Meeting the Burden: The Predominance Requirement in Pharmaceutical Class Actions
When branded drug companies face antitrust class action suits over actions allegedly taken to delay or hinder the entry of generic versions of their drugs, the composition of the plaintiff class is a critical and often highly contested point. These lawsuits usually center on allegations that large numbers of purchasers were injured when they were forced to pay more for drugs than they would have absent the alleged anticompetitive conduct.
Proposed classes for these suits frequently include broad groups comprising all purchasers of a particular drug for a defined class period. These broadly defined classes, however, often run headlong into Federal Rule of Civil Procedure 23’s predominance requirement, which mandates that injuries be capable of common proof, without excessive reference to individual considerations. This means that plaintiffs bear the burden of demonstrating, at the certification stage, that all (or virtually all) class members can use the same evidence to show injury by the alleged anticompetitive conduct.
Three recent rulings show the rigor with which courts are now scrutinizing such claims, the importance of expert analyses of the evidentiary record, and the issues that are likely to be of importance in future cases.
ASACOL: How many is too many?
Case name: In re: Asacol Antitrust Litigation
Background: The drugmaker Warner Chilcott allegedly engaged in a “product hop,” pulling its ulcerative colitis drug Asacol from the market and introducing an alternative product called Delzicol, whose patent protection ran two years longer than Asacol’s.
Proposed class: All end purchasers of the two drugs (those who bought them from intermediaries, not for resale) during the defined class period
In certifying the class for trial, the district court acknowledged that some members of the class (as many as 10%) had suffered no injury, but it considered that number de minimis, and held that the uninjured class members could be removed post-trial by a claims administrator.
In reviewing this certification, the US Court of Appeals for the First Circuit focused on the 10% figure. Referencing the submission by Warner’s expert, Analysis Group Managing Principal Bruce Strombom, the appeals court emphasized the number of potentially uninjured class members and the factually intensive and individualized review of consumers’ behavior necessary to make that determination, as detailed in the figure below.
Ultimately it was both the magnitude of uninjured class members and the complexity of separating them from the injured plaintiffs that convinced the appeals court that the injury was not capable of class-wide proof. In reversing the district court’s certification of the class, the First Circuit wrote that
“[T]his is not a case in which a very small absolute number of class members might be picked off in a manageable, individualized process at or before trial. Rather, this is a case in which any class member may be uninjured, and there are apparently thousands who in fact suffered no injury. The need to identify those individuals will predominate and render an adjudication unmanageable…”
LAMICTAL: What are the competitive effects?
Case name: In re: Lamictal Direct Purchaser Antitrust Litigation
Background: The plaintiffs claimed that an alleged reverse payment between Teva Pharmaceuticals and GlaxoSmithKline (GSK) to delay the entry of Teva’s generic version of GSK’s epilepsy drug suppressed competition and caused them to pay higher prices for both the branded and generic versions.
Proposed class: Direct purchasers of the branded and generic drugs (those who bought them from GSK or Teva) during the defined class period
In determining whether the plaintiffs’ claims were capable of class-wide proof, the US Court of Appeals for the Third Circuit zeroed in on the district court’s acceptance of the plaintiffs’ expert’s pricing model, which relied on average prices and pricing forecasting documents to show that, on average, nearly all class members would have paid lower prices for the generic absent the agreement.
However, as a submission by the defendants’ expert, Analysis Group affiliate James Hughes, made clear, this type of averaging did not accurately reflect market dynamics for Lamictal and its generic versions. This was in part because the evidentiary record showed that GSK offered discounts for branded Lamictal upon Teva’s entry, and Teva responded by reducing the price of its generic. The prices paid by individual purchasers thus varied widely, and may have been affected by a variety of factors related to the manufacturers’ discount strategies, as the figure below shows.
As a result, not only were some class members uninjured; some paid less for the generic than they would have in the plaintiffs’ but-for world.
Those considerations raised enough questions for the Third Circuit to vacate certification, remand the case, and remind the district court that “a more rigorous analysis is needed” before the predominance question could be properly considered. On remand, the district court denied certification of the direct purchaser class as to plaintiffs that only purchased the generic.
NAMENDA: Who was injured?
Case name: In re: Namenda Indirect Purchaser Antitrust Litigation
Background: A third-party payer (who reimbursed covered individuals for drug purchases) alleged that Forest Pharmaceuticals, manufacturer of the Alzheimer’s drugs Namenda XR and Namenda IR, had both delayed generic entry through anticompetitive reverse payment settlement agreements and executed a “hard switch” by announcing that it planned to discontinue Namenda IR before its patents were due to expire (even though that plan was not executed).
Proposed class: All third-party payers of the branded and generic versions of both drugs during the defined class period
Noting explicitly that it was carrying out the kind of “rigorous analysis” required by the Third Circuit in Lamictal, the US District Court for the Southern District of New York certified the class of third-party payers for the alleged delay of generic entry, but denied certification under the hard switch theory.
Similar to both Asacol and Lamictal, the question of whether a third-party payer reimbursed for a Namenda XR prescription that otherwise would have been a prescription for generic Namenda IR required individualized inquiry of the sort that made class certification inappropriate under the hard switch theory.
Unlike Asacol and Lamictal, the court found that a pricing model based on average prices was sufficient to establish class-wide antitrust injury under the reverse payment theory because the majority of third-party payers would have paid more for branded drugs (prior to and possibly net of rebates) relative to their generic alternatives. It also held that the existence of brand loyalist consumers would not preclude the certification of a class of third-party payers that likely covered reimbursement for individuals who were not brand loyalists.
In distinguishing between the two classes and theories of injury, the question that turned out to be paramount was whether it was possible to determine on a class-wide basis the specific drugs that would have been purchased by the third-party payer class members absent the alleged conduct, and thus who was injured by that conduct.
Given the complex and unique nature of the pharmaceutical industry, questions like the ones prevalent in these cases – How many were injured, and who are they? Which specific products are at issue? How does this market function? – are likely to continue to be scrutinized in future class action lawsuits. As such, the need for experts to address highly specific factual evidence from the record, as well as the realities of the pharmaceutical industry, will continue to be critical. ■