Lipitor ruling raises bar for class status in late payment cases

Sun Pharmaceutical Industries LtdThe company’s victory over allegations it conspired to hinder the launch of a generic cholesterol-lowering drug raises the bar for plaintiffs in delay claims.

The decision by Judge Peter G. Sheridan of the U.S. District Court for the District of New Jersey to deny class-action status to two groups of buyers of the popular drug Lipitor in June reinforces the high bar plaintiffs’ lawyers face in cases challenging patent settlements involving payments from pharmaceutical companies to keep generic drugs off the market.

Defense attorneys are likely to cite the opinion in other cases involving late payment, especially given the high-profile nature of Lipitor, said Ken Racowski, a partner at Holland & Knight who has defended companies in antitrust and class action lawsuits. The Lipitor ruling could apply to the ongoing antitrust case over Thalomid, for example, he said.

“It’s a big deal, a big opinion about a drug that everyone knows about,” Racowski said of Lipitor. “In and of itself, that’s a great soundbite, that’s a great precedent for the defense.”

The standard was raised in part because Sheridan found that indirect purchasers had no workable method of determining who qualified for a class action, and direct purchasers, such as large wholesalers, had not proven that they could not bring their own lawsuit outside the class action mechanism.

Sheridan’s conclusion that the plaintiffs were unable to prove an anticompetitive settlement was the cause of any overall delay, further raising the bar for class action certification.

The ruling also builds on decisions by the Third Circuit Court of Appeals that have progressively raised the bar for class certification in late payment cases, including a 2020 decision to decertify a class of direct purchasers of an epilepsy drug and a 2016 ruling in which the appellate court reversed a lower court’s class certification order for a narcolepsy drug.

“The courts, especially in the Third Circuit, are very rigorous,” said Devora W. Allon, a litigation partner at Kirkland & Ellis in New York and a principal attorney at Sun. “These are not classes they just approve.”

The Lipitor litigation is based on claims that Ranbaxy, a Sun subsidiary, and a 2008 patent settlement reached by Pfizer prevented Ranbaxy from introducing a generic version of Lipitor until November 2011.

“Double blow”

The ruling deals a “double blow” to the Sun plaintiffs, who were unable to meet two key requirements for class status — numerical strength and determinability — said Christine Bartholomew, a law professor at the University at Buffalo who specializes in antitrust law.

But the plaintiffs in the Sun case failed to meet the numerical standard, which requires them to prove that it would be unreasonable to expect class members to sue in their own names. The judge found that the proposed class of 63 direct purchasers had the resources to bring their own lawsuits outside the class-action entity.

When determining the size of a class, courts consider several factors, including the financial resources of class members, geographic dispersion, and the ability to bring an individual lawsuit.

“The DPP failed to provide a sufficient case to demonstrate that certification of this class would result in significant savings in litigation,” Sheridan said.

The judge said the requirement is “very strict” and makes it difficult for other plaintiffs to combine similar claims, Bartholomew said.

“That creates uncertainty—what is enough to satisfy numbers?” Bartholomew said. “What you have is an opinion that increases the importance of being numbers.”

Sheridan also found that the indirect purchaser plaintiffs failed to satisfy the ascertainability test, which requires a mechanism for determining whether thousands of potential class members fell within the definition of a class.

This requirement is particularly important because it is not always clear who should receive compensation within a given group, given the multitude of parties involved in the prescription payment chain, including manufacturers, wholesalers, pharmacy benefit managers and consumers.

Sheridan found that the plaintiffs’ claim that the available data established who met the group definition was insufficient.

“The court said, ‘You have to show me today that you have a methodology,’” said Kirkland & Ellis’ Allon. “‘Showing me later is not enough.’”

Proving damage

The ruling also means that proving causation — the link between an alleged injured party and an alleged wrongdoing — remains a difficult hurdle for plaintiffs to overcome, even if they manage to establish a factual dispute about the underlying conduct, said Ben Greenblum, a partner at Williams & Connolly LLP who specializes in late payment cases.

Sheridan ruled that the plaintiffs had not shown that the alleged agreement between Pfizer and Sun caused any delay. Sun argued that Ranbaxy’s manufacturing facilities in India faced significant regulatory challenges that prevented the Food and Drug Administration from reviewing and approving its generic Lipitor sooner.

“It’s not enough to say that a drug company engaged in anticompetitive conduct; a plaintiff must show that they were harmed by that conduct,” Greenblum said. “You’re not entitled to damages just because they entered into a settlement that you’re challenging after all these years.”

The opinion could dispel the argument that generic drug approval could happen more quickly, added Chris Holding, a partner in Goodwin’s antitrust and competition law practice.

“This analysis will apply in many cases,” Holding said. “The proof of harm is really key in these cases, and the plaintiff has to come up with a viable theory.”

Sun Pharmaceuticals is represented by Kirkland & Ellis. Plaintiffs are represented by Carella Byrne Cecchi Brody & Agnello and Hagens Berman.

The case is In re Lipitor Antitrust Litigation, DNJ, No. 3:12-cv-2389.