Drug Class Action Lawsuits Are Big Business

There's no doubt that prescription drugs and other pharmaceuticals are big business, but what happens when things go wrong? On the flip side of manufacturers making big money on drugs, class action lawsuits against these manufacturers has also become big business.

Drug manufacturers have paid billions over the last decade to settle class action lawsuits. This amount includes not only settlements of lawsuits, but criminal fines from the government as well. Approximately $19.8 billion has been spent in fines alone over the last 20 years according to a report in the Issues Monitor.

Litigation is a business, but class action drug lawsuits are big; really big. Drug manufacturer AstraZeneca announced in 2010 that it had spent more than $656 million to defend itself against claims for the drug Seroquel, which was in addition to the $520 million settlement it made with the U.S. for the same drug.

So how big is the business of pharmaceutical litigation?

Who's paying the bill?

In June 2016, the Nova Scotia Supreme Court allowed a class action lawsuit against Glaxo Smith-Kline to move forward. According to the lawsuit, the manufacturer failed to warn people about potential cardiovascular problems related to its drug, Avandia.

Glaxo Smith-Kline is not a newcomer to the field of drug litigation. It has faced numerous class action lawsuits in the past and is also starting to face accusations regarding the prescription drug Zofran. Intended to treat nausea, Zofran has been linked to numerous birth defects and is likely to be the next drug from Glaxo Smith-Kline to face litigation.

While Glaxo Smith-Kline is currently on record with paying out the largest settlement ($3 billion in 2012), other manufacturers are following right behind. Johnson & Johnson paid two settlements in 2013; one for $2.5 billion and the other for $2.2 billion. Pfizer is also on record with a payout of $2.3 billion for a single settlement back in 2009.

Who's making the money?

Many think that attorneys make the most from class action lawsuits. This is true depending on how you look at, but can also be misleading and used by people who wish to bash attorneys.

Attorneys make an average of 25% of the overall payout from class action litigation. The percentage is low as 75% of the remainder would go to the class. However, if the class is larger, the actual payout amounts could be small. Here is an example:

Let's say a lawsuit is settled for $1 million with a 25% payout going to the attorneys. This leaves $750,000 remaining for the class. If there are 750 people in the class, the average payout for each person would be $1,000 while the attorneys would walk away with $250,000.

Can tort reform limit these drug costs?

Tort reform has always been a political debate. In 2009, Senators Orrin G. Hatch (R) and John Kerry (D) agreed that medical malpractice lawsuits (which would include class action litigation against drug manufacturers) are driving up the cost of healthcare. While there seems to be somewhat bipartisan support for tort reform, not everyone agrees with the driving force behind it.

A 2014 study in the Journal of the American Medical Association showed that the cost of defensive medicine, while substantial, only accounts for 2.9% of healthcare spending. As such, massive tort reform would need to be taken and in the end the reduction would only have a small impact on overall spending.

Summing it up:

Regardless of your stance on class action lawsuits or tort reform, the fact remains that class action lawsuits are a big business.

Do you have experience as a plaintiff in a class action? Are you an attorney involved in class action litigation? I'd love to hear your thoughts in the comments.