Chattem believes a global settlement clearing away all phenylpropanolamine (PPA) product liability litigation against the company could be reached by mid-2004.

On Dec. 19, the Chattanooga, Tenn.-based firm and The Delaco Company announced they have entered into a memorandum of understanding with the Plaintiff's Steering Committee regarding PPA product liability litigation pending before the U.S. District Court for the Western District of Washington.

The Delaco Company is the successor by merger to Thompson Medical Company, from which Chattem acquired the PPA-containing Dexatrim line in 1998. Chattem later reformulated the weight-loss brand without PPA after research linked it with hemorraghic stroke (¹ Also see "Perrigo PPA Product Withdrawal Costs Could Reach $19 Mil." - Pink Sheet, 13 November, 2000., p. 4).

In a same-day call discussing the memorandum of understanding, Chattem CFO Alec Taylor said it represents about 70% of the plaintiffs in federal court cases and "we expect that most of the state courts will follow suit and join in...over the next few weeks."

Chattem is commencing a national class action settlement of PPA claims filed against the firm alleging injury due to ingestion of products containing the ingredient under the memorandum. The firm has been named as a defendant in about 300 lawsuits.

If the settlement is approved, Chattem will create a settlement trust fund and give notice to all potential claimants on claim deadlines and on how to submit claims, Taylor explained. The process should "take four to six months to finally resolve," he predicted.

Chattem said ending all PPA suits via the settlement will result in the firm recording a $20 mil. to $25 mil. charge in fiscal 2004. "It is expected the final approval of the class settlement and funding of the settlement will occur in mid-2004," the company added.

Chattem plans to "fund its total commitment to the settlement for all cases...from its product liability insurance and [approximately $26 mil. in] cash on hand."

The firm said it has reached a preliminary agreement with Kemper Indemnity Insurance to settle Kemper's lawsuit seeking to rescind its excess product liability insurance policy (² Also see "PPA Litigation Risk Increases For Chattem As Interstate Joins Kemper Suit" - Pink Sheet, 1 December, 2003., p. 6).

The Kemper agreement gives Chattem about $60 mil. of insurance coverage before the firm must pay claimants from its own pockets.

Chattem Hopes To Settle All PPA Suits In The Next Six Months

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