Here's a prospect that might scare some drugmakers: Hedge funds are checking out whistleblower lawsuits as a potential investment opportunity. As reported in Chemistry World, some funds that specialize in litigation financing see False Claims Act and other pharma-related suits as a place to bet their money.
"The investment community is already looking at those kinds of opportunities," David Desser, managing director of U.S. hedge fund Juris Capital, told Chem World. Essentially, the fund would back a whistleblower up front in return for a percentage of the eventual lawsuit payout. Some of those payouts have been quite hefty: GlaxoSmithKline whistleblower Cheryl Eckard got $96 million, for instance. Recent Department of Justice figures show whistleblowers got $385 million via FCA cases during the 2010 fiscal year.
Key to a hedge fund's interest in a case would be the evidence available; if a fund manager can't accurately gauge the possibility of winning, he or she wouldn't want to take the risk. And as Ropes & Gray attorney Howard Dorfman told the magazine, FCA cases and FDA rules are more complex and more difficult to understand than the usual financial-fraud suits that litigation-oriented funds invest in.
And in a bit of good news for drugmakers, Dorfman says hedge-fund interest probably wouldn't boost the number of whistleblower cases. The prospect of big payouts already does that.
- read the Chem World piece