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War on Drugs Targets the Supply Chain

The opioid epidemic has reached alarming new heights and states are looking down the pharmaceutical supply chain to share the blame – and the cost.

Multiple states have sued the pharmaceutical companies for recovery of government costs associated with addressing addiction.  In 2007, Purdue Pharma settled with 26 states and the District of Columbia for $19.5 million over allegations involving the drug, OxyContin.

No longer targeting just the manufacturers of the drugs, however, states are now seeking liability from distributors as well.  On September 7, 2017, New Mexico filed suit against pharmaceutical companies (Purdue Pharma LP, Johnson & Johnson, Allergan Plc, Endo International Plc and Teva Pharmaceuticals Industries Ltd.) and pharmaceutical wholesale distributors (McKesson Corporation, Cardinal Health Inc. and AmerisourceBergen Drug Corporation).  The claims against the wholesale distributors allege breach of their legal duties to monitor, detect, investigate, refuse and report suspicious orders of prescription opioids

The New Mexico lawsuit alleges the distributors breached their legal duties under the New Mexico Controlled Substances Act, which requires distributors to provide effective controls and procedures to guard against theft and diversion of controlled substances.  The Complaint cites to a letter the US Drug Enforcement Agency sent to the defendants, describing wholesale distributors as key components of the distribution chain and requiring vigilance in determining whether a prospective customer can be trusted to deliver controlled substances only for lawful purposes.  The Complaint also claims that distributors have a responsibility to report orders of unusual size, orders deviating substantially from a normal pattern and orders of unusual frequency.

Absent some type of active involvement with the product, distributors are not typically held responsible for end pharmaceutical products because they have no control over the design or quality of the product.  Here, however, New Mexico is looking to impose liability on distributors under the theory the distributors knew of the dangerous condition of the drugs, knew the amount being distributed was disproportionate to the population and did nothing to prevent improper sales.  Controlling liability will depend on product traceability, warning practices, and legal doctrines such as the economic loss doctrine and the learned intermediary defense.  Ultimately, lawsuits like these may precipitate even greater regulation of pharmaceutical supply chains in the US.

© Copyright 2017 Squire Patton Boggs (US) LLP

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About this Author

Ayako Hobbs, Squire Patton Boggs, Commercial Lawyer, Supply Chain
Associate

Ayako focuses her practice on litigation and has been involved in complex commercial disputes.

Prior to joining Squire Patton Boggs, Ayako was a law clerk at a Cleveland-based law firm assisting primarily in creditor representation.

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