Lipitor is the best selling and most advertised prescription drug ever marketed. For years it has been a trusted drug for doctors trying to help patients lower cholesterol. In fact, more than 29 million people have used the pill. With all of these facts in mind, the drug must be safe, right? Well, a recent uptick in litigation against Pfizer (NYSE:PFE) would suggest that the drug might not have been as safe as initially predicted.
A report by the FDA suggested that Lipitor and other drugs may be contributing to an increased risk of type two diabetes. It is worth mentioning that this increased risk is small and that the FDA believes that there is still an overwhelming benefit vs. risk profile in favor of Lipitor. The FDA noted that:
"the value of statins in preventing heart disease has been clearly established. Their benefit is indisputable, but they need to be taken with care and knowledge of their side effects."
The position of the FDA is that the benefits of drugs like Lipitor in preventing heart disease far outweigh the risk of diabetes. Expect for this to be very important in any potential trial.
The Uptick In Litigation
Lawyers have caught on to this increased risk, and have been filing lawsuits against Pfizer at an accelerating pace. All of the lawsuits have now been consolidated. With the recent consolidation, it appears as though Pfizer is now facing one of the most important court battles in its history. We will now analyze some of the impacts of the litigation and what the plaintiffs are going to have to prove.
Does Lipitor Cause Type II Diabetes?
The plaintiffs are going to have to overcome a significant hurdle very early on. They are going to have to show a definitive link between Lipitor and type II diabetes. Merely showing an increased risk of type II diabetes will likely not be enough for the plaintiffs to receive a verdict in their favor. Pfizer will have a relatively easy position in the trial, pointing out the multitude of other factors that could have contributed to an increased risk of diabetes. Some of the factors that Pfizer is going to be able to point to at trial are as follows: abnormal lipid levels, being overweight, being over 45, hypertension, and family risk factors are just a few of the various factors which could explain the increased risk of type II diabetes. Essentially, expect (should it go to trial) Pfizer's attorneys to argue that some of these other factors likely contributed to the development of diabetes in the plaintiffs, and not Lipitor. These arguments are well established by evidence, and as such Pfizer should be able to line up doctor after doctor to take the stands and talk about all of the different factors that could increase the risk of developing type II diabetes. Thus Pfizer should be able to muddy the waters sufficiently to make a jury question whether Lipitor was the root cause of Type II diabetes.
Plaintiffs are going to have to show a definitive link before they are even able to speculate on damages. Pfizer will be able to muddy the waters and since the burden is on the plaintiff (not Pfizer), Pfizer will have a huge advantage.
Is a Settlement on the Horizon?
Pfizer has shown no indication of wanting to settle the suits in question. The company has denied liability, and does not seem to have made any provisions in its quarterly financials towards a settlement. Still, companies will typically settle litigation like this just to avoid bad press. The thought of Lipitor being linked to diabetes would scare consumers. Pfizer could also settle to avoid the excessive costs of litigation, depending on the demands of the plaintiffs. Still, I would expect to see Pfizer test the waters before making a decision on whether or not to settle.
Key Trials To Watch
The first trial to watch will be in next June, when the first case is scheduled to go to trial. This will be watched closely by both sides, as it will be a test case. If Pfizer is able to win it will help to weaken the claims of the other Plaintiffs and will make lawyers more hesitant to take Lipitor cases to trial (especially if they are taking the case on contingency, as they could make nothing or worse actually lose money after hiring experts for the trial). Should the plaintiffs somehow win it will be a large blow to Pfizer. The question for shareholders will then be how big of a blow? Should the jury come out against Pfizer but still assign a relatively low dollar amount this could be seen as a victory for Pfizer, as it will strengthen Pfizer's position in any sort of settlement if a jury is not awarding high damages.
While the news likely came as a shock to Pfizer shareholders, it is not yet time to panic. The plaintiffs will have a long way to go before being able to claim any damages. It appears as though Pfizer will have the upper hand heading into the litigation, with the ability to point to the multitude of other risk factors that could have caused the increased risk of diabetes.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.