In re Teva Sec. Litig.

IN RE TEVA SECURITIES LITIGATION

THIS DOCUMENT RELATES TO: All Class Actions

No. 3:17-cv-558 (SRU)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

March 9, 2021

RULING AND ORDER

This consolidated action consists of 25 separate cases.¹ In those cases, numerous plaintiffs have sued Teva Pharmaceutical Industries, Ltd. ("Teva"), various Teva subsidiaries, and several current and former employees and officers of Teva. The plaintiffs allege that the defendants violated federal and state securities laws because they misrepresented the reasons for Teva's financial success. More specifically, the plaintiffs allege that the defendants publicly attributed Teva's success to good business decisions when, in fact, Teva was thriving because it was artificially and collusively inflating the prices of certain generic drugs that it manufactured.

Four of the cases in this consolidated action are putative class actions.² On June 19, 2020, the lead and named plaintiffs³ (the "Plaintiffs") made a motion for class certification. See Mot. for Class Cert., Doc. No. 419. The defendants in the lead putative class action are Teva, Teva Pharmaceuticals Finance Netherlands III B.V. ("Teva Finance"), and several current andformer officers of Teva (collectively, the "Defendants").⁴ The Plaintiffs ask me to certify the following class pursuant to Fed. R. Civ. P. 23(b)(3):

(1) As to claims under the Securities Exchange Act of 1934, all persons and entities who, in domestic transactions, purchased or otherwise acquired the following securities during the period from February 6, 2014 through May 10, 2019, inclusive (the "Class Period"), and were damaged thereby:

a. Teva American Depositary Shares ("ADS");

b. Teva 7.00% mandatory convertible preferred shares issued on or about December 3, 2015 and January 6, 2016 ("Preferred Shares");

c. The following Teva Finance U.S.-dollar-denominated senior notes issued on or about July 21, 2016:

i. 1.400% Senior Notes due July 20, 2018 ("2018 Notes");

ii. 1.700% Senior Notes due July 19, 2019 ("2019 Notes");

iii. 2.200% Senior Notes due July 21, 2021 ("2021 Notes");

iv. 2.800% Senior Notes due July 21, 2023 ("2023 Notes");

v. 3.150% Senior Notes due October 1, 2026 ("2026 Notes"); and

vi. 4.100% Senior Notes due October 1, 2046 ("2046 Notes") (collectively, the "Notes"); and

(2) As to claims under the Securities Act of 1933, all persons and entities who, in domestic transactions, purchased or otherwise acquired ADS, Preferred Shares, and Notes pursuant or traceable to the offerings of ADS and Preferred Shares completed on or about December 3, 2015 and January 6, 2016, or the offering of the Notes completed on or about July 21, 2016; and as to the alleged additional state-law claims, all persons and entities who purchased or otherwise acquired ADS pursuant to Teva's Employee Stock Purchase Plan for U.S. Employees ("ESPP") during the Class Period, and were damaged thereby.⁵

The Plaintiffs also ask me to appoint them Class Representatives of the Class pursuant to Rules 23(a) and 23(b)(3) and to appoint Bleichmar Fonti & Auld LLP as Class Counsel, with Carmody Torrance Sandak & Hennessey LLP as Class Liaison Counsel pursuant to Rule 23(g). See Mot. for Class Cert., Doc. No. 419, at 1. The Plaintiffs' motion for class certification is supported by opinions and reports by a purported expert on market efficiency. In opposition, the Defendants submit reports from three experts of their own. The Defendants ask me to exclude the Plaintiffs' expert's opinions and to strike his expert reports. See Daubert Mot., Doc. No. 678. On January 29, I held oral argument on the instant motions.

For the following reasons, I grant the Plaintiffs' motion for class certification, doc. no. 419, and deny the Defendants' Daubert motion, doc. no. 678.

I. Background⁶

The Plaintiffs claim that, beginning in 2013, Teva adopted a concerted and secret strategy of raising prices on certain drugs in its generic drug portfolio. Between July 3, 2013 and April 6, 2016, Teva raised prices 76 times. See Second Am. Consol. Class Action Compl. (the "SAC"), Doc. No. 310, at ¶¶ 2, 40, 120, 128, App. A. The Plaintiffs allege that Teva undertook many of those price increases in tandem with competitors in the generic drug market. See id. at ¶¶ 46, 174-81, App. A, App. B. As a result of those price increases, Teva's business boomed, as reflected in both profits and stock price. See id. at Figure 1 (inflated profit), Figure 2 (stock price). Indeed, by July 27, 2015, Teva's stock price had soared to an all-time high of $72 per share. See id. at ¶ 277. In August 2016, Teva was able to leverage its stock price to help finance a $40 billion purchase of Actavis, which was Allergan's worldwide generics business. Id. at ¶¶8, 93. To aid in that acquisition, Teva made a stock offering in December 2015 and a notes offering in July 2016.⁷ See id. at ¶¶ 407-08.

In the middle of 2015, the Plaintiffs claim that Teva's house of cards began to come crashing down. See id. at ¶ 279. Around that time, investigations into the generic drug industry picked up pace and pressure grew on Teva to explain its financial success. See id. at ¶¶ 101-02, 105, 117. Teva's stock price sank lower and lower. See id. at Figure 2. The Plaintiffs allege that, beginning in August 2016, a series of "negative events and disclosures" revealed the truth to the market. See id. at ¶¶ 338-76. On May 10, 2019, the Attorneys General from 47 States, the District of Columbia, and Puerto Rico filed a 524-page antitrust complaint regarding the generic drug industry that contained detailed allegations with respect to Teva's alleged collusive conduct. See id. at ¶ 374; see also Compl., Doc. No. 1, in Connecticut, et al. v. Sandoz, Inc., et al., No. 3:20-cv-802 (D. Conn.) (SRU). In August 2020 (outside the Class Period), Teva Pharmaceuticals USA, Inc.—Teva's United States subsidiary—was charged in a criminal complaint by the United States Department of Justice's Antitrust Division for conduct relating to its alleged collusion to fix certain generic drug prices. See Press Release, U.S. DEP'T OF JUSTICE, https://www.justice.gov/opa/pr/seventh-generic-drug-manufacturer-charged-ongoing-criminal-antitrust-investigation (Aug. 25, 2020).

Throughout the Class Period (February 6, 2014 through May 10, 2019), the Plaintiffs claim that Teva publicly attributed its financial success to good business decisions when, in fact, that success was due to artificial (and collusive) price increases on generic drugs. See SAC, Doc.No. 310, at ¶ 1, 165. Thus, the Plaintiffs claim that Teva violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; sections 11, 12(a)(2) and 15 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77k(a), 77l(a)(2), and 77o(a); and breached certain state common law duties and agreements. See id. at ¶¶ 380-86 (Exchange Act); ¶¶ 438-64 (Securities Act); ¶¶ 465-85 (state common law).

Regarding the Exchange Act claims, the Plaintiffs allege that—between February 6, 2014 and February 19, 2019—the Defendants⁸ made a series of misstatements and omissions in (1) press releases, (2) earnings calls, (3) SEC filings, (4) guidance calls, (5) and at conferences. See id. at ¶¶ 176-267. With respect to the Securities Act claims, the Plaintiffs allege that the Defendants⁹ made false and misleading statements and omissions in offering materials relating to (1) the December 2015 secondary public offering of ADS and initial public offering of Preferred Shares, (2) the July 2016 notes offering, and (3) a July 2010 ADS offering.¹⁰ See id. at ¶¶ 417-437. Regarding the state common law claims, the Plaintiffs allege that the Defendants¹¹ breached their fiduciary duty, made misrepresentations and actionable non-disclosures, and breached contractual obligations to class members who acquired ADS through the ESPP. See id. at ¶¶ 465-85.

II. Standard of Review and Relevant Law

A. Class Certification pursuant to Rule 23

To proceed as a class action suit, a plaintiff must establish by a preponderance of the evidence that the suit satisfies all four requirements of Rule 23(a) and fits into one of the categories of Rule 23(b). See Johnson v. Nextel Commc'ns Inc., 780 F.3d 128, 137 (2d Cir. 2015). "[C]ertification is proper only if the trial court is satisfied, after a rigorous analysis, that" Rule 23's requirements have been satisfied. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350-51 (2011) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982)) (cleaned up). Although "a court's class-certification analysis must be rigorous and may entail some overlap with the merits of the plaintiff's underlying claim, Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage." Amgen Inc. v. Conn. Ret. Plans and Tr. Funds, 568 U.S. 455, 465-66 (2013) (quoting Wal-Mart, 564 U.S. at 351) (cleaned up). "Merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied." Id. at 466; see also Ark. Teacher Ret. Sys. v. Goldman Sachs Grp., Inc., 955 F.3d 254, 268 (2d Cir. 2020) ("ARTS II").

1. Rule 23(a)

Rule 23(a) lays out four prerequisites for any class action lawsuit: numerosity, commonality, typicality, and adequacy.

Numerosity requires that the class be "so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). "Numerosity is presumed for classes larger than forty members." Penn. Pub. School Emps.' Ret. Sys. v. Morgan Stanley & Co., Inc., 772 F.3d 111, 120 (2d Cir. 2014). "[P]laintiffs need not provide evidence of an exact class size to establish numerosity." Kaplan v. S.A.C. Capital Advisors, L.P., 311 F.R.D. 373, 378 (S.D.N.Y. 2015) (citing Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir. 1993)). "In securities fraud class actions...