American Home Products Corp. is set to pay roughly $4 billion to settle thousands of lawsuits by consumers who contend that they were injured by fen-phen, a once-popular diet pill combination, according to lawyers close to the matter.
The deal, among the largest mass tort settlements in history, would cover the estimated 6 million people who took fen-phen before the combination was pulled from the market in 1997 after studies linked it to heart-valve disease. Since then, about 4,000 personal-injury lawsuits seeking damages have been filed against AHP, which marketed one of the two drugs.
After months of negotiations, plaintiffs' lawyers and attorneys for AHP began to circulate a memorandum of understanding yesterday, providing the outline of a settlement, lawyers said. Under the terms being discussed, the company would set up a $2.8 billion fund for people allegedly injured by fen-phen and for anyone who develops injuries from the drugs in coming years. Another $1.2 billion would would go to establish a fund for medical monitoring of former fen-phen users.
Plaintiffs would receive $125,000 to $1.5 million, depending on the extent of their injuries and their ages. The greater the injury and the younger the plaintiff, the larger the award.
Officials at AHP declined to comment. Sol Weiss, one of the lead plaintiffs' attorneys, also would not comment. Some details in the agreement were still being negotiated -- particularly the range of awards -- and lawyers on both sides planned to work over the weekend.
Even after a final deal is signed, fen-phen litigation will be around for years because the settlement gives plaintiffs several chances to opt out and sue on their own. Also, the deal might or might not cover users with primary pulmonary hypertension (PPH), an often-fatal lung disease allegedly caused by the drugs.
But all parties are now a giant step closer to resolving a highly contentious legal battle over a drug combination once hailed as a miraculous weapon in the war on obesity. Taken together, fenfluramine and phentermine -- nicknamed fen-phen -- worked by controlling users' appetites, helping millions of Americans shed unwanted pounds and turning the combination into one of the country's most sought-after prescriptions. AHP marketed fenfluramine as well as Redux, a close chemical cousin.
But in 1997, researchers at the Mayo Clinic announced that a study suggested the drugs caused a thickening of heart valves in an alarming number of users, a finding later supported by the Food and Drug Administration. How a medication that releases extra amounts of seratonin in the brain could cause heart damage is a still something of a mystery, and AHP and the handful of phentermine makers have released their own studies that purport to show the drugs are far less dangerous than previously thought.
Still, the FDA nudged AHP and other drugmakers to withdraw fen-phen from the market and urged users to get a medical checkup. Hundreds of lawsuits were soon filed, and a federal judge in Philadelphia was eventually assigned to oversee pretrial discovery.
For AHP, the settlement offers some relief after a punishing year of legal wrangling that has sent its stock price swooning. Last month, the Madison, N.J., company spent a reported $54 million to resolve claims by women who had used Norplant, a birth control device. And for months, the company has been shadowed by Wall Street whispers that it might eventually be forced to hand over upwards of $10 billion to $15 billion to put the fen-phen matter behind it.
In August, speculation about a major financial hit intensified when a Texas jury awarded $23 million to a woman with modest diet-pill injuries. Shares of AHP fell more than 35 percent from their 52-week high of $70.25.
"It's a big unknown that's been weighing down the stock," said Adam Greene, an analyst with Credit Lyonnais Securities in New York. "Investors just want some tangible number so they can have some idea what the impact of the settlement will be."
AHP shares staged a modest rebound last week after investors learned that a lawyer for the Texas woman had struck a deal with AHP: In exchange for roughly 10 percent of her jury award, the company agreed to drop its appeals in the case. As important, Wall Street had begun to conclude that the final toll would be closer to $3 billion than $15 billion.
Still, the proposed settlement offers only a modest measure of closure for AHP. Plaintiffs' lawyers have won a highly novel concession from the company: People who took fen-phen for more than 30 or 60 days -- the number is still under discussion -- but have not yet manifested any injuries would be granted full rights to join the class if they eventually develop heart-valve problems -- even if those injuries surface years from now.
In addition, injured plaintiffs are offered three chances to opt out of the settlement if they believe they can win by filing a separate suit. That leaves open the possibility that the most serious heart-valve cases are headed to court. And there are reportedly about 100 former fen-phen users who have developed PPH. Their cases are expected to cost the company as much as $1 billion.
Nonetheless, AHP is apparently eager to reduce the total number of fen-phen claims it faces, betting the move will allow it to emerge from the cloud of litigation.
"AHP has decided that in a mass tort like this, the most important thing to do is get rid of the mass," said Kenneth Feinberg, a Washington attorney. "They're saying, `Let's get rid of 90 percent of the claims so we're not confronting Armageddon. We'll be left with the qualitatively strongest cases but we'll able to handle that.' "