Drug Firms Want Proposed Accounting Rules Withdrawn

Six of the nation’s top drug makers—Pfizer Inc., Merck & Co., Eli Lilly & Co., Johnson & Johnson, Novartis AG, and Wyeth—sent a letter to the Financial Accounting Standards Board (FASB) last week that called for a recall of  proposed accounting rules.  The rules would require companies to disclose estimated costs of all ongoing litigation- including <"http://www.yourlawyer.com/practice_areas/defective_drugs">defective drug lawsuits – which the drug makers feel would be “futile, costly, and unlikely to provide meaningful information for investors.”  The U.S. Chamber of Commerce, the largest business lobby, also opposes the proposed FASB ruling because they say it’s impossible to predict final costs of a lawsuit.  The FASB issued the proposed rule this June; public comment ended Friday.

The group added that estimating the costs of ongoing litigation is “highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information.”  Under consideration by the FASB is a requirement that companies must estimate the costs of ongoing litigation.  The FASB says this measure would provide investors with important information and that it is considering the change over investor concerns that today’s rules don’t require companies to provide enough information in a timely manner.  Right now, companies are only required to disclose the estimated costs in situations where it is believed they will lose a case.

“Depending upon the type of suit involved, outcomes can vary widely from court to court and state to state,” the Chamber of Commerce said in a separate letter to the accounting board, last week.  “Also, juries are bodies that defy prediction. They are capable of awarding $2.9 million for a spilled cup of coffee,” the group added.  The Chamber of Commerce says the proposed change would add a “great deal of cost” and that existing Securities and Exchange Commission (SEC) rules for public companies “provide much of what the proposed change hopes to accomplish.”  The drug makers agreed in their letter and mentioned Merck’s recent litigation over its painkiller Vioxx.

This May, a court in Texas ruled that there was no evidence that it was a blood clot triggered by Vioxx that caused the death of Bob Ernst.  This ruling overruled an earlier judgment wherein Ernst’s wife was awarded over $250 million in damages.  “That one case ranged in ‘value’ from over $250 million at the time of the verdict to its current value of $0 and is but one of many tens of thousands of similar cases,” the companies’ wrote.  Also cited were the lawsuits surrounding Wyeth’s obesity drugs used in the diet-drug cocktail known as fen-phen.  This example was cited as indicating the difficulty in establishing litigation costs because although Wyeth offered to settle the national mass tort case involving heart valve disease for about $3.75 billion, it has since both reserved or paid over $21 billion to cover legal fees, judgments, and settlements for that case and its related suits.

If approved, the FASB’s proposed changes would be effective for fiscal years ending after December 15, 2008, and interim and annual periods in the following years.

This entry was posted in Legal News, Pharmaceuticals. Bookmark the permalink.

© 2005-2019 Parker Waichman LLP ®. All Rights Reserved.