To end a growing legal assault, American Home Products has agreed to pay roughly $3.75 billion to settle claims by thousands of consumers who alleged they were injured by fen-phen, a diet-pill combination that was pulled off the market after studies linked it to heart-valve disease.
The settlement includes a fund of $2.3 billion for former fen-phen users who have developed heart problems, plus $1 billion for medical monitoring of those who took the pills but have yet to show any symptoms, the company said. Plaintiffs' lawyers stand to collect as much as $429 million.
If a federal judge approves the agreement, payments will begin next year and could continue until 2015.
For AHP, the beleaguered New Jersey pharmaceutical giant that marketed fenfluramine, the "fen" in fen-phen, the deal wins closure for a legal morass that threatened years of litigation and had depressed the company's stock price. AHP executives maintain that fenfluramine and Redux, a close chemical cousin the company also marketed, never created a major health problem. But according to chief executive John Stafford, AHP opted to negotiate an out-of-court agreement rather than face an extended and distracting fight.
"We believe this settlement offers peace of mind to those who used the drug," Stafford said, adding that "the company acted responsibly at all times."
About 6 million people took fen-phen, a drug cocktail that curtailed the appetite by flooding the brain with serotonin. The drugs were initially hailed as a wonder cure for those battling obesity or simply trying to shed a few extra pounds.
But with the drug's reputation growing in 1997, a Mayo clinic study suggested the combination caused trauma to heart valves. Soon after, the Food and Drug Administration asked makers of the drugs to pull them off the market. An onslaught of litigation followed, and about 4,000 related lawsuits are in the court system.
Yesterday's agreement is intended to settle most of those suits. A toll-free number (1-800-386-2070) has been established to provide information for former fen-phen users. Anyone who used fen-phen or Redux and can prove injuries is eligible for a payment, regardless of whether they filed suit. Sums awarded will vary by the extent of each person's injury and age, with younger and more injured users receiving the most money. The maximum award per person will be $1.5 million.
Consumers will have several opportunities to opt out of the settlement and sue on their own, though if enough users opt out of the arrangement, AHP executives might scuttle the deal, they said. The settlement is unusual in that it covers future claimants. Consumers who currently are not showing any fen-phen health problems can receive echocardiograms paid for by the medical monitoring fund; if they eventually develop heart-valve disease, they can then partake in the settlement.
The arrangement, which was largely negotiated in the past two months, does not cover the most serious disease associated with fen-phen, primary pulmonary hypertension, a rare lung ailment. Those cases could end up costing the AHP hundreds of millions more.
Still, the company now has purchased some certainty about a matter that had caused investors, who were worried about AHP's legal exposure, to sell off shares. Those fears peaked in August when a Texas woman with modest fen-phen-related injuries won a jury verdict of $23 million. Though AHP settled that matter for less than one-tenth of that sum, the company's share price dipped about 30 percent below its 52-week high of $70.25.
AHP shares rose about 8 percent yesterday to close at $48.68 3/4.