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Friday, March 29, 2024 | Back issues
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Provigil Wholesalers Lose Class Status on Appeal

(CN) — The Third Circuit decertified a class of wholesalers who say the drugmaker Cephalon paid generic competitors to stay out of the market for its wakefulness drug Provigil.

Consumers and retailers alike have brought lawsuits for years over these so-called reverse settlements. To maintain lucrative exclusivity, brand-name pharmaceutical companies pay generic manufacturers to silence patent suits.

Cephalon, which Teva Pharmaceuticals bought in 2011, agreed last month to a $125 million settlement with 48 states over its anticompetitive Provigil dealings. A 2015 settlement with a class of direct purchasers of Provigil meanwhile cost the company $512 million.

Before its Teva merger, the Israeli pharmaceutical giant had been one four drugmakers

Cephalon paid $300 million to drop their patent suits against Provigil. At the time, Cephalon determined that generic modafinil would cost about 90 percent less than Provigil.

Twenty-two wholesalers challenging the deal won class certification last year in Philadelphia, but the Third Circuit overturned that ruling 2-1 Tuesday.

"The District Court abused its discretion in analyzing the two most important numerosity factors when it considered the late stage of the litigation as relevant to the judicial economy factor and failed to properly consider the ability and motivation of the plaintiffs to proceed as joined, as opposed to individual, parties," U.S. Circuit Judge D. Brooks Smith wrote for the majority.

Three of the named wholesalers each have estimated claims of over $1 billion, even before any punitive damages award, and only six plaintiffs have claims under $1 million, according to the 64-page opinion.

"While it may be uneconomical for these claims to be pursued in individual litigation, there has been no showing that it would be uneconomical for these six class members to be individually joined as parties in a traditional lawsuit," Smith wrote.

Affirming though that the wholesalers have antitrust standing, the court noted that the Cephalon's reverse-payment settlement agreements prevented a competitive market from forming. Each of the four generic manufacturers can be held jointly liable for damages, the ruling says.

"This is not the sum of four separate individual harms emanating from each agreement; instead, it is a harm that all four agreements work jointly to produce, even if there was no conspiracy between the generic manufacturers," Smith wrote. "Defendants' attempt to dictate plaintiffs' theory of liability based on the doctrine of antitrust standing should fail."

Writing in dissent, U.S. Circuit Judge Marjorie Rendell blasted the majority for "erecting roadblocks that do not exist."

Rendell said there were "obvious practical reasons" that would stand in the way of the wholesalers pursuing their claims via joinder instead of as a class.

"I am struck by the inescapable fact that this case has proceeded as a class action for years and nothing about it cries out for anything but class treatment," Rendell said. "One has only to read the majority's analysis of the real issues before the court to conclude that it is unimaginable that this case should be torn apart at this late date and sent to the far corners of the United States to start over again as separate actions before several judges, each deciding anew the identical issues facing each plaintiff's claims. It should not be remanded at this late date."

The protracted litigation, initiated in 2006, bears heightened significance since the U.S. Supreme Court's 2013 decision in FTC v. Actavis, which held that reverse settlements could be illegal in some cases but did not specify what those situations are.

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