In re Namenda Indirect Purchaser Antitrust Litig.

IN RE NAMENDA INDIRECT PURCHASER ANTITRUST LITIGATION

No. 1:15-cv-6549 (CM) (RWL)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

February 11, 2021

DECISION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR CLASS CERTIFICATION

McMahon, C.J.:

Sergeants Benevolent Association Health & Welfare Fund ("SBA") commenced this antitrust lawsuit on behalf of itself and a putative class of similarly situated indirect purchasers of the brand and generic versions of Namenda - a drug used to treat Alzheimer's disease. Presently before the Court is Plaintiff's motion for certification of a class of third-party payors ("TPPs") that reimbursed insureds for Namenda and its generic equivalents in several states between June 1, 2012 and December 31, 2017.

SBA advances two theories of antitrust liability: (1) that Defendants' entering into several reverse-payment settlements with generic manufacturers of Namenda unlawfully delayed the market entry of generic competitors; and (2) Defendants' conduct in effectuating a "hard switch" for consumers between two versions of Namenda harmed competition.

For the reasons set forth below, I am required to analyze separately whether certification would be proper under each of the two theories of recovery proposed by SBA. See Comcast v. Behrend, 569 U.S. 27 (2013). I will grant the motion to certify the proposed class (with slight modification), but only as to what I will refer to as the "pay-for-delay" theory. I am denying the motion insofar as it seeks to certify the same class (or any subclass) pursuant to the hard switch theory.

A companion Daubert motion seeking to exclude the opinions of one of SBA's experts is also denied.

I. BACKGROUND

This case's factual background and relevant regulatory scheme have been recounted at length in other opinions. See New York v. Actavis, PLC ("Namenda I"), No. 14-cv-7473, 2014 WL 7015198 (S.D.N.Y. Dec. 11, 2014), aff'd sub nom. Schneiderman ex rel. New York v. Actavis, PLC ("Namenda II"), 787 F.3d 638 (2d Cir. 2015); Sergeants Benevolent Ass'n Health & Welfare Fund v. Actavis, PLC ("Namenda III"), No. 15-cv-7488, 2016 WL 4992690 (S.D.N.Y. Sept. 13, 2016) (denying motion to dismiss federal claims brought by direct purchasers); In re Namenda Direct Purchaser Antitrust Litig. ("Namenda IV"), No. 15-cv-7488 (CM), 2017 WL 4358244, at *1 (S.D.N.Y. May 23, 2017) (granting in part and denying in part direct purchasers' motion for collateral estoppel and partial summary judgment); In re Namenda Direct Purchaser Antitrust Litig. ("Namenda V"), 331 F. Supp.3d 152 (S.D.N.Y. 2018) (certifying class of direct purchasers); Sergeants Benevolent Ass'n Health & Welfare Fund v. Actavis, plc (Namenda VI), No. 15-cv-6549, 2018 WL 7197233 (S.D.N.Y. Dec. 26, 2018) (denying Defendants' motion to dismiss in this indirect-purchaser action); In re Namenda Indirect Purchaser Antitrust Litig. ("Namenda VII"), No. 15-cv-6549, 2021 WL 1000489 (S.D.N.Y. Jan. 12, 2021).

Only facts relevant to the class-certification motion are summarized below. Unless otherwise mentioned, the facts detailed are not in dispute.

A. The Product

Namenda IR (immediate release) and Namenda XR (extended release) (collectively "Namenda") are brand-name prescription drugs that contain the active ingredient memantine. Namenda is used to treat Alzheimer's disease, and has been commercially successful ever since Forest introduced Namenda IR to the U.S. market in 2003. Total annual sales of Namenda IR grew to approximately $1.5 billion by 2013, the same year that Forest launched Namenda XR. Namenda II, 787 F.3d at 647.

Although both versions of Namenda were patent protected, the patents had different expiration dates. Therein lies the dispute animating this lawsuit. SBA alleges that Defendants acted anticompetitively in attempting to protect Namenda's market advantage afforded by the patents, ultimately resulting in indirect purchasers paying higher prices for memantine than would otherwise have been the case but-for Defendants' conduct.

B. The Parties

Lead plaintiff Sergeants Benevolent Association Health & Welfare Fund ("SBA") is a fund that administers the prescription drug benefit plan for active and retired New York City Police Department sergeants and their dependents. It represents a class of "end payors" or indirect purchasers of Namenda, which includes - subject to some exceptions - "All Third-Party Payors who indirectly purchased, and/or paid, and/or provided reimbursement for, some or all of the price for Namenda IR 5 or 10 mg tablets, their AB-rated generic equivalents, and/or Namenda XR capsules." (ECF 489).

Third-party payors ("TPPs") are entities (besides the patient or the health care provider) that provide reimbursement for health care expenses. They include insurance companies, government payors like Medicare, and self-insured health and welfare plans run by employers. TPPs are indirect purchasers because they do not purchase drugs directly from the manufacturer(in contrast to direct purchasers like wholesalers). Instead, they pay reimbursement for the purchases made by the individual consumers that they insure.

Defendant Forest Laboratories is a limited-liability company incorporated in Delaware that manufactures and sells branded pharmaceutical products. Forest is a wholly owned subsidiary of Defendant Actavis PLC (now known as Allergan PLC). Defendants Merz GmbH & Co. KGaA.; Merz Pharma GmbH & Co. KGaA; and Merz Pharmaceuticals GmbH (collectively "Merz") are headquartered in Germany and are also engaged in the development, production, and distribution of pharmaceutical products.

C. The Hatch-Waxman Act and Generic Competition

Under the Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. § 301 et seq., a pharmaceutical company must file a New Drug Application ("NDA") with the FDA any time it wishes to market a new brand-name drug. The NDA must provide the agency with scientific data showing that the drug is safe and effective. This generally requires conducting preclinical and clinical trials, and can take many years. Namenda II, 787 F.3d at 643; 21 U.S.C. § 355. Although the process is costly and time consuming, once a patented drug is approved, it enjoys a period of exclusivity on the market (generally twenty years) - effectively, a government-sanctioned monopoly. A brand-name drug's developer can recoup its investment into the drug during this exclusivity period because the drug faces no competition from generics. However, once the exclusivity period ends and generic versions of the drug enter the market, it generally results in the brand-name drug losing more than 80% to 90% of its market share within six months - a process known in the industry as going off the "patent cliff." Namenda II, 787 F.3d at 647.

In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act (the "Hatch-Waxman Act"), Pub. L. No. 98-417, 98 Stat. 1585. Hatch-Waxman attempted to serve a dual purpose: to lower drug prices for consumers by encouraging greater generic competitionwith brand-name drugs; and to incentivize innovation from branded drug manufacturers by providing for patent extensions beyond the standard 20-year patent term. Namenda II, 787 F.3d at 644.

To increase generic competition, Hatch-Waxman permits generic manufacturers to file an Abbreviated New Drug Application ("ANDA"), which allows them to "piggy-back" on an already-approved branded drug's NDA information to show that the generic is safe and effective. Id. at 644. The generic manufacturer can forgo any independent preclinical and clinic trials, but must certify that the generic has the same active ingredients as, and is "bioequivalent" to, the already-approved brand-name drug. Ibid; see also 21 U.S.C. § 355(j). Two drugs are "bioequivalent" if their "rate and extent of absorption" are not significantly different. 21 U.S.C. § 355(j)(8)(B)(i). This means that for a generic to be "bioequivalent" to a branded drug, it must deliver the same amount of the active ingredient in the same period of time. By allowing generic manufacturers to "piggy-back" their ANDAs on the studies of already-approved drugs, Hatch-Waxman reduced the development costs of lower-priced generics, speeding their introduction to the market. Namenda II, 787 F.3d at 644.

Apart from the federal regulatory landscape, states also heavily incentivize generic competition through drug-substitution laws - laws which either permit or require pharmacists to replace a prescribed brand-name drug with a lower-priced, "therapeutically equivalent" generic if there is no express direction from the prescribing doctor that the prescription must be filled with the brand-name drug. Id. at 645.

Whether a generic is "therapeutically equivalent" to the branded drug is state-dependent, but most states follow the FDA's guidance and will only substitute a generic if the FDA designates it as "AB-rated" in a publication known as the "Orange Book." Ibid. An AB-rated generic is onethat is both "bioequivalent" to the brand-name drug and pharmaceutically equivalent in that it has the "same active ingredient, dosage form, strength, and route of administration." Ibid.

However, the AB-rating requirement provides brand-name manufacturers with an opportunity to game the system by "product hopping" - developing a new version of the drug with a later patent expiration date, and then encouraging patients to switch to the new version before the original version goes off the "patent cliff." Because an AB-rating requires the generic to deliver an identical amount of the drug in the same way and over the same amount of time, a brand-name manufacturer can develop a new version of the drug with a different rate of delivery that would preclude the generic to the original version from being rated as AB-equivalent to the new version. This is what SBA alleges occurred with the two versions of Namenda, and Defendants' actions surrounding the product hop is one of SBA's two...