Clinical Trials: Emerging Issues Regarding Globalization of Pharmaceutical Research, Insurance, Informed Consent, Securities Litigation, and Public Policy

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Clinical Trials: Emerging Issues Regarding

Globalization of Pharmaceutical Research, Insurance,

Informed Consent, Securities Litigation, and Public Policy
By Michael Traynor, Esquire and Erin Wallace, Esquire
September 2007

In the last few years, there have been important developments that bear on the law governing clinical trials and attendant liability, insurance, regulatory, and policy issues. The developments include the globalization of pharmaceutical research, increased news coverage, the emergence of various public policy questions, and a reported increase in litigation of clinical trial issues, see, e.g., Nora Lockwood Tooher, Clinical Trials Lawsuits on the Rise Across the Country, St. Louis Daily Record & St. Louis Countian, Aug. 31, 2005, available at Key developments discussed in this article include n1:

n1 Liability and insurance issues attendant to clinical trials are also discussed in Michael Traynor, Clinical Trials: Emerging Products Liability and Insurance Issues, in ALI-ABA Course of Study Materials: Products Liability, July 19-20, 1996, at 179, available at WL SB16 ALI-ABA 179. See also Michael Traynor, As Manufacturers Seek Approval for More New Pharmaceuticals, Issues Such as the learned Intermediary' Rule Will Emerge in Litigation Involving Clinical Trials, Nat'l L.J., Nov. 18, 1996, at B6. Although these articles remain generally relevant, commentary about and developments in clinical trials have significantly increased since they were published. In addition, basic information about the issues and liability and risk issues is more readily available. See, e.g., NIH,, jsessionid = 926E02C5D0CAFA1B356A8F524BD26EA6; Areta L. Kupchyk & Josephine M. Torrente, Legal Issues During Research and Development, Pharmaceutical Law 2006: Across the Product Life Cycle, 878 PLI/Pat 9 (2006); Clinton D. Hermes & Joanna L. Bergmann, Counseling on the Ethical and Legal Issues in Biomedical Research, Pharmaceutical Law 2006: Across the Product Life Cycle, 878 PLI/Pat 49 (2006); David M. Fox, Basics of FDA Approval, Pharmaceutical Law 2006: Across the Product Life Cycle, 878 PLI/Pat 267 (2006); Michael J. Malinowski, Ethics in a Global Biopharmaceutical Environment, 5 Santa Clara J. Int'l L. 57 (2006); Finnuala Kelleher, The Pharmaceutical Industry's Responsibility in Protecting Human Subjects of Clinical Trials in Foreign Countries, 38 Colum. J.L. & Soc. Probs. 67 (2004); Sullivan Group, 2004 Human Clinical Trials Liability Primer, available at Human Clinical Trials Liability Primer.pdf.

I. The Globalization of Pharmaceutical Research

Conducting clinical trials abroad is a recent phenomenon that has rapidly gained momentum. William DuBois, New Drug Research, the Extraterritorial Application of FDA Regulations, and the Need for International Cooperation, 36 Vand. J. Transnat'l L. 161, 167 (2003). The number of clinical trials conducted outside the United States increased exponentially in the 1990s, from 271 in 1990 to over 4,400 in 1999. Id. This increase is partly due to relaxed U.S. rules governing drug research, which now allows foreign data to be used. Id. See also Kupchyk & Torrente, supra, at 23. The proliferation of U.S. biotechnology companies conducting international clinical trials has created a unique set of liability, insurance, and ethical issues, which are outlined below. See, e.g., Samantha Evans, The Globalization of Drug Testing: Enforcing Informed Consent Through the Alien Tort Claims Act, 19 Temp. Int'l & Comp. L.J. 477 (2005); Frank F. Goudsmit, Navigating the International Insurance Market, J. Biolaw & Bus., Vol. 6, No. 3, 2003.

A. Informed consent issues

Given the increasing number of clinical drug trials conducted in developing countries, Evans, supra, at 477, obtaining informed consent in these nations has become increasingly challenging as well as problematic, especially, as is often the case, when research subjects are uneducated, extremely poor, do not speak English, and have very different cultures. See. e.g., Jonathan Todres, Can Research Subjects of Clinical Trials in Developing Countries Sue Physician-Investigators for Human Rights Violations? 16 N.Y.L. Sch. J. Hum. Rts. 737, 757 (2000). To further complicate matters, researchers often treat clinical subjects as patients, so the subject volunteers may assume that the researcher will decide what is in their best interest. See Benjamin Mason Meier, International Protection of Persons Undergoing Medical Experimentation: Protecting the Right of Informed Consent, 20 Berkeley J. Int'l L. 513, 518-19 (2002). Women and children are especially vulnerable to coercion because of their comparative status and societal powerlessness. Id. at 540.

Critical components of informed consent may be lost easily in translation between languages. In one instance, consent forms used in AZT clinical trials in Thai and English differed greatly in the descriptions of study design. Todres, supra, at 761. The English version explained that one-half of the study group would receive a placebo, while the Thai version stated that one-half of the study group would receive a "comparison drug." Id. Because clinical trials may be the only vehicle for receiving treatment for life-threatening diseases such as AIDS in developing countries, it is imperative that volunteers receive adequate and truthful information.

Currently, many developing countries lack any ethical review standard or mechanism to protect research subjects involved in clinical trials. See DuBois, supra, at 195. There have been calls for developed countries to help developing ones create a set of enforceable rules to protect human research subjects on such vital matters as informed consent. Id. at 205. One scholar has proposed that an international body, such as UNESCO, issue a set of international rules governing human research testing. Id. Others have recommended the United Nations as a model organization for developing such rules because of its support structures and ethical credibility. See Meier, supra, at 552. Additional credible alternatives include creating international panels or institutions. It is important that international health professionals gain a reputation for credibility and ethical practices rather than one for deception if biotechnology companies employing these professionals wish to continue to conduct credible clinical trials abroad.

B. Insurance coverage issues, including the question of "admitted" insurers

Insurance is an important consideration for biotechnology companies conducting research anywhere because it gives necessary protection in the event that a research subject is injured during the course of the clinical trial. Goudsmit, supra. However, international clinical trials require special consideration because each country may have different requirements regarding liability insurance. See Sullivan Group, supra. A biotechnology company conducting research in foreign countries should also consider obtaining products liability insurance in the event that the use of a product causes bodily injury. See Goudsmit, supra; David T. Case, Julia Reynolds Johnson, & Anand D. Nair, Life Sciences Companies and Liability Insurance for Clinical Trials Conducted Abroad, Biotech Briefing (July 2006) (Newsletter of the Biotechnology Committee, ABA Section of Science & Technology Law) (includes discussion of TeGenero clinical trial in London and related insurance issues), available at Clinical trials liability insurance should be available to cover a life science company during the policy term, and if so, should be extendable to cover clinical investigators and other employees. Sullivan Group, supra.

Researchers must look at insurance requirements specific to each country in order to ensure that clinical trials comply with foreign requirements. See Clinical Trial Liability, Commerce Banc Insurance Services, available at clinicalTrial.cfm. Recently, attempts have been made to unify the approach of protecting patients outside the United States, which creates new issues for obtaining the appropriate insurance policies. Id.

Local laws in each country govern which insurance carriers are authorized to conduct business there. These insurance carriers are correspondingly termed "admitted" or "not admitted." Id. "Admitted" coverage refers to an insurance carrier authorized to conduct business under local insurance laws, whose policy is written and issued in the specific locale. Id. Coverage on a "non-admitted" basis may be more flexible, but the majority of countries where clinical trials are conducted require "admitted" coverage. Id.

Although test sites usually will inform sponsor companies of their insurance and indemnification requirements, if they do not do so, the sponsoring company should ask them. Given the small number of insurers that can handle international placements for biotechnology companies, international insurance options can be limited. Major challenges to securing insurance for foreign clinical trials not only availability and coverage but also time and cost. Commerce Banc Insurance Services, supra.

Biotechnology companies considering insurance providers should look at the following issues appearing on policy forms: claims made versus occurrence forms, retroactive dates, limits, exclusions, retentions or deductibles, coverage extensions, and coverage territory. Companies should also view factors such as outside parties, the risk of a particular trial, risk assumed via contract, limits chosen by a peer group, the experience and expertise of the broker whom they are using, and industry experience of insurers when determining the appropriate insurance coverage, limits, and deductibles Id.

In addition, insurance underwriters should scrutinize the biotechnology company applying for insurance abroad. See Goudsmit, supra. Before approving a company's application, insurers should look at a company's experience, quality assurance practices, procedures, announced and credible intentions, evidence of good management practices, proper protocols and controls for researchers, relationships with clinical research organizations, claim history, and adequacy of informed consent procedures and forms. Id. Therefore, the task of obtaining and providing sufficient insurance protection and risk management requires both biotechnology companies and their insurance carriers to evaluate each other carefully as well as the pros and cons of proceeding to an effective insurance contract.

C. The EU Clinical Trial Directive

U.S. biotechnology companies wishing to conduct clinical trials in the European Union must comply with uniform protocol in place there. In 2001, the EU enacted the Clinical Trial Directive, a uniform set of ethical and scientific quality requirements for human clinical trials. See Council Directive 2001/20, Clinical Trial Directive, 2001 O.J. (L 121) 1 (EC). The Directive mandates that EU members enact national legislation in compliance with the requirements. See directives/. Biotechnology companies conducting clinical trials in the EU should be aware of the Clinical Trial Directive requirements, as well as any additional requirements of each country. See Nicola Maguire & George Pickering, Foreign Policy, International Clinical Trials (2001), available at

Under the Directive, the sponsor of a clinical trial conducted in the EU must either be established in the EU, or appoint a resident of the EU as the sponsor's legal representative and qualified person to represent the research institution. Id. Additionally, the sponsor may not begin a clinical trial in the EU until the international ethics committee has approved the study. Clinical Trial Directive, supra, at art. 9.

It is also important to examine the individual regulations governing clinical trials in each nation In which they are conducted. Several countries in Europe mandate that a company provide compensation for injuries incurred during a clinical trial, such as requiring a company to pay participants who are injured on a no-fault basis. See Larry D. Scott, Research-Related Injury: Problems and Solutions, 31 J.L. Med. & Ethics 419, 424 (2003). The Directive contains stringent requirements for companies wishing to conduct clinical trials in the EU to ensure that "the interests of the patient always prevail over those of science and society." Clinical Trial Directive, supra, at art. 4.

D. Good Clinical Practice

The Clinical Trial Directive was enacted in an attempt to meet Good Clinical Practice (GCP), an international ethical and scientific quality standard that governs all components of a clinical trial involving human research subjects. See Inspections -- Good Clinical Practice, European Medicines Agency, available at The Declaration of Helsinki, available at, provided the basis for the GCP.

Compliance with GCP should assure that clinical trials are conducted ethically, adequate protection is provided to research subjects, and clinical trial data is credible. Id. The EU has adopted this standard, and unified standards have also been developed for the U.S. and Japan. Id. As new and potentially more stringent standards are adopted, biotechnology companies must be able to comply with them.

E. The French Law on Protection of Persons Undergoing Biomedical Research

Recently, several issues have been raised regarding the fairness and adequacy of the U.S. system for research and approval of a new drug or medical device. See Ivan Berlin & David A. Gorelick, The French Law on "Protection of Persons Undergoing Biomedical Research": Implications for the U.S., 31 J.L. Med. & Ethics 434 (2003). These issues include: adequacy of the IRB system; remuneration of volunteers as possibly creating undue inducement to participate; compensating research subjects for health problems caused by clinical trials; and effective sanctions to discourage and punish violations of ethical standards governing human subject participants. Id.

French law governing human clinical trials serves as a good comparison for the alleged deficiencies of the U.S. guidelines. Id. The French Parliament passed the act entitled "Protection of Persons Undergoing Biomedical Research," commonly known as the Huriet Law, to protect participants in clinical trials, investigators, and sponsors of biotechnological research. Law No. 88-1138 of December 20, 1988, Journal Officiel de la Republique Francaise [J.O.] [Official Gazette of France], December 22, 1988, pp. 16,032-16,035. The law was designed to ensure that clinical research protocols are ethical and adequate. See Berlin & Gorelick, supra, at 434.

Several significant differences between the French and U.S. systems bear emphasis. Id. To begin, French law distinguishes between two categories of clinical research; biomedical research providing direct benefit to the clinical participants, and all other types of research. Id. at 435. The U.S., however, does not. Id. In France, the research sponsor is financially responsible for any harm caused to research subjects during the trial, as well as to investigators for civil liability, which is paid with mandatory insurance coverage. Id. The United States presently requires no such coverage. The French regulations apply to all human research conducted in the country, while the U.S. system only applies to research supported or regulated by the federal government. Id. at 437. The French system uses local ethics committees appointed by the local government that have jurisdiction over a certain geographical area, while the U.S. committees (IRBs) are often part of the research institution, which may create a conflict of interest. Id.; see also Robert Gatter, Conflicts of Interest in International Human Drug Research and the Insufficiencies of International Protections, 32 Am. J.L. & Med. 351 (2006). Finally, France requires that ethics committees be tracked and submit protocols for review, while the U.S. has no such system in place. Berlin & Gorelick, supra, at 435.

F. The Issue of Extraterritorial Application of U.S. Laws and Regulations

Absent a clear international standard or explicit United States law, it is difficult for the U.S. to regulate the conduct of biotechnology companies conducting clinical trials abroad. See, e.g., Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746, 1758 (2007) (holding that courts presume against extraterritoriality of U.S. law). The Supreme Court stated that even when a statute permits a specific extraterritorial application, the exception does not override the presumption and may be read narrowly. Id. This methodology applies even when such a narrow reading could create a loophole for parties seeking to evade liability. Id. at 1759 (holding extraterritoriality exception only covers copies of software actually dispatched from U.S., but not copies made abroad from master software disks supplied in the U.S.).

The Supreme Court has held that Congress unquestioningly has the authority to regulate the conduct of U.S. employers outside the territorial jurisdiction of the U.S. See, e.g., Torrico v. IBM, 213 F. Supp. 2d 390, 397 (internal citations omitted). However, courts will assume ordinarily that Congress has not exercised such authority unless it explicitly states its intent to reach acts performed in other countries. Id. This doctrine has led courts generally to reject a party's claim that a statute should be applied to a foreign locale.

For example, the Supreme Court previously interpreted Title VII of the Civil Rights Act of 1964 as not applying to the actions of U.S. employers to U.S. employees working abroad. EEOC v. Arabian American Oil Co., 499 U.S. 244 (1991), overruled by The Civil Rights Act of 1991, 102 Pub. L. No. 166, § 109, 105 Stat. 1071 (1991). In EEOC v. Arabian Oil Co., ("Aramco"), the Court reasoned that Congress did not provide for overseas enforcement when it could have (indeed, when such a construction would have likely implemented the statutory purpose without creating a true conflict with the policy or interests of Saudi Arabia), so Title VII only applied domestically (even though such an interpretation undermined the statutory purpose without advancing any competing policy or interest of Saudi Arabia). 499 U.S. at 248. In an understandable and quick response, Congress passed the Civil Rights Act of 1991, which rejected the Supreme Court's interpretation of Title VII in cases such as EEOC v. Aramco. See Landgraf v. Usi Film Prods., 511 U.S. 244 (1994). Section 109 of the Act, titled "Protection of Extraterritorial Employment," defined an employee for purposes of Title VII and the Americans with Disabilities Act as including an individual who is a citizen of the U.S. employed in a foreign country. 102 Pub. L. No. 166, § 109.

In amending Title VII to override EEOC v. Aramco, however, Congress, did not succeed in putting to rest the Supreme Court's general presumption against extraterritoriality. And a few recent cases address the presumption in a careful and balanced way rather than woodenly. For example, Hoffman-La Roch Ltd. V. Empagran S.A., 542 U.S. 155 (2004) (Breyer, J.), illustrates the care that the Supreme Court can take if it wishes in dealing with claims to apply domestic laws abroad. There, the Court declined to apply the Foreign Trade Antitrust Improvement Act ("FTAIA") to price-fixing activity that had significant foreign effects but was independent of domestic effects. Id. at 164. The Court reasoned that it construes ambiguous statutes to avoid unreasonable interference with the sovereignty of foreign nations under applicable rules of statutory construction and consideration of foreign interests as well as domestic ones. Id. Additionally, the history of the FTAIA suggests that Congress intended to clarify or limit the Sherman Act, but not expand it to the extent sought by the claimants. Id. at 169.

Applying such interpretive approaches to the phenomenon of clinical trials conducted abroad, courts seem unlikely to find that current otherwise pertinent U.S. statutes reach conduct in foreign countries (that are independent nation states and not simply territories or possessions of the U.S.) unless such statutes contain specific language stating (or clearly implying in light of both their words and their purpose) that they are meant to apply abroad. Given this likely approach, and until a controlling and countervailing court decision is handed down or a statutory amendment is enacted, the courts may hold that the FDA lacks sufficiently explicit authority to regulate the treatment overseas of human subjects in foreign clinical trials, or punish or otherwise sanction biotechnology companies for acting unethically in foreign countries, see DuBois, supra, at 193, although it may withhold approval in the U.S. of a human pharmaceutical or medical device that has not been tested according to its standards. See Basic HHS Policy for Protection of Human Research Subjects, 45 C.F.R. § 46 (2007); but see 45 C.F.R. § 46.101(h) (stating that when research takes place in foreign countries, a department head may substitute FDA regulations for foreign ones if it deems the foreign procedures to afford at least the same protections to human research subjects as would be provided under FDA regulations).

The inapplicability of U.S. law becomes particularly problematic when foreign drug trials are conducted for the purpose of avoiding U.S. government controls, such as the Johns Hopkins University School of Medicine trial in India of an anti-cancer drug banned by the FDA. See DuBois, supra, at 168, citing Office of inspector General, Department of Health and Human Services, The Globalization of Clinical Trials: A Growing Challenge in Protecting Human Subjects, Sept. 2001, at 6, available at Therefore, ensuring that ethical protocols and adequate protections exist in international clinical trials presents a special challenge when, under presently controlling precedents governing the interpretation of U.S. statutes, the U.S. lacks authority to regulate or punish companies conducting experiments abroad and the company is not seeking FDA approval in the U.S. based on the foreign clinical trials.

G. Alien Torts Claims Act Issues, Including the Pfizer case and its Nigerian Clinical Trial

As the number of foreign clinical trials conducted in developing countries increase, so do calls for the U.S. to provide a forum to punish extraterritorial abuses in areas such as informed consent. Evans, supra, at 479; Erin Talati, An Open Door to Ending Exploitation: Accountability for Violatiosn of Informed Consent under The Alien Tort Statute, 155 U. Pa. L. Rev 231 (2006). Recently, attempts have been made to revive the Alien Torts Claims Act ("ATCA") as a potential way to reach U.S. biotechnology companies conducting allegedly abusive clinical trials abroad. See Abdullahi v. Pfizer, Inc., No. 01 Civ. 8118, 2002 U.S. Dist. LEXIS 17436 (S.D.N.Y. Sept. 17, 2002), vacated and remanded by Ho. 02-9223, 2003 U.S. App. LEXIS 20704 (2d Cir. Oct. 8, 2003), dismissed by No. 01 Civ. 8118, 2005 U.S. Dist. LEXIS 16126 (S.D.N.Y. Aug. 9, 2005).

A plaintiff bringing a claim under ATCA must prove three elements: the plaintiff is an alien to the U.S.; the defendant committed a tort; and the tort was committed in violation of the law of nations or a treaty of the United States. See 28 U.S.C. § 1350 (2007). The recent case of Abdullahi v. Pfizer, Inc., is instructive on how U.S. courts may treat such claims.

In Abdullahi v. Pfizer, Inc., Nigerian children were given an experimental drug administered by Pfizer meant to treat meningitis. 2002 U.S. Dist. LEXIS 17436, at *1. Several children who received the drug died and others suffered serious side effects. Id. at *6. Nigerian family members sued Pfizer under the ATCA, alleging violations of the Nuremberg code, the Declaration of Helsinki, the International Covenant on Civil and Political Rights, and customary international law. Id. at *1. The district court dismissed the case on the grounds of forum non conveniens, but the court of appeals vacated and remanded, holding that the court below should take notice of a similar case in Nigeria that had been dismissed. 2003 U.S. App. LEXIS 20704, at *7-10. On remand, the district court dismissed the claim for lack of subject matter jurisdiction, finding that the ATCA does not create a private cause of action. 2005 U.S. Dist. LEXIS 16126, at *1. The district court concluded that although non-consensual medical experimentation violates the law of nations, such a violation does not itself create a cause of action and it is up to Congress to decide whether and how to react to such violations. Id. at *25.

The district court also dismissed the plaintiffs' claim under the doctrine of forum non conveniens, finding Nigeria to be a more appropriate location to file suit. Id. at *2. The district court found insufficient evidence to support the plaintiffs' allegation that the Nigerian forum was inadequate because of corruption and bias. Id. at *45-47. However, the possibility of foreign government officials ignoring or condoning abuses committed by biotechnology (or other pharmaceutical) companies is very real, because third world governments often see clinical trials as the only way to obtain otherwise unaffordable medical treatment for their citizens. See Evans, supra, at 478. See also Gatter, supra, at 353.

In an interesting twist, the Nigerian government has recently brought suit against Pfizer in the United States for violations occurring during the 1996 meningitis clinical trial. See Joe Stephens, Pfizer Faces Criminal Charges in Nigeria, Wash. Post, May 30, 2007, at A10. The lawsuit alleges that researchers did not obtain informed consent before conducting the trial, and gave the control group a dangerously low dose of a comparison drug. Id. The Nigerian government withdrew the civil lawsuit in July 2007, reportedly in order to file a new suit alleging fraud based on recently discovered material. Bashir Adigun, Nigeria Plans New Lawsuit Against Pfizer,, July 20, 2007, alerts. Reporters called this move "a rare - - perhaps unprecedented - - instance in which the developing world's anger at multinational drug companies has boiled over into criminal charges." Joe Stephens, supra, at A10. However, if alien plaintiffs do not have recourse under U.S. statutes such as the ATCA, a suit brought by a foreign government may be the only way to enlist worldwide attention as well as sanction biotechnology companies for violations of local and international standards.

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