California Supreme Court Will Review Novel Negligence Theory for Pharmaceutical Manufacturers

In Short

The Situation: The California Supreme Court recently granted review of a California Court of Appeal decision, Gilead Life Sciences, Inc. v. The Superior Court of the City and County of San Francisco, that made waves in the pharmaceutical industry. The plaintiffs alleged that the pharmaceutical manufacturer Gilead acted negligently by postponing the development of a new HIV drug that was equally efficacious but had a lower risk of side effects than the existing Gilead drug.

The Result: The California Court of Appeal allowed the plaintiffs' negligence claim to proceed. The court held that the "legal duty of a manufacturer to exercise reasonable care" can encompass a manufacturer's decision to pause the development of a new drug. But the California Supreme Court will now weigh in on the matter.

Looking Ahead: The Court of Appeal's decision opens the door for plaintiffs to sue pharmaceutical manufacturers simply for deferring the development of new drugs—which could bear upon how manufacturers think about their pipeline. But the Court of Appeal's decision itself acknowledged that this theory could potentially be limited to new drugs whose safety and efficacy has been established in Phase III trials. All eyes will now be on the California Supreme Court as it decides whether to let the ruling stand.

California law permits plaintiffs to recover under a negligence theory for injuries suffered from a product. Under California Civil Code section 1714, a plaintiff must prove that the manufacturer owed a duty to the plaintiff, breached that duty by acting unreasonably, and caused the injury. Many understood previous decisions as precluding negligence liability for pharmaceutical manufacturers for injuries caused by a prescription drug that was properly prepared and accompanied by appropriate warnings. But in Gilead, the California Court of Appeal recently held that plaintiffs may state a negligence claim against a manufacturer simply for not bringing an alternative drug to market, regardless of whether the manufacturer's existing product was defective. The California Supreme Court will now be reviewing that decision.

Specifically, the Gilead court held that the plaintiffs could maintain a negligence claim against Gilead for its decision to defer development of the HIV drug TAF, an alternative to TDF, Gilead's product already on the market. Importantly, because of the summary judgment posture, the court accepted the plaintiffs' assertions that Gilead (i) voluntarily invented TAF in the process of inventing TDF; (ii) tested TAF in a Phase I/II clinical trial; (iii) knew that TAF was safer than TDF and equally effective; and (iv) paused development of TAF to maximize profit.

Gilead argued that the plaintiffs' negligence theory failed because the existing drug was not defective, as shown by its FDA approval. But the court held that older California cases did not squarely hold that "any negligence claim in the products liability context requires proof of a defect." And the court concluded that liability under section 1714 extended beyond the duty not to introduce a defective product—and could reach a manufacturer's decision to postpone development of a drug, if the manufacturer knew that the drug worked just as well as, and was safer than, the existing alternative.

The court then considered whether the plaintiffs' theory failed under Rowland v. Christian, which allows exceptions to the general duty of reasonable care based on the foreseeability of injury and policy considerations. But the court refused to grant such an exception, reasoning that any chilling effect that a duty of care might have on the development of alternative drugs did not overcome the benefit of ensuring that safer products reached the market. The court emphasized that the duty at issue was narrow; it did "not apply to generally 'improved' products, but only to products that the manufacturer knows will avoid significant side effects of a manufacturer's existing product."

Notably, the court declined to reject a narrower Rowland exception that would preclude liability when the alternative product had yet to finish Phase III testing. The court held that it needed a fuller record on, for example, how often "a drug's apparent promise after Phase II is undermined by unexpected results in Phase III." This could bear upon whether the new drug would foreseeably be safer. Significantly, the court also took no position on whether plaintiffs could pursue a negligence claim based on the theory that a manufacturer should have known that its new product was safer or equally effective. The court's decision turns on the manufacturer's actual knowledge.

The Gilead decision is an important ruling on product liability under California law—and threatens to be a tough pill to swallow for manufacturers in all industries. But the California Supreme Court will soon have the final word on this issue.

Even if the California Supreme Court endorses the Court of Appeal's reasoning—hardly a foregone conclusion, when it could have just denied review—the Court of Appeal's decision itself shows important limits on the scope of liability. First, the court's holding requires "an alternative that [the manufacturer] knows is safer and at least equally efficacious." Such knowledge was key to the analysis. Second, the court held only that a duty of care was present—and itself recognized the plaintiffs' "difficult road in establishing a breach of the duty of reasonable care" in this narrow circumstance. Third, as noted, the court acknowledged the possibility of a narrower Rowland exception.

Nevertheless, the mere threat of negligence liability based on drugs that have not reached the market could have damaging ramifications. Manufacturers may need to be more cautious when developing new products—particularly if they are uncertain when a new drug is sufficiently safe or efficacious to trigger a duty of care, or when financial considerations can support stopping a new drug's development. Regardless, manufacturers should keep a close eye on what the California Supreme Court does next.

Three Key Takeaways

1. The California Court of Appeal's decision allows a drug manufacturer to be held liable for deciding to postpone development of a drug if it knows the new drug would be safer than and equally as effective as the existing alternative—but the California Supreme Court is now reviewing that holding.
2. If the California Court of Appeal's decision is affirmed, relying on FDA approval to show that a product was not defective could no longer be a bulletproof defense to defeat a general negligence action in California.
3. Regardless of what the California Supreme Court holds, manufacturers still will have many grounds for defeating a negligence claim advancing this theory.