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Metabolife Seeks Single Big Settlement

'Litigation onslaught' threatens maker of banished ephedra pill

Jan 5, 2005 | UNION-TRIBUNE

Metabolife International is seeking a national settlement with U.S. consumers who allege they were injured by the company's now-defunct ephedra diet pill.

The privately held San Diego company, citing a "litigation onslaught" that threatens to financially bury it, has asked a federal judge in New York to approve the proposed multimillion-dollar class-action settlement.

If the plan is approved, consumers represented in about 300 personal injury lawsuits in federal and state courts could each receive up to $1.05 million – although they could also opt out and pursue separate court cases. The settlement would also cover future claims by injured consumers who have not filed lawsuits.

Once the nation's leading seller of ephedra diet aids, Metabolife has seen its reputation and revenue founder in the wake of lawsuits and federal investigations. Last year, the company and its former chief executive, Michael Ellis, were indicted for allegedly lying to the Food and Drug Administration about the safety of its flagship product, Metabolife 356.

The pill, which was used by bodybuilders for increasing stamina and dieters for shedding pounds, reaped hundreds of millions of dollars after its 1995 launch. But Metabolife 356, a combination of caffeine and the herbal stimulant ephedra, has also been linked to strokes, heart attacks and, in some cases, death.

Last year, the FDA banned all dietary supplements containing ephedra.

In a court filing, Metabolife downplayed the merits of the personal injury lawsuits but called the proposed settlement a business necessity.

The company compared the dosage of caffeine in two Metabolife 356 caplets to the amount in a single serving of Ben and Jerry's Nonfat Coffee Fudge Frozen Yogurt. It compared the amount of ephedra to the quantity of ephedrine, the active ingredient in ephedra, found in over-the-counter asthma medicines.

"While Metabolife is confident it can expose the deficiencies of (the) cases, the cost of doing so in the hundreds of claims currently pending throughout the country threatens the very existence of Metabolife," the company said in court documents filed in U.S. District Court in New York.

Many medical experts argue that it is not the separate ingredients in Metabolife 356 that pose a health risk but the combination. Ephedra stimulates the nervous system, elevating blood pressure and increasing the heart rate. When mixed with caffeine and other herbal stimulants, the effect can be dangerously magnified.

A single Metabolife 356 pill can change electrical pulses that control the heart, increasing a person's risk threefold of developing a potentially fatal, irregular heart beat, according to a study published last year in the Journal of the American Medical Association.

Such evidence has proved persuasive with some juries. In June, Metabolife was ordered to pay $7.4 million to a Texas woman who suffered a stroke after taking Metabolife 356. Earlier, a jury in Alabama awarded $4.1 million in damages to four people who suffered injuries after taking the diet pill.

About 170 lawsuits filed against Metabolife in federal court have been consolidated in New York under a multidistrict litigation program. Another 130 lawsuits are pending in state courts, including 91 California cases transferred to a San Diego court.

As part of the proposed settlement, Metabolife is seeking a stay on the litigation pending in state courts, including one lawsuit set for trial in San Diego in March.

Metabolife has resolved more than 400 claims since it was first hit with personal injury lawsuits in 1999. Much of that cost was borne by the company's insurance carriers, but now Metabolife is on the financial hook for many of the unsettled lawsuits, according to court documents.

The company said it had traditional insurance through March 2001, but about 200 lawsuits claim injuries after that date. In those cases, Metabolife has had to pay most of the cost of defending itself and could be responsible for paying jury awards if it loses.

As of Dec. 1, Metabolife had spent about $20 million in legal fees and costs defending the lawsuits. Meanwhile, sales of the company's products have plummeted. In 2003, revenue had fallen to less than $90 million and the company had an operating loss of $20 million, according to court documents.

Metabolife had more than $350 million in revenue and a profit of $24 million in 1999, the company said in the court filing.

Jan Strode, a spokeswoman for Metabolife, said the settlement is an "efficient" way to resolve the litigation.

"Metabolife has made the sound business decision, in light of the cost of defending many baseless lawsuits, to resolve its ephedra litigation via a class-action settlement," Strode said.

It does not propose an amount to settle claims; instead it would use a formula to resolve them according to severity. Factors such as a consumer's age or pre-existing health problems would reduce payouts.

The most a consumer could receive under the settlement would be $1.05 million, according to Arnold Levin, a Philadelphia lawyer who negotiated the proposed settlement on behalf of consumer plaintiffs.

Levin acknowledged Metabolife's claim that its financial resources could be exhausted by litigation if the settlement is not approved, posing a risk of the company going under and consumer litigants getting nothing.

"Metabolife is not Wyeth. They're not Pfizer or Johnson & Johnson, so there is that problem," Levin said. "But I think the figures are fair and equitable anyway, even if the company was not in some dire straits, as they say they are."

A New York judge will hold a preliminary hearing on issues associated with the proposed settlement next month, though a decision on whether to approve it is not likely to come before March, according to Levin.

While a settlement could ease some of Metabolife's legal and financial woes, the company and its owners still face serious legal problems.

Federal prosecutors accuse Metabolife and Ellis of covering up Metabolife 356's alleged safety problems, which consumers complained about to the company as early as 1997.

Yet Metabolife told regulators in 1998 that the company had never received any notice from a consumer of a serious health problem because of Metabolife 356, and repeated the claim in 1999.

It wasn't until 2002, under pressure from the FDA and the Justice Department, that Metabolife turned over about 13,000 consumer health complaints to federal regulators.

In a separate probe, the Internal Revenue Service is investigating allegations of tax evasion by Ellis and Metabolife's other owners, Michael Blevins and William Robert Bradley.

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