Yesterday we discussed 2019’s most significant developments in challenges to reverse-payment settlements. Today we continue our analysis of recent trends in pharmaceutical antitrust actions with a discussion of cases addressing class certification requirements in the reverse-payment context.

Class Certification Rulings

Courts in 2019 addressed Rule 23(b)(3)’s predominance requirement in connection with class damages in antitrust class actions. Two courts permitted plaintiffs to proceed with class-wide aggregate damage models that allow broad variations in drug pricing for direct purchasers, but a third held that, at least as to classes of indirect purchasers, an aggregate damages model with no methodology for weeding out uninjured class members fails to demonstrate that common issues predominate.

In re Loestrin 24 FE (D.R.I):

Judge Smith of the District of Rhode Island certified a class of direct purchaser plaintiffs (DPPs) alleging a number of claims in connection with a settlement agreement between brand manufacturer Warner Chilcott and generic manufacturers—including sham litigation, unlawful reverse payment, and “product hopping.” More specifically, DPPs alleged that defendant Warner Chilcott fraudulently obtained the patent for Loestrin 24, and then engaged in sham litigation to prevent generic competitors from entering the market. DPPs further alleged that Warner Chilcott paid a generic manufacturer to delay generic entry into the market, and then introduced a new formulation of the drug immediately before the generics were scheduled to launch.

The Court granted class certification, rejecting defendants’ challenges directed at the class representatives. For example, the court rejected defendants’ typicality and adequacy challenges to plaintiff supermarket-operator Ahold’s status as class representative, finding that the interests of a retailer that has been assigned a right from a wholesaler are aligned with a class of wholesaler DPPs, even where the plaintiff has never directly purchased a product from defendants.

Likewise, although the court acknowledged that the failure of a set of plaintiffs to purchase generic Loestrin 24 Fe even after it came on the market “casts doubt” on whether they were suitable class representatives, it nevertheless held that defendants’ alleged conduct makes it impossible to know whether these plaintiffs would have done so in the but-for world. As to the set of plaintiffs who purchased only generic drugs and not the brand, the court determined that wide variations in individual pricing could be captured by plaintiffs’ aggregated damages model, and rejected defendants’ argument that some plaintiffs did not pay less for the generic drug even after additional competitor generics entered the market.

In re Niaspan (E.D. Pa.):

In the Eastern District of Pennsylvania, Judge DuBois certified a class of direct purchaser plaintiffs (DPPs) who alleged that generic manufacturer Barr (now Teva) accepted a reverse payment from Kos Pharmaceuticals (now AbbVie) to settle Hatch-Waxman litigation concerning Niaspan.

The court’s analysis focused on defendants’ predominance challenges to the DPPs’ three alleged theories of classwide injury: (1) branded Niaspan would have been replaced earlier by generics at lower prices if not for the Barr-Kos agreement (the “brand-generic” theory); (2) absent the agreement, branded Niaspan would have been available at lower average prices because of generic price competition (“brand-brand” theory); and (3) but-for the settlement, generic Niaspan would have been available for lower prices, because another generic product would have entered the marketplace earlier and competed on price (“generic-generic” theory). Defendants argued that, under Comcast v. Behrend, it would be improper for the DPPs to prove only one of these theories of injury on a class-wide basis, “and then use that injury as a hook for recovering damages on unrelated theories of harm.”

The district court distinguished Comcast by observing that there the plaintiffs had advanced “four distinct theories of liability, each of which proffered a different model of antitrust impact” (emphasis added). By contrast, the court held, the DPPs in Niaspan present “a single liability theory—defendants’ unlawful conduct delaying competition.” Because DPPs’ expert—the same expert appearing on behalf of DPPs in the Loestrin 24 Fe case—proffered a damages model that the court found to be consistent with DPPs’ broad liability theory and able to isolate damages flowing from the antitrust violation, the court held that Comcast is satisfied and certified the class. As in Loestrin 24 Fe, the court shrugged off defendants’ concern that plaintiffs’ model disregards important pricing variations, holding that “the use of averages to prove common impact does not conceal significant differences in the data.”

The certification decision also gave some consideration to the question of numerosity in response to defendants’ argument that DPPs incorrectly counted 48 members in their proposed class. Defendants argued that the proposed members of the class have the resources and incentives to litigate through joinder instead of as a class. Defendants relied on the Third Circuit’s decision in In re Modafinil, which reversed the certification of a DPP class of 22 “large and sophisticated corporations.” There, the appellate court found that proposed class members “have the ability and incentive to bring suit as joined parties,” such that “the alleged wrongdoers” would not “escap[e] liability” absent a class action. That was particularly true given that most class members had claims greater than $1 million, and three wholesaler class members had claims estimated to be over $1 billion (before trebling).

The Niaspan court acknowledged the same to be true for the putative DPP class before it—the same three wholesalers as in Modafinil accounted for 89% of DPPs alleged overcharge damages. But nevertheless, the court determined that other factors weighed in favor of finding numerosity, particularly the fact that the alleged 48-member class raised a presumption of impracticable joinder that was absent in Modafinil.

In re Intuniv (D. Mass.):

On the other hand, indirect purchaser plaintiffs (IPPs) failed to certify classes before Judge Burroughs in the District of Massachusetts. IPPs alleged that brand manufacturer Shire settled patent infringement actions with two generic manufacturers that would allow them to launch an authorized generic during the 180-day exclusivity period held by Actavis, the first generic filer. Shire, which had also sued Actavis under the Hatch-Waxman Act, then settled that infringement litigation with an agreement that, IPPs allege, would protect Actavis from competition during its exclusivity period. In turn, Actavis agreed to delay the launch of its generic (and, accordingly, its 180 days of exclusivity). IPPs allege that the Actavis suit was a sham litigation, and that the Shire-Actavis settlement included an unlawful reverse payment.

The IPPs proposed two classes: (1) nationwide consumers of Intuniv who paid some or all of the purchase price of the branded or generic drug, and (2) consumers in Illinois Brick repealer states who paid some or all of the purchase price. Declining to certify either class, the court bypassed a discussion of the Rule 23(a) requirements and focused on the predominance requirement of Rule 23(b)(3), finding that it was not satisfied.

The court’s predominance analysis focused on the variations in individuals’ drug purchasing practices, determining that “market complexities” such as “[v]arying out-of-pocket consumer costs, consumer preferences, and drug availability” meant that thousands of putative class members would not have paid less for Intuniv absent the alleged unlawful reverse payment. That is, the court found that over 25,000 “brand loyalists," in addition to several thousand other class members, did not suffer antitrust injury. In particular, brand loyalists, purchasers who received co-payment coupons from Shire, and those who purchased Intuniv after reaching out-of-pocket maximums would not have suffered the alleged overcharge.

Without a “reasonable and workable plan to weed out uninjured class members,” the court concluded that IPPs did not establish predominance. The IPPs’ Rule 23(f) petition for interlocutory appeal is being briefed before the First Circuit.