WASHINGTON, DC.— The Washington Legal Foundation (WLF) today urged the California Supreme Court to review (and ultimately overturn) an appeals court decision that lifts virtually all restrictions on the award of damages for prospective lost profits. A trial court awarded nearly $400 million in lost-profits damages to a small drug company that claimed that, but for the defendants’ actions, a drug it was beginning to develop would have been approved by FDA and would have been a huge commercial success. WLF argued, in a brief filed in support of the petition for review, that lost profits should never be awarded unless it is “reasonably certain” that they would have been earned but for the defendants’ conduct—a standard the plaintiff came nowhere close to meeting.
The plaintiff is a Japanese drug company, Asahi Kasei Pharma Corp. It claims that Actelion Ltd. and its top executives induced a drug development firm, CoTherix, to breach a contract under which CoTherix had agreed to conduct clinical trials of Fasudil (one of Asahi’s drugs), trials designed with the hope of eventually gaining FDA approval to market Fasudil for treatment of stable angina and pulmonary arterial hypertension. Asahi was thereafter unable to find an American licensee willing to assume CoTherix’s developmental responsibilities. Seven years have elapsed, yet no one has ever conducted a double-blind clinical study designed to determine Fasudil’s safety and effectiveness. The trial court nonetheless awarded Asahi nearly $400 million in damages, concluding that it was up to the jury to decide the likelihood that FDA would have approved Fasudil and that the drug would have been a commercial success.
WLF argued that it is impossible for a manufacturer whose drug is at the very early stages of development to demonstrate “reasonable certainty” of eventual FDA approval. WLF noted that the great majority of drugs that reach a similar developmental stage are never approved by FDA.
After filing its brief, WLF issued the following statement by Chief Counsel Richard Samp:
“The appeals court opened the floodgates to lottery-like damages awards when it upheld the $400 million lost-profits award in this case. If the judgment is allowed to stand, companies will be discouraged from investing in California for fear of exposing themselves to crippling tort awards.”
WLF is a public interest law firm and policy center that regularly litigates in support of tort reform, to ensure that the costs of unwarranted lawsuits do not drive up costs for all consumers.