Excerpted from The Daily Telegraph, Monday, 17 March 2003.

Drug Companies Feel The Pain Of Rising Premiums

Yvette Essen -- Drug companies are facing fivefold increases in their insurance premiums for product liability.

Insurers are increasingly reluctant to offer the cover because of increased litigation, particularly in America. The insurance for products liability covers pharmaceutical, biotech and clinical research organisations if they are sued over adverse effects caused by their drugs.

Insurers have been put off by high-profile cases, including Wyeth, formerly called American Home Products Corporation, which spent up to $14 billion (£8.8 billion) in litigation costs over its diet drugs fen-phen.

Bayer, the German pharmaceutical group, admitted last week that its insurance may not be enough to cover claims relating to its recalled anti-cholesterol drug Baycol.

Small companies are also being hit. Nigel Trim, managing director of the clinical research organisation Matrix, said the cost of his insurance for £1m of cover has jumped from £5,500 in 2002 to £16,000 this year. Other quotes were up to £24,000, despite his company never having made a claim.

He employs 20 staff in Britain and Europe to develop cancer and blood clotting drugs. "As a small company, that is a lot of money and it slows our expansion - it is pretty much what we pay a junior per year," he said. "There is no legal requirement to have the insurance, but it is very hard to do business without it."

Products liability is the latest class of insurance to see premiums soar.

Thousands of businesses are already struggling to afford compulsory insurance for employers' liability, which covers staff for accidents in the workplace. Others are facing up to tenfold increases for public liability, which pays out for injuries in a public place.

Marsh, the world's largest broker, has recently helped one Danish company obtain products liability insurance for Eu2m (£1.35m), compared with Eu400,000 (£270,000) last year.

Ian McCabe, industry practice leader of chemicals and pharmaceuticals in Marsh Europe, said: "Increases of up to 500% over the last three years are not unusual."

He said smaller organisations are accepting greater excesses to try to limit the rises while big pharmaceutical groups are taking out less cover as they can afford to pay out for claims from their reserves.

Excerpted from The Daily Telegraph, Monday, 17 March 2003.