Bloomberg News

Baxter Wins Bid to Force Teva to Honor Hepatitis-Case Accord

September 20, 2011

(Updates with excerpt from ruling in third paragraph.)

Sept. 20 (Bloomberg) -- Baxter International Inc. won a bid to force Teva Pharmaceutical Industries Ltd. to pay costs of defending Nevada lawsuits alleging that the drugmakers’ sales of the anesthetic propofol led to patients developing hepatitis.

An arbitration panel properly found that Teva was bound by an agreement to cover all liability tied to claims that tainted vials of propofol caused colonoscopy patients to develop hepatitis, Delaware Chancery Court Judge Travis Laster concluded. A Las Vegas jury last year ordered Teva and Baxter to pay more than $500 million in damages to a Las Vegas school principal on one such claim.

The arbitration finding “is valid and enforceable,” Laster said in a Sept. 15 ruling. The accord requires Petach Tikva, Israel-based Teva to reimburse Baxter for “all claims, damages, liability or losses” from the cases, the judge said.

The indemnity agreement is among the evidence a Las Vegas jury is hearing in the trial of three more cases alleging Teva and Baxter officials sold propofol in oversized vials that encouraged medical personnel to reuse the containers for multiple patients. Las Vegas residents contend they got hepatitis C from the tainted vials.

Denise Bradley, a U.S.-based spokeswoman for Teva, declined to comment on the judge’s ruling. Deborah Spak, a spokeswoman for Deerfield, Illinois-based Baxter, didn’t immediately return a call for comment on the decision.

Reused Vials

Teva faces almost 300 lawsuits stemming from a hepatitis C outbreak three years ago in southern Nevada, the company said in a July regulatory filing. Nevada health officials blamed the reuse of propofol vials for infecting patients with the incurable liver disease.

Propofol is an intravenous agent used for sedation or anesthesia, according to Teva’s website. Teva manufactures the drug and San Francisco-based McKesson Corp. is its current U.S. distributor. Baxter sold the drug for Teva until 2009, according to court filings.

Teva already agreed to settle about one-third of the hepatitis-related suits alleging patients received propofol from reused containers, according to a July 28 filing with the U.S. Securities and Exchange Commission. Teva said it set aside an undisclosed reserve to cover the settlements.

In the first propofol suit to go to trial, a Las Vegas jury awarded Henry Chanin, a private-school principal, and his wife $5.1 million in compensatory damages and $500 million in punitive damages against Teva and Baxter. Chanin argued he developed hepatitis C after getting tainted propofol during a colonoscopy.

Punitive Damages

Jurors ordered a Teva unit to pay $356 million of the punitive award while assessing $144 million of the award to Baxter. It was the fourth-largest U.S. jury award of 2010, according to data compiled by Bloomberg News. Teva has asked the Nevada Supreme Court to throw out Chanin’s verdict.

Baxter officials said earlier this year that Teva accepted all liability for the Nevada hepatitis cases.

In a February SEC filing, Teva said the indemnification agreement with Baxter “does not extend to punitive damages.” Four months later, Teva executives acknowledged in another regulatory filing that an arbitration panel ruled 2-1 the agreement covered punitive awards.

The indemnity agreement extends to “any award of punitive damages in the Chanin” case or “any other case” brought against Baxter in Nevada over the hepatitis outbreak, Laster said in his ruling.

The Delaware case is Baxter International Inc. v. Teva Pharmaceuticals USA Inc., 6819, Delaware Chancery Court (Wilmington.) The Nevada case is Sacks v. Endoscopy Center of Southern Nevada LLC, 08A572315, District Court for Clark County, Nevada (Las Vegas).

--Editors: Stephen Farr, Andrew Dunn

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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