costs
6 CommentsBy Ed Silverman // August 8th, 2008 // 5:12 pm
We all know litigation costs money. But right now, companies are required to estimate the cost of a lawsuit only when it is likely a loss is in the offing. But the Financial Accounting Standards Board wants, instead, to require companies to account for the potential cost of all ongoing litigation - period. And you can imagine the response from your friendly neighborhood general counsel - who knows?
So why is FASB proposing additional projections? “Investors and other users of financial information have expressed concerns that disclosures about loss contingencies under the existing guidance in FASB Statement No. 5, Accounting for Contingencies, do not provide adequate information to assist users of financial statements in assessing the likelihood, timing, and amount of future cash flows associated with loss contingencies,” according to the FASB proposal.
Several drugmakers, however, are not pleased. And so Lilly, Johnson & Johnson, Merck, Novartis, Pfizer and Wyeth teamed up to write a letter to FASB saying this is a bad idea, especially for companies that defend mass torts, or widespread product liability litigation. (Can you say Vioxx or fen-phen?) And so they write…
“A mass tort may develop, multiply, diminish, or disappear based on a host of procedural or legal rulings, fact-findings, and other events, none of which can be predicted in advance. Due to a mass tort’s sheer volume, it would be extremely difficult to estimate our litigation adversaries’ possible recoveries and keep thousands of estimates current and accurate, every 90 days (or more often), as circumstances change. And the estimates would be highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information.”
The drugmakers are also “concerned that the new disclosure rules will undermine the attorney-client privilege and work product protection and, more generally, will tilt the litigation balance in favor of disclosing companies’ litigation adversaries and, thus, work to the ultimate detriment of our shareholders without providing meaningful disclosure to investors.”
Maybe not, but since every drugmaker is locked in product-liability litigation - not to mention other types of lawsuits - you can imagine what this will do to the betting on Wall Street.
Can you guess what the US Chamber of Commerce has to say? Please look here…
Hat tip to Drug and Device Law blog
Justice in MI
Obviously, I’m missing something. Every day we hear about the apocalyptic consequences of lawsuitts, and the way their costs is destroying life on earth.
And yet … why wouldn’t the industry want to say what they actually are?
atlex
JiM,
If you pharma company has to report these in detail on its financial statements, it would essentially be telling the plaintiffs how much the company believes the settlements would be.
Atlex
Lana Keeton
You won’t find Case #06-21116-Civ-Ungaro-Benages, Lana C. Keeton vs. Gynecare/Ethicon/Johnson & Johnson in the United States District Court for the Southern District of Florida on Johnson & Johnson’s financial statements for 2006 or 2007…
a lawsuit for the inherently defective Prolene polypropylene surgical mesh that is implanted in millions of Americans.
They don’t want to tip off ANYONE that the Prolene Mesh is defective. God forbid they should have to tell the truth…people are dead from this product.
Mass Torts? Class Action Lawsuits? Pharmaceutical companies paid $58 billion dollars in settlements??
How about the pharmaceutical companies
STOP PUTTING HARMFUL MEDICAL PRODUCTS INTO THE STREAM OF COMMERCE?
Then their cost of litigation would significantly decline and they would not have to report it on their financial statements.
Americans would not be dead or permanently injured for life from the CHEMICAL GARBAGE that the pharmaceutical companies sell as MEDICINE.
It’s all about the money…can you spell GREED?
All Public Corporations have to disclose this information. Why should the pharmaceutical companies be any different?
The Pharmaceutical Industry sales are over $245 Billion a year. $51 Billion over several years is a drop in the bucket.
THOUSANDS AND THOUSANDS OF AMERICANS SUFFER IRREPARABLE NEEDLESS PHYSICAL HARM BECAUSE OF PHARMACEUTICAL GREED.
THEY NEED TO PAY AMERICANS FOR USING THEM AS GUINEA PIGS FOR THE CLINICAL TRIALS THAT THEY DO NOT CONDUCT BEFORE THEY PUT UNTESTED MEDICINES AND MEDICAL DEVICES INTO THE STREAM OF COMMERCE…think 510 (k) Substantial Equivalence…think approval in 90 days or less…think no clinical trials…
Pharmaceutical companies want a free ride in and a free ride out while they stuff their pockets with the money they have earned while killing,maiming and destroying human beings.
Not enough that the U.S. Chamber of Commerce has put caps on punitive damages, changed supreme court justices in the state courts, written friend of the court amicus curae briefs to the Supreme Court…now they want to be sure you don’t even know who is suing them and WHO MIGHT WIN AGAINST THEM.
Thanks Ed for bringing all this to light..you are the light for a lot of us…BRAVO!!!
Lana Keeton
truthman30
If the drugs were adequately tested and not rushed to market to make a profit , there would be less defective drugs , less dangerous drugs and less damaged and dead patients which in turn would mean less lawsuits…
It’s quite simple really..
The lawsuits exist because the pharmaceutical industry is making substandard drugs and then hiding the side effects for as long as they can make a profit..
The casualties of this dire situation are just road kill…
Quite sad ..
Meg
I would appreciate it if my beloved, killed son were not referred to as road kill. Collateral damage, maybe. The victim of a war that we are losing, maybe. I believe the only solution to solving the abject greed and total lack of morality of Pharma is criminal trials and prison terms. If a little justice could be inserted into the system, perhaps some measure of ethics would make an appearance into this industry. As it now stands, thousands are killed and never mentioned again, ever, anywhere.
Tonio Merimbe
So boo-hooooo! Big Pharma can just offshore any jobs created by having to update the litigation cost numbers quarterly, it won’t cost that much. They will end up with so much of the company virtually employed that the CEOs can move to tax havens to hang out. Some lawsuits bring ugly facts to light that drug makers want to suppress, that’s one of the REAL reasons for their objections.