August 29, 2001

Speculation that Bayer will be forced to pay out billions of dollars to victims of Lipobay, the cholesterol-lowering drug the company has withdrawn from sale, appears premature at best and misguided at worst.

Bayer withdrew Lipobay three weeks ago, following reports of 32 deaths.

But lawyers acting against the German chemicals company yesterday conceded there were significant hurdles to overcome if the action were to be successful.

Michael Witti, a Munich-based lawyer representing German patients who claim to have suffered side effects, said there were many legal and scientific obstacles to a settlement "You have to prove that Lipobay caused the damage (to the patients): scientifically, that's not so easy. Legally, there's a network of regulations . . . some of them, hopefully, violated (by Bayer)," Mr Witti added. "Nobody should expect them to settle tomorrow." Even in the US, where lawyers get a percentage of the damages and so have a vested interest in maximising the pressure to settle, talk of multi-billion dollar awards is seen as jumping the gun.

"It's not appropriate at this moment to talk about damages," said Ed Fagan of Fagan & Associates, which filed a class action against Bayer a fortnight ago.

Mr Fagan concedes the action "could take years," but he insists it is a "worldwide crisis" for Bayer.

The company faces more than 15 applications for class action in the US, where an estimated 700,000 people took the drug, marketed there as Baycol.

The courts are expected to take several months to decide which, if any, of these actions to allow to proceed. They will also decide whether to allow European and Japanese claims. Even if they do, lawyers have to clear two more hurdles. The first is to prove a link between Lipobay and the side effects. They then have to show the side effects were Bayer's fault, despite the fact that Lipobay carried a warning label.

All drugs have side effects. Whether regulators approve them hinges on the balance between the potential risks and benefits. Bayer is likely to argue that for every patient that dies from rhabdomyolysis, a rare toxic muscle-wasting syndrome, about 7,000 lives are saved by the cholesterol-lowering treatments.

The case is likely to come down to how quickly and how responsibly Bayer dealt with the issue. Marc Booty, analyst at Commerzbank, said he believed Bayer had done all it could to warn of the dangers.

Lipobay has always carried a warning about side effects and Bayer has revised it twice. This could see doctors who ignored the warnings - and possibly regulators - sucked into the case.

In the US, lawsuits are common whenever drugs are withdrawn. The suits very rarely have a material effect on a company's financial performance. "If you look at most pharmaceutical company reports there is outstanding litigation, but not many are carried through," Mr Booty says.

The landmark exception is American Home Products, which has taken charges of Dollars 12.25bn to cover litigation related to diet drugs. The drugs, known as Redux and Pondamin, were taken by 5.8m people in the US. About 250,000, or 4.5 per cent, of these were involved in litigation once the drugs were linked to heart valve problems.

The failure of Lipobay, the most important growth driver in Bayer's pharmaceuticals division, has forced it to consider selling the unit.

Mr Booty believes the litigation will do little to damp interest among competitors which are desperate to fill gaps in their own product line-ups. "There is obviously a lot of interest," he says. "That seems to be saying there is little perception of risk. If there was, people wouldn't touch it."