Antitrust Law Daily Wrap Up, ANTITRUST—D. Mass.: End-payor damages class certified in Nexium reverse payment settlement litigation, (Nov 15, 2013)

By Tobias J. Gillett, J.D., LL.M.

In an action challenging alleged reverse payment settlement agreements between brand name pharmaceutical manufacturer AstraZeneca and generic pharmaceutical manufacturers Ranbaxy, Teva, and Dr. Reddy’s Laboratories concerning the acid reflux medication Nexium, the federal district court in Boston has certified a class of end-payors seeking damages under state laws that permitted such an action, but not a class seeking injunctive relief (In re Nexium (Esomeprazole) Antitrust Litigation, November 14, 2013, Young, W.).

The end-payors alleged that AstraZeneca and three generic drug manufacturers, Ranbaxy Pharmaceuticals, Inc., Teva Pharmaceutical Industries, Ltd., and Dr. Reddy’s Laboratories Ltd., entered into the reverse payment agreements to block generic competition for Nexium. The end-payors alleged that the reverse payment agreements were designed to deprive the putative class members of a market in which generic drug manufacturers made commercial decisions based upon the strength of drug patents, balanced against the countervailing risks of litigation, free from the distortive influence of brand manufacturers’ payments.

After the generic manufacturers filed applications to market generic versions of Nexium, AstraZeneca filed patent infringement suits against the companies. Ranbaxy allegedly entered into a reverse payment agreement in which AstraZeneca agreed to dismiss the claims in exchange for the companies admitting that the generics infringed the patents. Ranbaxy secured prospective revenue between the commencement of the reverse payment agreement and the end of Ranbaxy’s 180-day period of marketing exclusivity in 2014 envisaged by the agreement. Teva and Dr. Reddy’s also allegedly entered into reverse payment agreements with AstraZeneca.

On September 11, the court denied AstraZeneca’s motion to dismiss the direct purchasers’ claims, finding that they adequately alleged that AstraZeneca entered into reverse payment agreements with generic drug manufacturers to keep generic versions of Nexium out of the market in violation of federal antitrust law. In the present motion, the end-payor plaintiffs sought certification of a class of individual consumers, third-party payors, union plan sponsors, and insurance companies that purchased or provided reimbursements for Nexium in those states that permitted such an action.

Adequacy of representation. The named plaintiffs would adequately represent the interests of the class, according to the court. All payors in the class allegedly paid supracompetitive prices for Nexium and suffered identical economic injuries, and therefore the interests of the named plaintiffs and the members of the class were aligned. Moreover, although the named union plan sponsor plaintiffs appeared to represent only 10 percent of insured consumers, the court did not find a “fundamental conflict of interest.” Further, potential damages allocation issues were only “weak indicators of existing conflict of interest,” and the court found the issue of damages allocation was “appropriately reserved for trial.”

Injunctive class. However, the court denied the motion to certify an “injunctive class” in those states that permitted such an action. Here, the claim for injunctive relief was merely incidental to the end-payors’ claims for over $2.3 billion in damages. Moreover, enjoining the reverse payment agreements at the end of a March 2014 trial would provide little relief when the agreements would expire of their own accord in May 2014.

Predominance of common questions. The court concluded that questions common to the damages class predominated over questions affecting only individual members. The relevant state antitrust statutes had substantial similarities, and courts in the four states where the end-payors made claims under state consumer protection laws had “held that the violation of traditional antitrust elements constitutes a violation of the relevant consumer protection statute.” Therefore, the variance in state laws did not bar class certification.

The variance in injury among putative class members and the fact that certain consumers may have suffered no injury at all also did not bar certification, according to the court. The court concluded for certification purposes: (1) that prices for esomeprazole were kept artificially high as a result of the reverse payment agreements, and (2) that all class members had “been exposed to purchasing or paying for esomeprazole magnesium at a supracompetitive price,” but that more than a de minimis number of class members were not injured, due to rebates, contracts, and brand-loyal purchasing. However, at the present stage of the litigation, the court determined that the incidence of uninjured class members was “insufficient to overcome the showing of common antitrust impact to the putative class,” but noted that it preserved AstraZeneca’s right to challenge individual damage claims at trial.

Pharmacy benefit managers. The court excluded pharmacy benefit managers (PBMs) from the end-payor class. Antitrust injury was impossible to calculate among PBMs on a classwide basis, and no single allocation formula existed for measuring the variations in net price paid by PBMs because the individual contracts differed among insurers, PBMs, and pharmacies. However, the end-payors’ class was limited to end-payors that made purchases “for consumption by themselves, their families, or their members, employees, insureds, participants, or beneficiaries.” Therefore, the PBMs, as “mere conduits” for third-party payor payments to pharmacies, could be excluded from the class.

Comcast/Wal-Mart. The Supreme Court’s recent decisions in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), 2013-1 Trade Cases ¶78,316, did not proscribe class certification in the present case, despite the presence of uninjured members in the proposed class, according to the court. The court noted that in Comcast the putative class was considered “fatally flawed” because it “assumed the validity of all four theories of antitrust impact initially advanced,” even though the district court had only accepted one of those theories. By contrast, the end-payors in the present case presented unreasonable restraint of trade, monopolization and attempted monopolization, and conspiracy to monopolize theories that arose out of “a singular set of transactions, the three reverse-payment settlements.” The court found that the end-payors’ expert witness had “persuasively demonstrate[d] that the end-payors have suffered classwide antitrust impact under a single theory of liability, viz. that the Defendants entered into reverse payment agreements with the purpose of extracting supracompetitive rents by virtue of AstraZeneca’s artificially secured monopoly position.”

The court found the end-payors’ expert’s “yardstick” approach, which used “average measures, publicly available data, and a single ‘benchmark’ brand-name price to calculate aggregate overcharges,” to be an acceptable method of measuring damages. The court found AstraZeneca’s expert’s damages calculation “artificially accentuated” variations in purchase price, rebates, and contracts, and did not “undercut the court’s conclusion that the aggregate calculations here appropriately capture the variations in the purchase price and reimbursements for Nexium.”

Therefore, the court granted certification of a damages class of “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 Arizona, California, Florida, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont, West Virginia, Wisconsin and the District of Columbia, in capsule form, for consumption by themselves, their families, or their members, employees, insureds, participants, or beneficiaries, during the period April 14, 2008 through and until the anticompetitive effects of Defendants’ unlawful conduct cease.”

The court excluded from the class the defendants and affiliated individuals and entities; all persons or entities who purchased Nexium or its AB-rated generic equivalent only directly from the defendants; all persons or entities who purchased Nexium or its AB-rated generic equivalent only for resale purposes; all government entities, except for government-funded employee benefit plans; fully insured health plans; “Flat co-pay” “Cadillac Plan” consumers who made purchases only via fixed dollar co-payments that do not vary between Nexium and its AB-rated generic equivalent; consumers who purchased or received Nexium or its AB-rated generic equivalent only through a Medicaid program; all pharmacy benefit managers without capitation agreements; and the judges in the case and their immediate families.

The case is No. 12-md-02409-WGY.

Attorneys: Nicole M. Acchione (Trujillo Rodriguez & Richards, LLP) for Michigan Regional Council of Carpenters Employee Benefits Fund. Natalie Finkelman Bennett (Shepherd, Finkelman, Miller & Shah, LLP) for Fraternal Order of Police Miami Lodge 20 Insurance Trust Fund. Justin N. Boley (Wexler Wallace LLP) for United Food Workers and Commercial Workers Unions and Employers Midwest Health Benefits Fund. Christopher K. Albert (Hamilton Brook Smith & Reynolds, P.C.) for Dr. Reddy’s Laboratories Ltd. Nicholas W. Allen (McCarter & English, LLP) for AstraZeneca LP. James Douglas Baldridge (Venable LLP) for Ranbaxy Laboratories, Ltd. Peter A. Barile, III (Grant & Eisenhofer, P.A.) for Meijer Distribution, Inc. Ashley E. Bass (Covington & Burling LLP) for Aktiebolaget Hassle.

Companies: Dr. Reddy’s Laboratories Ltd.; AstraZeneca LP; Ranbaxy Laboratories, Ltd.; Meijer Distribution, Inc.; Teva Pharmaceutical Industries, Ltd.

Cases: Antitrust MassachusettsNews