Bayer Legal Risks 2008

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Bayer's 2008 footnotes to the Financial Statements prove that Bayer was very concerned about this litigation. So what happened?

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Financial commitments resulting from orders already placed under purchase agreements related to planned or ongoing capital expenditure projects total 300 million (2007: 256 million). In addition, the Group has entered into research agreements with a number of third parties under which Bayer has agreed to fund various research projects or has assumed other commitments based on the achievement of certain milestones or other specic conditions. The total amount of such funding and other commitments is 915 million (2007: 932 million). At December 31, 2008, the remaining payments expected to be made to these parties, assuming the milestones or other conditions are met, were as follows:

Maturing in

Dec. 31, 2007 million

Maturing in

Dec. 31, 2008 million

2008 2009 2010 2011 2012 2013 or later Total

159 181 59 83 69 381 932

2009 2010 2011 2012 2013 2014 or later Total

127 93 110 133 71 381 915

32. Legal risksAs a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments, and environmental matters. The outcome of any current or future proceedings cannot be predicted with certainty. It is therefore possible that legal or regulatory judgments could give rise to expenses that are not covered, or not fully covered, by insurers compensation payments and could signicantly affect our revenues and earnings. Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings referred to do not necessarily represent an exhaustive list.

Bayer HealthCareProduct-related litigation Lipobay / Baycol: As of February 2, 2009, approximately 236 Lipobay / Baycol cases, 200 of them in the United States, remain pending against Bayer worldwide, claiming economic loss, medical monitoring, and personal injury. We are currently aware of fewer than ve pending cases in the United States that in our opinion meet our criteria for potential settlement. The class-action lawsuit which had been led by shareholders in connection with Lipobay / Baycol has been resolved for a payment by Bayer of a total of us$ 18.5 million. Magnevist: As of February 2, 2009, Bayer has been served in a total of 241 lawsuits in the United States involving the gadolinium-based contrast agent Magnevist . Three other manufacturers of gadolinium-based contrast agents in the United States also have been named party to the same or similar lawsuits. Additional cases are anticipated.

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In the lawsuits, plaintiffs allege that patients developed nephrogenic systemic brosis (nsf) as a result of the use of Magnevist during medical imaging procedures. nsf is a rare, severe condition that can be debilitating and in some cases fatal. Plaintiffs seek compensatory and punitive damages under theories of strict liability and negligence and / or breach of warranty, claiming that the product is defective and unreasonably dangerous, that Bayer knew or should have known of the risks associated with Magnevist , and has failed to disclose or adequately warn its users. All cases pending in federal courts have been consolidated in a multidistrict litigation (mdl) proceeding for common pre-trial management. Bayer believes that it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken accounting measures for anticipated defense costs. Trasylol (aprotinin) is a drug approved for use in managing bleeding in patients undergoing coronary artery bypass graft surgery. As of February 2, 2009, there were 470 lawsuits pending in the United States served upon Bayer on behalf of persons alleging personal injuries, including renal failure and death, and economic loss from the use of Trasylol. Bayer also has been served with a class action in Canada. Plaintiffs in both the u.s. and Canadian cases seek compensatory and punitive damages, claiming that Bayer knew or should have known of these risks and is liable for having failed to disclose or adequately warn users of Trasylol. All cases pending in u.s. federal courts have been consolidated in a multidistrict litigation (mdl) proceeding for common pre-trial management. Additional cases are anticipated. In 2006 and 2007 observational studies reported on a possible correlation between the administration of Trasylol and severe renal dysfunction, myocardial infarction, stroke and an increase in mortality. In November 2007, Bayer temporarily suspended worldwide marketing of Trasylol after preliminary results from an independent clinical study in Canada raised concerns about a possible increased risk of mortality in patients who had received Trasylol. The marketing suspension will remain in effect until the nal results from the Canadian study have been analyzed and the benet-risk assessment for Trasylol can be re-evaluated together with the health authorities. In some countries, including the United States, Trasylol continues to be available to certain surgical patients with an established medical need. We are closely cooperating with health authorities to resolve the questions that have arisen. Bayer believes it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken accounting measures for anticipated defense costs. hiv / hcv: Numerous actions are pending against Bayer in the United States and other countries seeking damages for plaintiffs resident outside of the United States who claim to have become infected with hiv or hcv (hepatitis c virus) through use of blood plasma products sold by Bayer. Additional actions are pending by u.s. residents who claim to have been infected with hcv. Bayer believes it has meritorious defenses. Competition law proceedings Diabetes Care investigation: The United States Department of Justice had conducted an investigation into Bayer HealthCares Diabetes Care Division regarding the manner in which Bayer provided business development funds from 1998 to 2003 to certain customers who marketed and sold Bayer blood glucose meters and test strips to patients. In November 2008, Bayer agreed to a settlement with the u.s. Department of Justice in order to avoid the time, uncertainty and expense of litigation. Without acknowledging liability, Bayer agreed to pay us$ 97.5 million to the u.s. government, and to enter into a Corporate Integrity Agreement with the Ofce of Inspector General for the Department of Health and Human Services.

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Cipro: 39 putative class action lawsuits and one individual lawsuit against Bayer involving the medication Cipro have been pending in the United States since 2000. The plaintiffs are suing Bayer and other companies also named as defendants, alleging that a settlement to end patent litigation reached in 1997 between Bayer and Barr Laboratories, Inc. violated antitrust regulations. The plaintiffs claim the alleged violation prevented the marketing of generic ciprooxacin as of 1997. In particular, they are seeking triple damages under u.s. law. After the settlement with Barr the patent was the subject of a successful re-examination by the u.s. Patent and Trademark Ofce and of successful defenses in u.s. federal courts. It has since expired. All the actions pending in federal courts were consolidated in federal district court in New York in a multidistrict litigation (mdl) proceeding. In October 2008, the Court of Appeals for the Federal Circuit in Washington d.c. af rmed the 2005 ruling of the United States District Court in New York dismissing all lawsuits led in federal court. The recent appellate decision af rmed the dismissal of various lawsuits brought by indirect purchaser plaintiffs in federal courts. Another appeal remains pending concerning the claims brought by direct purchasers of Cipro. These claims also were dismissed by the federal district court, but the appellate court in New York has jurisdiction for the appeal of these lawsuits. Further cases are pending before various state courts. Bayer believes that it has meritorious defenses and intends to defend itself vigorously. Patent disputes Yasmin: In April 2005, Bayer led suit against Barr Pharmaceuticals Inc. and Barr Laboratories Inc. in u.s. federal court alleging patent infringement by Barr for the intended generic version of Bayers Yasmin oral contraceptive product in the United States. In June 2005, Barr led its counterclaim seeking to invalidate Bayers patent. In March 2008, the u.s. federal court invalidated Bayers 531 patent for Yasmin. Bayer has appealed this ruling. In June 2008, Bayer and Barr Laboratories Inc. signed a supply and licensing agreement for Yasmin covering the United States. Bayer supplies Barr with a generic version of Yasmin which Barr markets solely in the United States. Barr pays Bayer a xed percentage of the revenues from the product sold by Barr. Bayer continues to pursue its appeal of the court decision that invalidated Bayers u.s. patent 531 for Yasmin. If Bayer prevails in its appeal, Bayer will receive a larger share of Barrs revenues from sales of its generic version of Yasmin in the United States. In March 2008 Bayer received two notices of an Abbreviated New Drug Application with a Paragraph iv certication (an anda iv) pursuant to which Watson Laboratories Inc. and Sandoz Inc. each seek approval to market a generic version of Bayers oral contraceptive Yasmin in the United States. Bayer has led suit against Watson and Sandoz in u.s. federal court alleging patent infringement by Watson and Sandoz for the intended generic version of Yasmin. In reply, Sandoz has led its answer and counterclaim alleging, among other things, the invalidity of various Bayer patents and that the agreement reached with Barr is anticompetitive and violates the Sherman Act antitrust law. yaz: In January 2007, Bayer received notice from Barr Laboratories Inc. that it has led an anda paragraph iv application with the u.s. fda seeking approval of a generic version of Bayers yaz oral contraceptive. In October 2007 Bayer also received notice from Watson Laboratories Inc. that it has led an anda iv with the u.s. fda seeking approval of a generic version of yaz . In June / July 2008 Bayer further received notice from Sandoz Inc. that it has led an anda iv with the u.s. fda seeking approval of a generic version of yaz . All three applications claim that Bayers patents are invalid and / or that the respective generic product does not infringe them. Bayer has led patent infringement suits against Watson and Sandoz claiming that certain of Bayers patents have been infringed. Originally, Bayer included the 531 patent in its rst suit against Watson. After the court decision in the suit against Barr regarding Yasmin, Bayer had to exclude the 531 patent from the suit against Watson. If Bayer prevails in its appeal against the

234 / / BAYER ANNUAL REPORT 2008

court decision regarding Yasmin, Bayer will evaluate its options to use the 531 patent. However, regardless of these patent disputes, Bayer retains data exclusivity for yaz as an oral contraceptive in the u.s. until March 16, 2009. No generic manufacturer can lawfully market a generic version of yaz for an oral contraceptive indication in the United States until after March 16, 2009. In June 2008, Bayer and Barr agreed that Bayer will grant Barr a license to market a generic version of yaz in the United States starting July 2011. Bayer will supply Barr with the product for this purpose. Should Bayer lose patent lawsuits in the United States against other companies concerning yaz , at that time Bayer will begin supplying the product to Barr and Barr will begin marketing generic yaz in the United States. Barr will pay Bayer a xed percentage of the revenues from the product sold by Barr. Blood glucose monitoring devices: In 2005, Abbott Laboratories commenced a lawsuit in the United States against Bayer and another party alleging infringement of two of Abbotts patents relating to blood glucose monitoring devices. The devices concerned are sold by Bayer as part of its Ascensia Contour system and its dex and Autodisc system. The Ascensia Contour system is supplied to Bayer by a Japanese manufacturer, who originally designed the product and is contractually obligated to indemnify Bayer. Abbott added a separate claim of infringement against the devices sold by Bayer as part of its dex and Autodisc system. Bayer is not entitled to indemnication on this separate claim. In 2008 the court granted summary judgment in favor of Bayer with regard to one of the two patents and held the patent claims at issue invalid. After a trial on the issue of invalidity, the court also held the second patent invalid. Abbott has appealed both decisions. In 2007, Roche Diagnostics Operations and Corange International commenced a lawsuit in the United States against Bayer and several other parties alleging infringement of two of Roches patents relating to blood glucose monitoring devices. Two of the accused devices are sold by Bayer as part of its Breeze 2 and Contour systems. Bayer believes that these patents are covered by an existing license agreement between the parties, and the litigation has been dismissed in favor of an arbitration under this earlier license agreement. The arbitration proceeding is currently pending. Roche has added to the arbitration four additional patents which Roche alleges the Bayer Contour systems infringe. Kogenate: In 2008, Novartis Vaccines and Diagnostics Inc. and Novo Nordisc a / s commenced a patent infringement suit in the United States alleging that Bayers manufacturing and marketing of the recombinant Factor viii product Kogenate infringe a substance patent granted in 2006. The suit primarily seeks damages. Bayer does not believe that it has infringed any valid patent. Bayer believes it has meritorious defenses in these patent disputes and intends to defend itself vigorously. Further legal proceedings Wholesale prices in the u.s.: Bayer and a number of pharmaceutical companies in the United States are defendants in pending lawsuits in which plaintiffs, including states, are alleging manipulation in the reporting of wholesale prices and / or best prices for their prescription pharmaceutical products. The plaintiffs seek damages, including disgorgement of prots and punitive damages. Bayer believes it has meritorious defenses and intends to defend itself vigorously. Bayer Schering Pharma AG former shareholder litigation: In September 2008, the squeeze-out of the former minority shareholders of Bayer Schering Pharma AG became effective. As usual in such cases, several shareholders have initiated special court proceedings to review the adequacy of the compensation payments made by Bayer for the transfer of the shares in the squeeze-out. The adeq...