Los Angeles Times (LT) - MONDAY March 4, 1996 Edition: Home Edition Section: Business Page: 1 Pt. D Word Count: 984
Maggie Farley, Times Staff Writer

A suit here asserts that Baxter, along with the Japanese government and four other drug companies, was responsible for infecting nearly half of Japan's hemophiliac population--about 5,000 people--with the human immunodeficiency virus that causes AIDS.

Last October, Tokyo and Osaka district courts recommended that the government and the companies provide permanent health care and pay $430,000 to each of 401 plaintiffs--one of the world's largest such awards to date. Baxter's portion of the payout would be at least $15 million.

Baxter balked at the recommendation, insisting that of the defendants, it did the most to minimize risk and should pay the least. But last week it agreed to seek a settlement.

For a multibillion-dollar corporation such as Baxter, the amount of the settlement is less significant than its implications. Baxter's admitting negligence, as the lawsuit demands, could provide the basis for countless more claims. The company has already nearly 1,000 HIV-related claims pending against it worldwide.

The parties--which also include Bayer Yakuhin Ltd. (affiliated with German firm Bayer) and Japanese firms Green Cross Corp., Chemo Sero Therapeutic Research Institute and Nippon Zoki Pharmaceutical Co.--have until March 29 to work out a settlement or leave the matter to a judge.

The Japanese government had denied culpability until February, when Japan's health minister tearfully disclosed "just-discovered" documents showing that ministry officials not only knew the blood products were unsafe but allowed their distribution anyway. Moreover, they had blocked the import of safer products from Baxter until domestic manufacturers could develop competitive technology.

Atsuaki Gunji, a ministry official who allowed the tainted blood products into the marketplace even after studies showed they were dangerous, said he thought only one or two people would be infected--not thousands.

Lawyers for the infected patients argue that the drug companies made a similar calculation.

A memo from the president of Cutter Inc., which became part of Bayer, shows that as early as 1982, pharmaceutical firms were aware of a link between blood transfusion and the then-newly discovered AIDS. The memo advised the firm to include a warning in the product packaging about risks, noting that "litigation is inevitable."

Separately, Baxter sent a warning letter to the Japanese government in June 1983 saying the firm was voluntarily stopping distribution of a particular batch of blood products because of infection risk--a memo that proves, lawyers say, that both the government and manufacturers were aware of dangers yet continued to use the products until mid-1985.

In that two-year interim, plaintiffs assert, hundreds of hemophiliacs were unnecessarily infected with HIV. Four hundred have already died.

The evidence suggests the drug companies faced a kind of Hobson's choice at the time: Withholding the tainted blood products would have meant withholding critical treatment for hemophiliacs.

"We could have pulled the products off the market, but where would that have left the Japanese hemophiliacs?" said a source close to Baxter. "Without the products, they would die."

Baxter, among other things, creates products to replace proteins that help the blood clot, which hemophiliacs lack. Without them, people with the genetic disease can bleed to death. In the early 1980s, the agents were made from blood collected from paid donors. The suit alleges that Baxter did not sufficiently screen donors.

Baxter maintains it did its best given what was known about the disease at the time (1983 to 1985).

"We didn't create AIDS," said Bob Hurley, president of the company's Japan subsidiary, Baxter Ltd. "It got into blood streams and products before we knew how to stop it."

Baxter, which then ranked third in Japan with close to a 15% market share, argues that because the health ministry blocked Baxter's efforts to sell newly developed, safer blood products--those heat-treated to kill the viruses that cause AIDS and hepatitis--the government should pay the majority of the award.

As the deadline for an agreement approaches, analysts say, the company faces a choice: submit to the proposed settlement and admit liability, which would prompt hundreds of new claims worldwide, or force the weakened health ministry to accept its terms.

That would probably earn the enmity of the ministry, which controls all aspects of the market and could make business difficult. The lucrative Japanese market brought the company $600 million in sales last year and is projected to grow to $1 billion by decade's end.

The Deerfield, Ill.-based company is likely, executives imply, to agree to an award but without acknowledging liability--an admission that would open the door to lawsuits from other spots Baxter once exported to, including Hong Kong, Korea, Singapore, Taiwan and Thailand.

"We've got to consider what it is going to do to us in other parts of the world, not only from a legal standpoint, but from a financial standpoint," Hurley said. "If the award is too high or constructed in a certain way, it could have a significant impact on the company."

The company has much to be concerned about. As of Sept. 30, Baxter International was a defendant in 352 lawsuits and 861 pending claims in the United States, Canada, Ireland, Italy, Spain, Japan and the Netherlands filed by individuals asserting they were infected with HIV by contaminated Baxter blood products.

But victims' lawyers want a mea culpa.

"We really want them to pay compensation, but more importantly, we want to pin them with responsibility for what happened," said Toshiyuki Izuka, an attorney representing the HIV-afflicted hemophiliacs. "If they don't accept responsibility, this kind of thing can happen again."

Baxter set aside $378 million last year to cover anticipated AIDS-related litigation. It expects insurance to reimburse $274 million of that amount, for a net charge against reserves of $56 million.

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