Liability risk in the pharmaceutical industry: Tort law in the US and UK

• We examine product liability risk for brand name pharmaceuticals in the US and UK.
• We analyze the distinct legal environment and pharmaceutical prices in both countries.
• Liability risk is proxied by: drug litigation, plaintiff wins and controlled substance classification.
• We find liability risk accounts for a portion of the price differential between the US and UK.

This paper examines the extent to which product liability risk contributes to the high costs of pharmaceuticals in the United States relative to prices in the United Kingdom. Research on pharmaceutical prices rarely accounts for the impact of liability risk, and none that we are aware of compares the United States and United Kingdom. Drawing on a dataset of 77 brand name drugs sold in both the U.S. and the U.K., we analyze relative manufacturers’ factory prices in each nation. We utilize several proxies for liability risk including drug litigation history, the percentage of plaintiff wins, and controlled substance classification. Importantly, under U.S. law there are no caps on the amount that can be awarded to a plaintiff claiming economic losses in the U.S. However, payouts in the U.K. are limited. Accounting for market differences and regulatory environments, we find liability risk can account for a portion of the price differential that exists between the U.S. and U.K., warranting further investigation.