Antitrust Law Daily Wrap Up, ANTITRUST—1st Cir.: Class of Nexium purchasers properly certified despite uninjured members, (Jan 23, 2015)

By Greg Hammond, J.D.

Pharmaceutical manufacturer AstraZeneca AB could not overturn a class certification order entered by the federal district court in Boston regarding alleged reverse payment settlement agreements between AstraZeneca and generic manufacturers. The U.S. Court of Appeals in Boston affirmed the class certification order, finding that the presence of a de minimis number of uninjured members at the class certification stage does not defeat the class action because a mechanism to sort the injured and uninjured parties can be identified (In re Nexium Antitrust Litigation, January 21, 2015, Dyk, T.).

Background. AstraZeneca manufactures the brand name drug Nexium, a proton pump inhibitor containing esomeprazole magnesium, prescribed to treat heartburn. The company holds several patents relating to the drug. In 2005, generic drug maker Ranbaxy Pharmaceuticals, Inc. filed an Abbreviated New Drug Application with the Food and Drug Administration, seeking to market a generic version of Nexium. Teva Pharmaceutical Industries, Ltd. and Dr. Reddy’s Laboratories, Ltd. shortly thereafter followed suit. AstraZeneca responded by filing patent infringement suits against the three generic manufacturers and later entered into settlement agreements with the generic manufacturers, ending the three suits and suspending the entry of generic Nexium into the market.

The United Food and Commercial Workers Unions and Employers Midwest health benefits Fund and other health and welfare funds that reimburse plan members for prescription drugs, including Nexium, filed suit against AstraZeneca and the three generic manufacturers, alleging that they entered into reverse payment agreements that blocked generic competition for Nexium.

In November 2013, the federal district court in Boston certified the following class: “All persons or entities in the United States and its territories who purchased or paid for some or all of the purchase price for Nexium or its AB-rated generic equivalents…in capsule form, for consumption by themselves, their families, or their members, employees, insured, participants or beneficiaries, during the period April 14, 2008, through and until the anticompetitive effects of Defendants’ unlawful conduct cease.” The defendants appealed the class certification order.

On interlocutory appeal, AstraZeneca and the generic manufacturers argued that the class certification decision should be reversed for two reasons: (1) the presence of any uninjured class members, even a de minimis number, defeats the Federal Rule of Civil Procedure 23(b)(3) predominance requirement because the existence of uninjured class members precludes the use of common proof at trial; and (2) even if a de minimis number of potentially uninjured class members would not defeat class certification, more than a de minimis number of class members were uninjured in this case.

Uninjured class members. In support of its appeal, AstraZeneca argued that the class contains a number of brand-loyal consumers who would continue to purchase branded Nexium even when a generic becomes available and that the plaintiffs have no methodology to identify those consumers who would have switched to a generic version. Although the court found that a proper mechanism for exclusion of brand-loyalist consumers had not been proposed, it noted that the plaintiffs’ expert did not concede, and the defendants’ expert did not prove that such a mechanism could not be developed. The court ultimately concluded that a mechanism exists to establish injury at the liability stage of this case. For instance, the plaintiffs could argue for a presumption that economically rational consumers faced with two identical products would purchase the less expensive alternative, which would be generic Nexium in this case. Alternatively, plaintiffs could establish injury through testimony by the consumer that, given the choice, he or she would have purchased the generic drug.

The defendants argued that any mechanism of exclusion that requires determination of the individual circumstances of class members is improper. The court disagreed, finding that the appropriate question is whether there is reason to think that individualized questions will “overwhelm” common ones and render class certification inappropriate. Consequently, the court found that the need for individual determinations or inquiry for a de minimis number of uninjured members at later stages of the litigation does not defeat class certification. The court also rejected the defendants’ argument that plaintiffs must prove every putative class member suffered injury to prevail on class certification, finding that no authority cited by the defendants imposes such a requirement.

Number of uninjured consumers. AstraZeneca’s alternative argument—that more than a de minimis number of class members were injured—was also rejected. Out of five alleged groups of uninjured class members, the court found only one group—brand-loyalists—in which some consumers were likely not injured by the defendants’ conduct. The district court previously found that 5.8 percent of all prescriptions during the entire class period would have been for branded Nexium. The defendants argued that this demonstrates that 5.8 percent of the consumers were uninjured. The court rejected that argument, finding that: (1) the number of prescriptions is not a necessary surrogate for the number of consumers; (2) brand-loyalist consumers who purchased Nexium using cash or coinsurance at the beginning of the class period were injured because they would have paid more than the but-for branded Nexium price; and (3) a brand-loyalist consumer was injured if he or she would have purchased generic Nexium even once during the class period, which would be highly likely since Nexium is a maintenance drug.

The court therefore concluded that the plaintiffs’ evidence demonstrated that the vast majority of class members were probably injured, and the district court did not abuse its discretion in certifying the class.

The case numbers are 14-1521 and 14-1522.

Attorneys: Kannon K. Shanmugam (Williams & Connolly LLP), Laurence A. Schoen (Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.), Jay P. Lefkowitz (Kirkland & Ellis LLP), Kevin D. McDonald (Jones Day), Timothy C. Hester (Covington & Burling LLP), Michael P. Kelly (McCarter & English, LLP), Leslie F. Su (Minerva Law, P.C.), and J. Douglas Baldridge (Venable LLP) for AstraZeneca AB. Kenneth A. Wexler (Wexler Wallace LLP), Steve D. Shadowen (Hillard & Shadowen LLC), J. Douglas Richards (Cohen Milstein Sellers & Toll, PLLC), Jayne A. Goldstein (Dahlstrom & Gross LLP), Glen DeValerio, and Berman DeValerio for United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund.

Companies: AstraZeneca AB; United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund; Ranbaxy Pharmaceuticals, Inc.; Teva Pharmaceutical Industries, Ltd.; Dr. Reddy’s Laboratories, Ltd.

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