5 Major Drug and Medical Device Developments in 2023

At a Glance

1. A decision from Hawaii’s Supreme Court — State ex rel. Shikada v. Bristol-Myers Squibb Co. — raised questions about how genetic information might intersect with drug manufacturers’ duty to warn of a drug’s impact on specific genotypes.
2. While jurists can only speculate on Mallory v. Norfolk Southern Railway Co.’s full impact on future litigation, it may open the door to “forum shopping” from the plaintiff’s bar in states that have similar registration-based jurisdiction statutes even where the underlying claims have no relationship or nexus to the forum.
3. Third-party litigation funding will continue to be a hot topic of law in the coming year. Drug and device litigation is not immune to the litigation funding industry, and companies in this space will want to stay abreast of these developments.
4. Class action proceedings had a year of meteoric development in Europe, as new class action procedures were instituted across much of the European Union under the EU’s Collective Redress / Representative Actions Directive.
5. While ethylene oxide litigation has been percolating in the courts for years, 2023 saw a massive shift in plaintiff awards and pending federal regulation that have stakeholders concerned about the future of the medical device supply chain.

A popular New Year’s trend is to say “goodbye” to all the things that didn’t serve you in 2023, as you usher in new intentions and habits for 2024. Although there were many great trial outcomes and continuing scientific wins in the COVID arena, there were some concerning developments, too. And unfortunately for the legal community, we don’t get to just say “goodbye” to unwelcome developments. Stare decisis and governmental regulations mean that 2023 decisions will lay the groundwork for litigation in 2024 and beyond. Below is a summary of our top 5 drug and device developments to watch as we ring in a new year.

Personalized Medicine Meets Consumer Protection

Since the Human Genome Project began mapping the entire human genome in 1990, human genetics have increasingly been studied, investigating the connection between specific genetic variants and the risks or the emergence of specific diseases. Personalized medicine is a developing practice where physicians utilize an individual’s genetic profile to guide the diagnosis and treatment of a disease.¹ The role of personalized medicine and genetic information in litigation has, at times, proven useful in the defense of drug manufacturers. However, a decision from Hawaii’s Supreme Court — State ex rel. Shikada v. Bristol-Myers Squibb Co. — raised questions about how such information might intersect with drug manufacturers’ duty to warn of a drug’s impact on specific genotypes.²

On March 15, 2023, Hawaii’s Supreme Court affirmed a circuit court ruling that drug manufacturers had violated Hawaii’s Unfair or Deceptive Acts or Practices law (UDAP) by committing unfair acts that offended public policy and were immoral regarding an antiplatelet drug, Plavix.³ Plavix is designed to prevent blood clot formation in patients with certain cardiac conditions that increase their risk of blood clots. Genetic variants in one of the Plavix-metabolizing enzymes that may be present in a person’s liver is impacted by a person’s genetic profile, and individuals with a mutation in the gene affecting this enzyme may experience decreased effectiveness when using Plavix due to their liver’s decreased ability to metabolize the drug.⁴

In 2014, the State of Hawaii filed a complaint alleging two Plavix manufacturers violated UDAP between 1998 and 2010 by failing to disclose that Plavix has a diminished or no effect for certain individuals. Following a bench trial, the circuit court determined that the manufacturers were liable for failing to warn the public or FDA about Plavix’s response variability among users.⁵ The circuit court also found that consumers were harmed by the fact that individuals with the gene leading to poor metabolization only received a partial benefit or risk reduction when using the drug.

On appeal, the Hawaii Supreme Court reversed the circuit court’s ruling on the alleged deceptive acts, finding that there were several issues of material fact relating to the manufacturers’ warnings and physicians’ prescribing habits for Plavix. However, the Supreme Court upheld the lower court ruling finding that the manufacturers could be held liable under the unfair practices prong of the UDAP, based on the idea that the manufacturers had suppressed or avoided research out of concern for sales of the drug.⁶

Shikada represents an expansion, at least in Hawaii, of a drug manufacturer’s potential liability for investigating and warning of the impact of genetic variation on certain groups of patients from the product liability space to the consumer protection space. Traditionally, drug manufacturers are sued using failure-to-warn claims arising in tort law, not consumer protection law. Under tort law, many states will allow a manufacturer to discharge that liability if they warn a “learned intermediary” (i.e., the physician) of the risks in lieu of the end-consumer (i.e., the patient). The policy behind the learned intermediary doctrine is that a physician is in the best position to evaluate the risks and benefits of prescribing a certain drug due to a patient’s personal health history. The court’s decision in Shikada, however, effectively sidesteps the learned intermediary doctrine by enabling consumer protection claims on behalf of consumers with a specific genetic variability that allegedly decreases the efficacy of a particular drug for a subset of the population. It also expands the size of potential litigation because consumer protection claims are typically raised on behalf of any “consumers.” Shikada ultimately raises questions about the scope of a drug manufacturer’s liability and duty to investigate genetic variability in the course of drug development. 

The development is problematic because delineating between correlation and causation in genomics can be difficult given the vast number of genetic, environmental and lifestyle factors that impact the disease process. It therefore may be difficult to know where the research is adequately robust to impose a duty to warn consumers of the impact of a specific genetic variant when the medical community has not yet reached a consensus. The Hawaii Supreme Court even recognized these additional factors in its decision, noting that factors other than the specific genetic mutation could “impact the likelihood of adverse clinical outcomes, including blood vessel size, family history, and lifestyle factors like diet or smoking.”⁷

Shikada also raises questions regarding the harm that plaintiffs must establish to hold a drug manufacturer liable for not including a warning regarding the known effects of genetic variability. The Hawaii Supreme Court held that consumer injury was not an essential element of the UDAP statute and, therefore, that the state did not have to prove that anyone was actually harmed by being prescribed Plavix despite having the relevant genetic mutation.⁸ While this portion of Shikada may not be as impactful in national litigation due to the state-specific nature of consumer protection statutes, it is something of which drug manufacturers will want to be aware. Drug manufacturers should likewise continue to monitor this trend and others impacting the genomics and personalized medicine space in 2024 and beyond.

The Personal Jurisdiction Train Keeps On Running in Mallory v. Norfolk Southern Railway Co.

Personal jurisdiction was in the U.S. Supreme Court’s hot seat again this year, with the Court’s decision in Mallory v. Norfolk Southern Railway Co. in June.⁹ This case follows a series of other recent personal jurisdiction-related cases decided by both the Supreme Court and various state courts. In Mallory, a plaintiff, who is a resident of Virginia, filed a complaint under the Federal Employers’ Liability Act (FELA) in Pennsylvania state court. The Norfolk Southern is a railroad corporation incorporated in Virginia with its principal place of business in Virginia. The complaint alleged injuries that stemmed from work the plaintiff did in Virginia and Ohio. Norfolk Southern argued that the Pennsylvania court did not have personal jurisdiction over it and that the lawsuit would violate the Due Process Clause of the U.S. Constitution. The plaintiff argued that a Pennsylvania statute that requires corporations to register to do business in the state consents to any litigation that arises there. The Pennsylvania Supreme Court ruled in favor of Norfolk Southern, holding that the Pennsylvania law was unconstitutional; but on appeal, the U.S. Supreme Court reversed.

The Pennsylvania law at issue provides that an out-of-state corporation “may not do business in the Commonwealth until it registers” with the Department of State.¹⁰ A second Pennsylvania statute explicitly states that qualification as a foreign corporation under Pennsylvania law shall permit state courts to “exercise general personal jurisdiction” over the foreign corporation.¹¹ A majority of the Supreme Court determined that the statute was constitutional under precedent established in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., where the Court found that a similar Missouri law did not violate due process because the corporation agreed to accept service of process in Missouri as a condition of doing business there.¹² Justice Alito’s concurring opinion agreed that the registration statute did not violate the Due Process Clause because the corporations knowingly consented to personal jurisdiction under the statute and chose to conduct business in the state.¹³ But Justice Alito goes one step further and states that while registration-based jurisdiction does not violate the Due Process Clause, it may violate principles of the dormant Commerce Clause, which “prohibits state laws that unduly restrict interstate commerce.”¹⁴

Critics of the Supreme Court’s decision in Mallory contend that it allows litigants to sidestep the traditional “minimum contacts test” for establishing general personal jurisdiction, which has been seen as the due process standard since International Shoe.¹⁵

While jurists can only speculate on Mallory’s full impact on future litigation, there are several potential implications that drug and device manufacturers (and, indeed, all business entities) should be aware of. First, Mallory may open the door to “forum shopping” from the plaintiff’s bar in states that have similar registration-based jurisdiction statutes even where the underlying claims have no relationship or nexus to the forum. Second, there is a possibility that advocates for plaintiffs and corporations will be seeking to enact or abolish similar registration-based jurisdiction statutes. Third, corporate litigants may find footing for arguments to abolish registration-based jurisdiction statutes altogether by adopting Justice Alito’s position that such statutes violate the dormant Commerce Clause by “inject[ing] intolerable unpredictability into doing business across state borders.”¹⁶

We’re sure we haven’t heard the last of personal jurisdiction updates in 2023 — if these last few years have been any indication, personal jurisdiction is likely to remain an active area of law in 2024 and beyond. Drug and device manufacturers should continue to monitor these developments, at both the federal and state court level. 

Litigation Funding Continues to Drive Mass Tort Litigation

Litigation funding, or third-party litigation financing (TPLF), has quickly become a driver of mass tort litigation across the country. Traditional litigation funding provides for an arrangement where an investor advances money to a plaintiff to cover lawsuit expenses, and the plaintiff provides the investor a portion — often 20-40% — of the proceeds from the litigation.¹⁷ Such arrangements pose challenges for the defense bar, but particularly for defendants in personal injury actions involving third-party medical funding as well. In a third-party medical funding arrangement, a third-party investor provides a plaintiff with medical services from doctors within the investor’s “network” of providers.¹⁸

Because there is no systematic regulation of litigation agreements, they are rarely disclosed, which poses ethical concerns and questions the fairness and efficiency of our justice system. Some opponents argue that such third-party arrangements violate the Model Rules of Professional Conduct regarding fee-sharing and conflicts of interest.¹⁹ There are arguments that funding agreements can create conflicts of interest for judges, parties and attorneys. There are other arguments that funding agreements can dissuade settlements because the plaintiff has technically already received payment from the third-party investor,²⁰ and may need to recover a certain amount of money to exceed that amount or have undisclosed nonparty pressure directing the strategy. 

Not surprisingly, states have taken different approaches to regulating the use of litigation funding agreements in civil lawsuits by requiring varying degrees of disclosure and discoverability as to the identity of the funder and the terms of the arrangement.²¹ The parameters of discovery on litigation funding will likely continue to change as states pass legislation on this issue. 

On October 31, over two dozen major corporations across a variety of industries submitted a letter to the House Committee on Oversight and Accountability pushing for support of disclosure and oversight of litigation funding agreements.²² The letter emphasizes that the core problem with these arrangements is the lack of transparency — “[h]idden [ ] players operate from the shadows and often manipulate civil litigation for their own purposes.”²³ Without clear regulation overseeing litigation funding, there is a concern the civil system will be flooded with dubious claims as litigation investors become the main focus of the suits they fund, rather than the plaintiff seeking redress. 

Litigation funding backed by foreign entities and governments similarly proves to be a rising concern for American courts. In September, U.S. Senators Joe Manchin and John Kennedy introduced the Protecting Our Courts From Foreign Manipulation Act of 2023 to increase transparency and oversight of third-party litigation funding by foreign persons or entities.²⁴ Kennedy says the act will “put necessary safeguards in place to ensure that foreign nations, private equity funds and sovereign wealth funds linked to hostile governments are not tipping the scale in federal courtrooms.”²⁵ If passed, the act would serve to:

• Require disclosure of any foreign persons or entities funding litigation in U.S. federal courts;
• Prohibit sovereign wealth funds and foreign governments from funding U.S. litigation, either directly or indirectly; and
• Require the Department of Justice’s National Security Division to submit an annual report on the scope of foreign TPLF throughout U.S. federal courts to Congress.

Relatedly, Burford Capital, a litigation finance firm, is reportedly anticipating a substantial payout after backing a multibillion-dollar suit initiated by investors in a dispute with the country of Argentina.²⁶ After a three-day trial, the judge ordered Argentina to pay $8.4 billion in damages and $7.6 billion in interest to shareholders.²⁷ Burford Capital acquired the right to pursue the claims for $16.6 million in 2015, and the funder’s share is around $6.2 billion, giving Burford more than 37,000% return on its initial investment in the suit.²⁸ Litigation funding proponents largely view this development as a vindication for the practice of litigation funding as a whole, though critics deride the development for fear it may lead to similar investments in other large-scale litigations. 

Ultimately, the increased coverage on both domestic and international matters in this space underscores a growing concern that third-party litigation funding will continue to be a hot topic of law in the coming year. Drug and device litigation is not immune to the litigation funding industry, and companies in this space will want to stay abreast of these developments. 

Class Actions on the Rise in the EU

Class action proceedings had a year of meteoric development in Europe, as new class action procedures were instituted across much of the European Union under the European Union’s Collective Redress / Representative Actions Directive (RAD). The RAD, which sets out minimum standards for procedural rules for member states of the EU for collective redress and injunctions for consumers, required member states to implement the directive RAD and provide a collective litigation option to consumers by June 25, 2023.²⁹ As of June 25, several EU member states, including Croatia, Denmark, Greece, Hungary, Italy, Lithuania, the Netherlands and Slovakia had implemented the RAD — the remaining EU member states are either still in the process of implementation or have not yet taken affirmative steps toward implementation.³⁰

In conjunction with the RAD, some EU member states have seen an increase in litigation funding agreements and a more active plaintiffs’ bar. Indeed, one study noted that class action filings in the EU and the UK continue to see record-high numbers, with 121 claims filed in 2022, compared to 55 claims filed in 2018.³¹ Notably, the rise is fueled by product liability, personal injury and consumer mass actions.³² And observers anticipate further increases in the years to come.³³

One area of the RAD risk profile to which drug and device manufacturers will want to pay close attention is whether a particular member state’s collective redress mechanism operates on an opt-in or opt-out basis.³⁴ Opt-out class action mechanisms automatically aggregate potential class members into the class, and bind them to the trial or settlement outcome, unless the member actively elects to “opt-out” of the litigation.³⁵ The benefit of an opt-out mechanism is that these claims can be brought relatively quickly in comparison to an opt-in claim. Several EU member states, including Belgium, Bulgaria, Hungary, the Netherlands, Norway and Portugal, have implemented an opt-out structure for class actions, although the countries vary in their mechanisms — some require the class representative to make a settlement effort before bringing a claim, and some permit the group of claimants to determine whether they think the action should have an opt-in or opt-out system.³⁶

Class claimants in the EU and the UK also continue to increase their resources and efficiency, increasing the class action risk for defendants in the product liability and mass torts sector. One report indicates the reasons can be attributed to an increase in litigation funding investors, claimants’ knowledge of class actions and a subsequent willingness to join one, and the plaintiff’s bar pushing a “stronger together” motto to enhance the collective position of affected parties.³⁷ When surveyed, 60% of people in the UK said they would join a class action against a company or institution if they were directly impacted by their activities that broke the law.³⁸ The UK, while not part of the EU, remains the highest risk jurisdiction in Europe for class actions, in part, because the UK Supreme Court recently implemented a low threshold for class certification.³⁹ However, there has also been a steady increase in class action claims filed in the Netherlands, Portugal and Slovenia.⁴⁰

With new technology advances, it has also become easier to identify potential class members globally, and thereby more easily facilitate class actions. What is certain is that class actions are continuing to increase at an unprecedented pace within the EU and UK, and the RAD is a driving force that will likely continue propelling this trend forward in the EU into the foreseeable future.

Ethylene Oxide Is Caught in the Crosshairs of a Regulatory Stand-Off

While ethylene oxide litigation has been percolating in the courts for years, 2023 saw a massive shift in plaintiff awards and pending federal regulation that have stakeholders concerned about the future of the medical device supply chain. Ethylene oxide (EtO) is frequently used as a sterilizing agent for medical devices and medical products in large part because of its gaseous nature, which at room temperature allows the EtO to penetrate all areas of a device or product.⁴¹ Importantly, EtO does not damage the device during the sterilization process; so medical devices made from polymers, metals or glass can effectively be sterilized with the gas — including products that have multiple layers of packaging.⁴² FDA estimates that approximately 50% of medical devices in the U.S. are sterilized with EtO and requires that medical devices labeled as sterile use an established sterilization method, including EtO, because they have “a long history of safe and effective use.”⁴³

Recently, growing concerns over exposure to EtO and its effects as a potential carcinogen have prompted the EPA to issue broad warnings about EtO exposure and statements about its intent to tighten EtO emissions under the Clean Air Act.⁴⁴ Toward that end, the EPA has indicated that it is reviewing the current EtO regulations in place under the Clean Air Act to determine whether legal standards for EtO emissions can be further strengthened.⁴⁵ The EPA’s proposed regulations target 86 commercial sterilizers across the country and, if implemented, would reduce the amount of EtO that is released by 80%.⁴⁶

While personal injury litigation stemming from EtO exposure is not new,⁴⁷ personal injury claims have increased dramatically with the advent of the EPA’s recent statements about community risk. In January 2023, one company providing large-scale sterilization services agreed to settle more than 870 claims centering on one sterilization facility in Illinois for $408 million.⁴⁸ The EPA’s statements combined with the potential for large jury awards is a recipe for the plaintiffs’ bar to continue filing EtO-related personal injury litigation at high rates, especially where the EPA has provided a roadmap detailing where potential claimants are concentrated. 

Medical device manufacturers, sanitizers and medical facilities now find themselves in regulatory limbo, where one agency requires a specific sterilization process to ensure devices placed in patients are free of biological contaminants while another agency is on the cusp of regulating EtO with an eye toward elimination. There is an inherent tension between what FDA requires for sterilization procedures and what the EPA is attempting to achieve through air regulation, which has stakeholders rightly concerned about the future of the medical device supply chain. FDA is working with corporations to find alternative sterilization methods but notes that many “methods of sterilization cannot currently replace the use of EtO for many devices.”⁴⁹ FDA has also expressed concern about the impact an EPA regulation would have on commercial sterilizer facility operations that would likely disrupt the medical device supply chain.⁵⁰ Notwithstanding this tension between FDA requirements and the EPA’s proposed regulations, both agencies state that they are working in concert to find an adequate solution.

Litigation is likely to increase in the personal injury and toxic tort space in 2024, and heavy-handed regulations may create unattainable standards for sterilization facilities that could severely impact the medical device supply chain. This disruption may have cascading effects that impact contracts, procurement, and placement of medical devices. Stakeholders in medical device manufacturing and commercial sterilization, as well as medical device users/consumers, should pay attention to regulatory and litigation developments regarding EtO in 2024.

In Closing

It was another busy year for the drug and device space, with courts, Congress and plaintiffs’ counsel active across the country. We will continue to keep an eye out for developments as we head into 2024 and hope for positive developments in the New Year. Cheers!

Legal clerk Nicole L. Halavi contributed to this article.