This week, the California Supreme Court recognized and broadened the reach of innovator liability against manufacturers of brand-name pharmaceuticals in T.H., et al. v. Novartis Pharmaceuticals Corporation, No. S233898, slip op. (Cal. Dec. 21, 2017). The opinion is consistent with an earlier California appellate decision recognizing innovator liability, Conte v. Wyeth, Inc. (2008) 168 Cal.App.4th 89, and has significant implications for pharmaceutical manufacturers.

In its December 21 decision, the California Supreme Court held that brand-name manufacturers owe a duty of reasonable care to ensure that product labeling includes adequate warnings, whether or not the end user is exposed to the brand-name drug or its generic equivalent. The Court also held that a brand-name manufacturer could be liable for failure-to-warn even after it has stopped manufacturing the product if a successor manufacturer has failed to update labeling.

Respondent Novartis Pharmaceuticals Corporation manufactured Brethine, an asthma medication often prescribed "off-label" to stop or slow premature labor, until 2001, when it sold the new drug application (NDA) to a successor company. The appellants' mother took terbutaline, a generic form of Brethine, to prevent premature labor in 2007. The appellants argued their mother's use of terbutaline during her pregnancy caused them to suffer severe and permanent neurological injuries. They alleged Novartis knew or should have known terbutaline carried a risk of serious side effects for newborns whose mothers received the drug during pregnancy, and that federal law required Novartis to report this information to the Food and Drug Administration and update Brethine labeling accordingly. The complaint asserted claims for negligence, negligent misrepresentation, strict liability, intentional misrepresentation, concealment, and medical negligence.

Novartis demurred to the complaint on grounds that it did not owe a duty to appellants because it did not manufacture the terbutaline ingested by their mother, had not manufactured Brethine since 2001, and therefore had no control over the content of the Brethine label at the time appellants' mother was prescribed terbutaline.

The trial court dismissed the complaint without leave to amend and held that, as a matter of law, Novartis did not owe appellants a duty related to claims arising from their mother's exposure to Brethine's generic equivalent in 2007. The Court of Appeal reversed and directed that the order sustaining the demurrer be modified to grant leave to amend as to the negligence and negligent misrepresentation claims. The appellate court held the claims could survive demurrer if the appellants could allege (1) that Novartis failed to warn of risks associated with terbutaline; (2) that an appropriate warning would have remained on the label in 2007 if Novartis had added a warning prior to 2001; and (3) that the appellants' mother's physician would not have prescribed terbutaline had the drug been properly labeled.

The California Supreme Court granted review to determine "whether – and if so, under what circumstances – a brand-name drug manufacturer may be sued under a theory of 'warning label' [innovator] liability when the warning label for its drug was alleged to be deficient, but the plaintiffs were injured by exposure to a generic bioequivalent drug bearing the brand-name drug's warning label." (Slip Op. at 1.)

The California Supreme Court answered this question affirmatively, holding that "a brand-name drug manufacturer owes a duty of reasonable care in ensuring that the label includes appropriate warnings, regardless of whether the end user has been dispensed the brand-name drug or its generic bioequivalent." (Slip Op. at 3.) The Court's analysis focused on federal regulations governing generic and brand-name drug labeling as well as the foreseeability of harm.

The Court reasoned that because federal law requires the label of a generic drug to be identical to the name-band label, "it is entirely foreseeable that the warnings included (or not included) on the brand-name drug label would influence the dispensing of the generic drug" and that any deficiencies in the label for the brand-name product "will be perpetuated in the label for its generic biolequivalent." (Slip Op. at 18.) Thus, the Court concluded, it was foreseeable that Novartis' failure to update product labeling to include appropriate warnings would cause harm to consumers, regardless of whether they were prescribed the brand-name or generic pharmaceutical. The Court also relied on the fact that only brand-name manufacturers have the ability to update product labeling unilaterally under federal law in affirming a warning label theory of liability. (Slip Op. at 21.)

In perhaps the most significant portion of its decision, the Court held that a plaintiff could state a claim for innovator liability even after the brand-name manufacturer stopped manufacturing the product. The Court explained that although a brand-name manufacturer owes a duty of care only during the time it holds the NDA, "a breach of that duty can have enduring effects" where a plaintiff could prove their injury was a foreseeable consequence of an earlier failure to warn. (Slip Op. at 48.)

The Court's holding is not without limit. The Court stated that a brand-name manufacturer would not be liable where the injury arose from a defect in the manufacturing process of the generic drug, the generic manufacturer failed to conform its label to the brand-name drug's label or where the generic manufacturer was promoting a use inconsistent with the FDA-approved label. (Slip Op. at 24.) In addition, the Court noted that a brand-name manufacturer could avoid the prospect of liability after it ceased manufacturing a product by including an indemnification provision when it transferred ownership of the NDA. (Slip Op. at 50.)

The Court's decision in T.H., et al v. Novartis Pharmaceuticals Corporation is significant in its potential to expand brand-name manufacturer liability for warnings-based claims.The vast majority of states have declined to adopt innovator liability claims, making California a desirable forum for plaintiffs alleging injury by a generic drug. Notably, however, the Court's holding is limited to an evaluation of warnings-based claims at the pleading stage, meaning the Court did not assess what would be required to prove the elements of a warning label claim or the likelihood of success of such claims.