SAN FRANCISCO (CN) – Rejecting arguments that damages would be too arduous to calculate on a class-wide basis, a federal judge this week certified two classes in a multidistrict antitrust suit over the pain patch Lidoderm.
Drug makers Endo, Watson and Teikoku Pharma were sued in 2014, accused of striking an anti-competitive settlement deal in May 2012 that blocked a cheaper generic version of Lidoderm from hitting the market for more than a year.
As part of that settlement, Watson agreed to delay launching its generic patch until September 2013 and to drop a patent suit that was pending against Endo and Teikoku, the creators of the original Lidoderm painkiller. In exchange, Endo gave Watson $96 million worth of Lidoderm patches and vowed not to launch its own authorized generic until 7 ½ months after Watson’s generic hit the market, according to the plaintiffs.
In a ruling issued Tuesday in the Northern District of California, U.S. District Judge William Orrick III certified two classes of direct buyers and end-payer plaintiffs who claim the arrangement artificially inflated the price of Lidoderm and denied them access to a cheaper generic alternative.
During a hearing last November, attorneys for the drug makers implored Orrick to deny class certification, arguing that calculating damages would require analyzing individual health plans and supplier contracts for each plaintiff.
But Orrick found the plaintiffs’ experts used “reliable, statistically sound” methods to show class-wide injury and damages. He also found the potential need to individually determine which class members were injured and by how much “does not negate the significant common and predominant legal and factual questions” that must be resolved at summary judgment or trial.
The judge certified a class of 55 direct-purchaser plaintiffs, including wholesalers, pharmacies, hospitals and retail stores that purchased Lidoderm from manufacturers between Aug. 23, 2012, and May 1, 2014.
Plaintiffs’ expert Dr. Jeffery Leitzinger estimated that direct buyers overpaid $295 million for Lidoderm during the period of delayed generic competition.
That figure was disputed by the drug makers’ expert, Dr. Gregory Leonard, who used “real-world prices” instead of those projected in drug makers’ internal forecasts to arrive at a $218 million figure, $76 million less than Leitzinger’s estimate.
Debate over precisely what numbers should be used to calculate damages is not an issue to be decided for class certification, Orrick wrote, adding the dispute “does not undermine the approach or the reliability of Leitzinger’s model.”
The judge appointed Drogueria Betances Inc., Rochester Drug Co-Operative Inc. and American Sales Company as class representatives for the direct-purchasers class.
Orrick also appointed Faruqi & Faruqi, Garwin Gerstein & Fisher, and Hagens Berman Sobol Shapiro LLP as co-lead counsel for the direct buyers’ class.
Turning to the end-payer plaintiffs’ motion for class certification, the drug companies again argued that plaintiffs failed to use the “real-world” prices of Lidoderm and generics when they finally hit the market in 2013 and 2014.
End-payer plaintiffs’ expert Dr. Hal Singer said those actual prices were “tainted” by antitrust conduct and higher than they would have been otherwise. The drug companies countered that Singer failed to factor in Watson’s higher-than-expected production costs, which drove up the prices.
Orrick found calculating the precise “but-for” prices to assess damages was not necessary at this stage of litigation.
The judge also rejected claims that Singer failed to properly factor in consumers with flat co-pays who were unaffected by price differences, or brand loyalists, who purchase brand-name drugs despite the availability of generics.
Singer estimated brand-loyalist purchases made up 6.1 percent of total purchases, and he excluded those from his damages model. The drug companies’ expert, James Hughes, offered a much higher estimate, finding brand loyalists made up about 24 percent of the proposed class.
“While Hughes believes that the number of brand loyalists is higher (or the amount of brand loyalist purchases is higher), that dispute does not undermine the fact that both experts rely on common proof (as opposed to individualized proof) to estimate the impact brand loyalists have on the aggregate damages number under both of their models,” Orrick wrote in his 52-page ruling.
The judge also found differences in copays and individual health plans could be accounted for in the damages model.
Orrick certified two sub-classes of end-payer plaintiffs. One sub-class encompasses all persons living in 17 states who bought branded Lidoderm from Aug. 23, 2012, to Sept. 14, 2013, and those who bought generic Lidoderm from Sept. 15, 2013, to Aug. 1, 2014.
The 17 states where individual end-payer plaintiffs are certified include California, Florida, Kansas, Maine, Massachusetts, Minnesota, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, South Dakota, Tennessee, West Virginia and Wisconsin.
The second certified sub-class of end-payer plaintiffs includes all third-party payers and pharmacy benefit plans, including CVS Caremark, Cigna and others, that purchased brand-name Lidoderm from Sept. 15, 2013, to Aug. 1, 2014.
Named plaintiffs for the end-payer plaintiff class include Allied Services Division Welfare Fund, the city of Providence and individual buyer Letizia Gallotto of Massachusetts.
Orrick appointed Girard Gibbs, Cohen Milstein Sellars & Toll, and Heins Mills & Olson as co-lead counsel for the end-payer class.
The judge also denied motions to exclude expert reports and testimony, finding the plaintiffs’ experts proposed adequate models for assessing damages. He delayed ruling on another motion to exclude the testimony of defense expert John Fritz, an actuary in the insurance business with limited experience specific to the case, until summary judgment or trial.
A case management conference has been set for March 28, 2017.
The Lidoderm patch is a topical antiseptic that contains 5 percent Lidocaine as its active ingredient. It is used to treat painful skin conditions, such as shingles. The FDA first approved it in March 1999.
Last month, Endo agreed to submit to an injunction barring it from striking anticompetitive pacts with generic drug makers as part of a settlement with the Federal Trade Commission.
Endo spokesperson Heather Lubeski declined to comment on the class certification ruling.
Direct purchaser plaintiffs’ attorney Robert Kohn and end-payer plaintiffs’ attorney Christina Sharp did not return phone calls seeking comment Friday.
Kohn is with Fauqi & Faruqi in Jenkintown, Pennsylvania.
Sharp is with Girard Gibbs in San Francisco.
Follow @NicholasIovino
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