Baxter Sues Teva to Enforce Agreement Over Anesthetic Liability Cases

Baxter International Inc., the maker of blood products and intravenous drugs, sued Teva Pharmaceutical Industries Ltd. (TEVA) to enforce an indemnity agreement over claims the drugmakers sold the anesthetic propofol in a way that led some patients to develop hepatitis.

Baxter contends in a Delaware Chancery Court lawsuit that an arbitration panel found Teva was bound by an agreement to cover all liability stemming from cases blaming tainted vials of propofol for colonoscopy patients developing hepatitis C. 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.

“Teva is obligated to indemnify Baxter for any and all claims, damages, liabilities or losses, including” punitive- damage awards in propofol cases, Deerfield, Illinois-based Baxter said in the Delaware suit, filed yesterday.

The suit comes as a Las Vegas jury is hearing testimony 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, didn’t immediately respond to a call and e-mail seeking comment on Baxter’s suit.

Hepatitis Outbreak

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

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

Last year, a state grand jury indicted Dr. Dipak Desai, who ran the Endoscopy Center of Southern Nevada during the time outbreak occurred, on criminal charges. Desai’s case has been delayed after a judge found him incompetent to stand trial. He is also facing federal charges over the outbreak.

Punitive Damages

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.

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 officials have asked the Nevada Supreme Court to throw out Chanin’s verdict.

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

Indemnity Agreement

In a February SEC filing, Teva officials 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 that the agreement covered punitive awards.

Baxter officials filed a copy of the arbitration decision in Delaware along with its suit to enforce the ruling. The Philadelphia-based panel of retired judges concluded in June that the indemnity agreement was hastily and “inartfully” written.

“That was likely due to the fact that neither side expected that Chanin or any other propofol case would lead to such a disastrous jury verdict,” the arbitrators said in their report.

The Delaware case is Baxter International Inc. (BAX) 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).

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.