United States District Court, D. Massachusetts
IN RE SOLODYN MINOCYCLINE HYDROCHLORIDE ANTITRUST LITIGATION
MEMORANDUM AND ORDER
J. Casper United States District Judge
a class action in which Direct Purchaser Plaintiffs
(“DPPs” or “direct purchasers”)
allege that Defendants Medicis Pharmaceutical Corporation
(“Medicis”) and Impax Laboratories, Inc.
“Defendants”), violated Section 1 of the Sherman
Act, 15 U.S.C. § 1, D. 91, and End-Payor Plaintiffs
(“EPPs” or “end-payors”) allege that
Defendants have violated various state laws, D.
The remaining claim of Retailer Plaintiffs is that
Defendants' actions violate Section 2 of the Sherman Act,
15 U.S.C. § 2. D. 216; D. 218; D. 266. After the Court
granted the parties leave to file summary judgment motions,
D. 684, Defendants filed three motions, seeking summary
judgment on market power, D. 717, causation, D. 718, and all
claims arising out of Medicis's settlements with Sandoz
and Lupin, D. 719. The Plaintiff classes and Retail
Plaintiffs (“Consolidated Plaintiffs” or
“Plaintiffs”) filed a motion for partial summary
judgment. D. 747. Additionally, the parties have filed
numerous motions to exclude expert testimony. D. 711; D. 712;
D. 713; D. 714; D. 715; D. 716; D. 741; D. 742; D. 743; D.
744; D. 745; D. 746; D.748; D. 749; D. 750; D. 751.
Defendants have also filed a motion for leave to serve an
additional expert opinion, of Dr. Louis Rossiter, to rebut
the testimony of Plaintiffs' expert Dr. Stephen
Schondelmeyer. D. 892.
reasons set forth below, the Court DENIES Consolidated
Plaintiffs' motion for summary judgment on market power,
D. 747, and ALLOWS IN PART and DENIES IN PART Defendants'
motion for summary judgment on market power, D. 717. The
Court DENIES Defendants' motion for summary judgment on
causation, D. 718, and DENIES Defendants' motion for
summary judgment on claims arising from Medicis's
settlements with Sandoz and Lupin, D. 719. Of the numerous
Daubert motions, the Court, at this time, resolves
only those relating to the pending motions for summary
judgment. The Court DENIES the following motions to exclude:
Plaintiffs' expert Dr. Christopher Baum, D. 741;
Plaintiffs' expert Dr. Arthur Kibbe, D. 716; Retailer
Plaintiffs' expert Dr. Keith Leffler, D. 712;
Plaintiffs' expert Dr. Meredith Rosenthal, D. 745;
Plaintiffs' expert Dr. Stephen Schondelmeyer, D. 711;
Plaintiffs' expert Dr. Neelam Vashi, D. 714;
Defendants' experts Dr. Sumanth Addanki and Dr. Guy
Webster, D. 748; and Defendants' experts Dr. Robert S.
Langer and R. Polk Wagner, D. 751. The Court ALLOWS IN PART
and DENIES IN PART the motions to exclude Plaintiffs'
expert John Doll, D. 715; and Plaintiffs' expert Dr.
Thomas McGuire, D. 744, and Plaintiffs' experts John
Thomas and Peter Hardigan, D. 713. The Court also ALLOWS
Defendants' motion for leave to serve Dr. Louis
Rossiter's expert testimony, D. 892.
Standard of Review
Court grants summary judgment where there is no genuine
dispute as to any material fact and the undisputed facts
demonstrate that the moving party is entitled to judgment as
a matter of law. Fed.R.Civ.P. 56(a). “An issue is
genuine if ‘it may reasonably be resolved in favor of
either party' at trial, and material if it
‘possess[es] the capacity to sway the outcome of the
litigation under the applicable law.'” Iverson
v. City of Boston, 452 F.3d 94, 98 (1st Cir. 2006)
(alteration in original) (quoting Cadle Co. v.
Hayes, 116 F.3d 957, 960 (1st Cir. 1997)). The movant
“bears the burden of demonstrating the absence of a
genuine issue of material fact.” Rosciti v. Ins.
Co. of Pa., 659 F.3d 92, 96 (1st Cir. 2011) (quoting
Carmona v. Toledo, 215 F.3d 124, 132 (1st Cir.
2000)). If the movant meets its burden, the nonmovant
“must, with respect to each issue on which she would
bear the burden of proof at trial, demonstrate that a trier
of fact could reasonably resolve that issue in her
favor.” Borges ex rel. S.M.B.W. v.
Serrano-Isern, 605 F.3d 1, 5 (1st Cir. 2010). “As
a general rule, that requires the production of evidence that
is ‘significant[ly] probative.'” Id.
(alteration in original) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986)). “Neither
party may rely on conclusory allegations or unsubstantiated
denials, but must identify specific facts derived from the
pleadings, depositions, answers to interrogatories,
admissions and affidavits to demonstrate either the existence
or absence of an issue of fact.” Magee v. United
States, 121 F.3d 1, 3 (1st Cir. 1997). The Court views
the record “in the light most favorable to the
non-moving part[y]” and draws all reasonable inferences
in the nonmovant's favor. Pineda v. Toomey, 533
F.3d 50, 53 (1st Cir. 2008).
Motions to Exclude Expert Opinions (Daubert
to Fed.R.Evid. 702, a qualified expert witness can testify
“in the form of an opinion, or otherwise, if (1) the
testimony is based upon sufficient facts or data, (2) the
testimony is the product of reliable principles and methods,
and (3) the witness has applied the principles and methods
reliably to the facts of the case.” United States
v. Mooney, 315 F.3d 54, 62 (1st Cir. 2002) (quoting
Fed.R.Evid. 702). The Court must “ensur[e] that an
expert's testimony both rests on a reliable foundation
and is relevant to the task at hand.” Daubert v.
Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993).
“The district court, as gatekeeper, must ‘ensure
that there is an adequate fit between the expert's
methods and his conclusions.'” Am. Sales Co.,
LLC v. AstraZenica LP (In re Nexium (Esomeprazole) Antitrust
Litig.) (“Nexium”), 842 F.3d 34, 52 (1st
Cir. 2016) (quoting Samaan v. St. Joseph's
Hosp., 670 F.3d 21, 32 (1st Cir. 2012)). “[T]he
district court must perform [this] gatekeeping function by
preliminarily assessing ‘whether the reasoning or
methodology . . . properly can be applied to the facts in
issue'” by examining multiple factors through a
case-specific inquiry. Seahorse Marine Supplies, Inc. v.
P.R. Sun Oil Co., 295 F.3d 68, 80-81 (1st Cir. 2002)
(quoting Daubert, 509 U.S. at 592-93). “As
long as an expert's scientific testimony rests upon
‘good grounds, based on what is known, ' it should
be tested by the adversary process-competing expert testimony
and active cross-examination-rather than excluded from
jurors' scrutiny for fear that they will not grasp its
complexities or satisfactorily weigh its inadequacies.”
Ruiz-Troche v. Pepsi Cola of P.R. Bottling Co., 161
F.3d 77, 85 (1st Cir. 1998) (quoting Daubert, 509
U.S. at 590). “Vigorous cross-examination, presentation
of contrary evidence, and careful instruction on the burden
of proof are the traditional and appropriate means of
attacking shaky but admissible evidence.”
Daubert, 509 U.S. at 596.
Relevant Factual Background
light of the Court's prior rulings, see D. 184;
D. 682, the Court will not recite all of the facts of this
case, but instead addresses only the factual and procedural
background relevant to the motions addressed herein.
is the New Drug Application (“NDA”) holder of
Solodyn, an extended release minocycline hydrochloride
tablet, used to treat moderate to severe acne vulgaris. D.
724-1 ¶ 15; D. 847 ¶ 15. Minocycline is a
tetracycline-class antibiotic, a category that also includes
doxycycline, the branded delayed-release form of which is
Doryx. D. 724-1 ¶¶ 19-20; D. 847 ¶¶
19-20. Tetracyclines are considered “first-line therapy
for moderate to severe acne.” D. 724-1 ¶ 22; D.
847 ¶ 22.
8, 2006, the FDA approved Solodyn in the 45 mg, 90 mg and 135
mg strengths (“Legacy Strengths”). D. 724-1
¶ 16; D. 847 ¶¶ 16, 18. Medicis launched
Solodyn in 2006. D. 724-1 ¶ 18; D. 847 ¶ 18. At the
time of Solodyn's launch, there were other drugs on the
market that also treated moderate-to-severe acne. D. 747-2
¶ 1; D. 860 ¶ 1. Since its launch, Medicis engaged
in promotional activity such as offering significant rebates
to secure preferred formulary placement with health insurance
companies and pharmacy benefit managers (“PBMs”)
and occasionally issued co-pay cards to certain patients,
which reduced the price the patient paid for Solodyn at the
pharmacy. D. 724-1 ¶ 25, 30; D. 847 ¶ 25, 30.
holds U.S. Patent No. 5, 908, 838 (the “'838
patent”), a “[m]ethod for the [t]reatment of
[a]cne, ” which was filed on February 19, 1998, issued
on June 1, 1999, and expires on February 19, 2018. D. 724-1
¶¶ 49-50; D. 747-2 ¶ 42; D. 847 ¶¶
49-50. In 2008, a third party submitted a request for
reexamination of the '838 patent, and in June 2010, the
United States Patent and Trademark Office (“PTO”)
upheld the validity of the patent and reissued it with
several claims. D. 724-1 ¶¶ 51, 55; D. 847
¶¶ 51, 55. On September 7, 2010, the PTO issued an
additional patent to Medicis-U.S. Patent No. 7, 790, 705 (the
“'705 patent”), covering “the method of
dosing extended release minocycline hydrochloride according
to weight to prevent certain adverse effects, ” D. 184
at 10-which expires in 2025. D. 724-1 ¶ 56; D. 847
¶ 56. Medicis asserted the '705 patent against Lupin
as to its Legacy Strength formulations. D. 724-1 ¶ 142;
D. 847 ¶ 142. In July 2009 and August 2010, the FDA
approved Solodyn in the 55mg, 65mg, 80 mg, 105mg and 11mg
strengths (“Add-On Strengths”). D. 724-1
¶¶ 109, 111; D. 847 ¶¶ 109, 111.
October 2007, Impax submitted an Abbreviated New Drug
Application (“ANDA”) to the FDA to market generic
Solodyn, amended in November 2007 to include all Legacy
Strengths. D. 724-1 ¶ 77; D. 847 ¶ 77. In January
2008, Impax sought a declaratory judgment in the U.S.
District Court for the Northern District of California that
the '838 patent was invalid and/or not infringed by
Impax's generic Legacy Strength Solodyn ANDA. D. 724-1
¶ 78; D. 847 ¶ 78. The court dismissed the matter
for lack of subject matter jurisdiction and Impax timely
appealed. D. 724-1 ¶¶ 79-80; D. 847 ¶¶
79-80. On November 26, 2008, while the appeal was pending,
Impax and Medicis negotiated a settlement and entered into
two agreements: a license and settlement agreement and a
joint development agreement. D. 724-1 ¶¶ 81, 84; D.
847 ¶¶ 81, 84. Under these agreements, Impax could
begin selling its generic Legacy Strength Solodyn under
Medicis's patents starting on November 26, 2011. D. 724-1
¶ 82; D. 847 ¶ 82. Medicis agreed to pay Impax $40
million upfront, with an additional $23 million in
“milestones, ” and there were several provisions
for revenue sharing. D. 847 ¶ 84; D. 858-26 at 10-11.
December 2008, four generic manufacturers-Mylan, Impax,
Sandoz and Barr/Teva- challenged Medicis's '838
patent. D. 724-1 ¶ 88; D. 847 ¶ 88. Medicis sued
three of them-Teva, Mylan and Sandoz-for infringement in
January 2009. D. 724-1 ¶ 89; D. 847 ¶ 89. On August
13, 2009, the FDA approved Sandoz's generic version of
Solodyn Legacy Strengths. D. 724-1 ¶ 90; D. 847 ¶
90. The next day, August 14, Sandoz launched its generic
Solodyn Legacy Strengths. D. 724-1 ¶ 91; D. 847 ¶
91. On August 18, 2009, Medicis and Sandoz executed a
settlement agreement whereby Sandoz sold its ANDA to Medicis
for $14 million and Sandoz obtained a license to relaunch
sales of its generic version on November 26, 2011, the same
day that Impax and Medicis had negotiated for Impax's
generic launch. D. 724-1 ¶¶ 96-98; D. 847
¶¶ 96-98. Medicis also filed a patent infringement
suit against Lupin in November 2009 in connection with
Lupin's ANDA for generic versions of Solodyn. D. 724-1
¶ 100; D. 847 ¶ 100. Medicis and Lupin entered into
a settlement agreement in July 2011, providing Lupin with a
license to sell its generic Solodyn on November 26, 2011, the
same day as the other negotiated generic launches. D. 724-1
¶¶ 101-02; D. 847 ¶ 101-02. Sandoz and Lupin
were originally also defendants in this case, but the DPP and
EPP classes have since settled with them. D. 806; D.
Relevant Procedural History
November 1, 2017, Defendants filed three motions for summary
judgment, seeking summary judgment on market power, D. 717,
causation, D. 718, and all claims arising out of
Medicis's settlements with Sandoz and Lupin, D. 719, and
Consolidated Plaintiffs filed a motion for partial summary
judgment, D. 747. Also on that day, the parties filed
numerous motions to exclude expert testimony. D. 711; D. 712;
D. 713; D. 714; D. 715; D. 716; D. 741; D. 742; D. 743; D.
744; D. 745; D. 746; D.748; D. 749; D. 750; D.751. The Court
heard the parties on the pending summary judgment motions on
January 12, 2018, D. 938, and took these matters under
Court addresses each of Defendants' motions for summary
judgment and the Daubert motions related to those
motions in turn. Plaintiffs' motion for partial summary
judgment addresses both market power and infringement. D. 747
at 1. On December 5, 2017, the Court struck the infringement
portion of Plaintiffs' summary judgment motion, due to
the timing of Plaintiffs' disclosure of its
noninfringement theory. D. 827. The Court, therefore, only
addresses Plaintiffs' remaining ground in its partial
summary judgment motion, regarding market power, and does so
in conjunction with Defendants' motion regarding that
issue, D. 717.
class's Sherman Act Section 1 claim is governed by
rule-of-reason analysis, see FTC v. Actavis, Inc.,
__U.S.__, 133 S.Ct. 2223, 2237 (2013), under which Plaintiffs
must “show that the [D]efendants' actions enhanced
market power-i.e., the power to raise prices or
exclude competition-which in turn requires some economic
analysis of the relevant market.”Am. Steel
Erectors, Inc. v. Local Union No. 7, Int'l Ass'n of
Bridge, 815 F.3d 43, 61 (1st Cir. 2016) (quoting
Díaz Aviation Corp. v. Airport Aviation
Servs., 716 F.3d 256, 265 (1st Cir. 2013)); see
Flovac, Inc. v. Airvac, Inc., 817 F.3d 849, 853 (1st
Cir. 2016) (explaining that the plaintiff's Section 1
claim requires proof that the defendant “exercises or
could exercise a threshold degree of market power, ”
which is the defendant's “power to lessen or
eliminate competition in the relevant market”). Both
parties seek summary judgment on this issue. See D.
717; D. 747. Defendants argue that the relevant market
includes all oral tetracyclines-including not only Solodyn
and its generic equivalents, but also all other branded oral
tetracyclines and their generic equivalents-a market in which
Solodyn's share “never exceeded
17%.” D. 721 at 7, 20; D. 724-1 ¶¶ 25,
27; see D. 753-1 at 129 (“Addanki
Rpt.”). Plaintiffs argue that the relevant market
includes only Solodyn and its AB-rated generic equivalents,
of which Medicis had a 100% market share during the relevant
period. D. 747-1 at 9, 12.
argue that evidence of a reverse payment by itself is
sufficient to show market power. D. 851 at 8-9; see
D. 747-1 at 10 n.7. They argue that the Supreme Court
“recognized that proof of a large reverse payment is
itself proof of the brand's market power” in
Actavis. D. 851 at 8. In Actavis, however,
the Court was reviewing the lower court's decision to
allow a motion to dismiss. Actavis, 133 S.Ct. at 2227.
This Court followed Actavis, accordingly, when
denying Defendants' motion to dismiss Plaintiffs'
Section 1 claim. D. 184 at 13-16. Although the Court
acknowledges the logic of the interconnectivity of market
power and a sizable reverse payment, see Aggrenox,
199 F.Supp.3d at 665, the Court concludes that it would be
inappropriate to equate the two at the summary judgment
phase. That is, an allegation of a “large,
unjustified” reverse payment is sufficient for a
plaintiff to state a claim under Section 1, Actavis,
133 S.Ct. at 2237; see D. 184 at 15, but it is not
necessarily sufficient to demonstrate market power at the
summary judgment stage, particularly where, as here, the
Defendants dispute that the reverse payments at issue were
both large and unjustified, see D. 895 at 8 n.8
(noting that whether the Sandoz payment “was large and
unexplained” is in dispute). Rather, the Court will
follow the traditional analysis, by which “[m]arket
power can be shown through two types of proof, ”
through “direct evidence of market power, ” or
through “circumstantial evidence of market
power.” Coastal Fuels of P.R., Inc. v. Caribbean
Petroleum Corp., 79 F.3d 182, 196-97 (1st Cir. 1996).
evidence of market power” includes evidence “that
the defendant has a dominant share in a well-defined relevant
market and that there are significant barriers to entry in
that market and that existing competitors lack the capacity
to increase their output in the short run.” Coastal
Fuels, 79 F.3d at 197. Before determining market power
by circumstantial evidence, the relevant market must be
defined. Id. The relevant market is both the
relevant geographic market and the relevant product market,
Flovac, 817 F.3d at 853, but the parties here agree
that the relevant geographic market is the United States,
see D. 747-1 at 16 n.35; D. 860 ¶ 41, so the
Court focuses on the relevant product market here. “The
market is established by examining both the substitutes that
a consumer might employ and ‘the extent to which
consumers will change their consumption of one product in
response to a price change in another, i.e., the
cross-elasticity of demand.'” Flovac, 817
F.3d at 854 (quoting Eastman Kodak Co. v. Image Tech.
Servs., Inc., 504 U.S. 451, 469 (1992)). The focus in
this demand analysis is on the perspective of the consumers,
and not manufacturers, for “[i]t is the consumer's
options and the consumer's choices among them on which
relevant market analysis ultimately depends.”
Id. at 855. “The definition of the relevant
market is ordinarily a question of fact, and the plaintiff
bears the burden of adducing enough evidence to permit a
reasonable factfinder to define the relevant market.”
Id. at 853; see In re Nexium (Esomeprazole)
Antitrust Litig., 968 F.Supp.2d 367, 388 n.19 (D. Mass.
2013) (denying defendants' motion to dismiss on this
ground and stating that “the reasonable
interchangeability of brand Nexium with other drugs” is
“a factually intensive determination [that] is better
left for resolution by a jury”).
argue that “it is undisputed that ‘all oral
tetracyclines treat acne with similar effectiveness and so
are interchangeable for that purpose.'” D. 721 at 7
(quoting Mylan Pharms., Inc. v. Warner Chilcott Pub. Ltd.
Co., No. 12-3824, 2015 U.S. Dist. LEXIS 50026, at *25
(E.D. Pa. Apr. 16, 2015) (“Doryx I”),
aff'd, 838 F.3d 421 (3d Cir. 2016)
(“Doryx II”)). In Doryx II, the
Third Circuit held that the relevant market for Doryx
consisted of all oral tetracyclines prescribed to treat
acne-including branded Solodyn and its generic
equivalents-and held that Doryx composed only eighteen
percent of that share, which was insufficient to establish an
antitrust violation. Doryx II, 838 F.3d at 437-38.
To demonstrate functional interchangeability here, Defendants
point to statements by dermatological experts Dr. Neelam A.
Vashi (“Vashi”) for Plaintiffs and Dr. Guy
Webster (“Webster”) for Defendants confirming
that dermatologists may choose between several options for
treating acne, the American Academy of Dermatology's
“Guidelines of Care for the Management of Acne
Vulgaris” demonstrating this, insurance companies and
pharmacy benefit managers that “grouped Solodyn with
other oral tetracyclines in their coverage plans” and
the “vigorous” competition between Medicis and
other manufacturers using coupons and rebates. D. 721 at
12-14. Plaintiffs dispute that Solodyn is therapeutically
interchangeable with all other oral tetracyclines simply
because these other drugs may also treat acne. D. 851 at 23.
Their dermatological expert, Vashi, opines that “[d]ue
to various differences in side effects, mechanism of action,
indications, and dosage forms between Solodyn and other drugs
also used to treat moderate to severe acne vulgaris, Solodyn
is not reasonably interchangeable with any other such
drug.” D. 851 at 23 n.55 (quoting D. 732-6 ¶ 24
(“Vashi Rpt.”)). Vashi concludes that
“Solodyn is not interchangeable with tetracyclines such
as doxycycline (immediate-release and extended release
versions), immediate-release minocycline, and other oral
antibiotics” or “any topical form of acne
medications.” Vashi Rpt. ¶ 24.
Solodyn were functionally interchangeable with other branded
products, however, circumstantial evidence of market
definition also requires a showing of economic
interchangeability with these therapeutic alternatives.
See Flovac, 817 F.3d at 854; United Food &
Commer. Workers Local 1776 v. Teikoku Pharma USA
(“Lidoderm”), No. 14-md-02521-WHO, 2017 U.S.
Dist. LEXIS 182940, at *88 (N.D. Cal. Nov. 3, 2017) (stating
that “something more than mere therapeutic
equivalency is required to define the relevant antitrust
product market. There must be some showing of
cross-elasticity” (emphasis in original)); see
also D. 755-35 (ABA Model Jury Instructions in Civil
Antitrust Cases (2016), A-108 n.2 (explaining that
“[i]n assessing whether products are within the
relevant market, the jury must consider not only whether the
products are functionally similar but also whether the
products are economically interchangeable. That is, there
must be cross-price elasticity of demand”)).
Demonstrating economic interchangeability requires analysis
of Solodyn's cross-price elasticity of demand with
respect to products allegedly in the same market. See
Flovac, 817 F.3d at 854; In re Asacol Antitrust
Litig., No. 15-cv-12730-DJC, 2017 U.S. Dist. LEXIS
186009, at *97 (D. Mass. Nov. 9, 2017); Nexium, 968
F.Supp.2d at 387-88 (explaining that “reasonable
interchangeability of a set of products is not dependent on
the similarity of their forms or functions” but rather
based on the cross-elasticity of demand). As Plaintiffs'
expert Dr. Meredith Rosenthal (“Rosenthal”)
explains, “economic theory suggests that products with
the most similar features will compete most aggressively on
price.” D. 732 ¶ 55 (“Rosenthal
Rpt.”). Cross-elasticity, therefore, measures
“the substitutability of products” by gauging the
“responsiveness of the demand for one product [X] to
changes in the price of a different product [Y].”
Doryx II, 838 F.3d at 437 (quoting Queen City
Pizza, Inc. v. Domino's Pizza, 124 F.3d 430, 438 n.6
(3d Cir. 1996)). When products are close economic
substitutes, a small change in price of one product will
cause consumers to shift and sales to respond accordingly,
meaning the cross-elasticity of demand will be high. See
Flovac, 817 F.3d at 854; Asacol, 2017 U.S.
Dist. LEXIS 186009, at *98; D. 747-1 at 13 (citing cases); D.
732-4 ¶ 33 (“Leffler Rpt.”). Plaintiffs
argue that Defendants have not demonstrated, and cannot
demonstrate, that Solodyn is economically interchangeable
with the products Defendants identify as therapeutic
alternatives. D. 747-1 at 12-16; D. 851 at 15-26.
Rather, Plaintiffs argue that Solodyn exhibits cross-price
elasticity only with its AB-rated generic alternatives. D.
747-1 at 12; D. 851 at 19-23.
argue that they alone have identified evidence of
Solodyn's cross-price elasticity of demand, through
expert opinions by Rosenthal, Dr. Christopher Baum
(“Baum”) and Dr. Keith Leffler
(“Leffler”), all concluding “that no
product other than generic Solodyn exhibits substantial
cross-price elasticity of demand with Solodyn.” D.
747-1 at 14-15; see D. 747-2 ¶¶ 21-34.
Leffler analyzed the cross-elasticity of Solodyn and Doryx,
Leffler Rpt. ¶¶ 36-37. In 2011, the first
version of generic Doryx entered the market, causing a
significant reduction in price of all doxycycline hyclate
delayed release antibiotics. Id. ¶ 36. Solodyn
sales did not drop, however, but actually were 4% higher
three quarters after generic Doryx's entry than they were
three quarters before. Id. ¶¶ 36-37.
Leffler thus concludes that “the product that Medicis
considers to be Solodyn's closest therapeutic competitor
is not a close economic substitute.” Id.
and Baum conduct a quantitative analysis of cross-price
elasticity. Rosenthal Rpt. ¶¶ 57-60; D. 741-2
¶¶ 13-20 (“Baum Rpt.”). Baum is a
professor of economics and social work at Boston College with
a focus on econometrics. Baum Rpt. ¶¶ 1-2.
Rosenthal is a Professor of Health Economics and Policy at
the Harvard T.H. Chan School of Public Health. Rosenthal Rpt.
¶ 1. Rosenthal and Baum use IMS data on dispensed
prescriptions to determine Solodyn's top competitors in
acne treatment and conduct an econometric test of observed
price competition between them. Rosenthal Rpt. ¶¶
57-59. They use an econometric model known as the
“AIDS”- Almost Ideal Demand System-model to
examine cross-price elasticity. Baum Rpt. ¶ 13. The
model predicts expenditure shares for Solodyn and six other
oral antibiotic drugs and their AB-rated generic
alternatives from May 2011 to December 2016, “the
period when generic equivalents are present in the retail
data.” Id. Baum explains that he captures
Medicis's rebating strategies and promotional efforts in
his model by adding an additional variable to his regression
analysis and adding a typical monthly discount rate. Baum
Rpt. Attach. C. ¶¶ 6-7. He concludes that Solodyn
did not exhibit a significant cross-price elasticity with any
other drug from May 2011 to December 2016. Baum Rpt. ¶
18. Likewise, Rosenthal concludes that “there is no
evidence suggesting that price increases of Solodyn by
Medicis were constrained by price elastic substitution to the
other competitive treatments.” Rosenthal Rpt. ¶ 60.
Conducting the same analysis for the May 2006 to February
2009 time period-following Solodyn's launch but prior to
any generic launch-and comparing Solodyn to the four other
drugs available at that time-Doryx, doxycycline, Minocin and
minocycline HC1-Baum again concludes that “there is no
evidence of any drug having a positive, significant
compensated cross-price elasticity with respect to the price
of Solodyn.” Baum Rpt. ¶¶ 19-20.
seek to exclude Baum's testimony. D. 741. They argue that
Baum's model does not fit the pharmaceutical industry or
the facts of the case. D. 741-1 at 6-9. Specifically, they
argue that the AIDS model does not apply to prescription
drugs because physicians, the principal decision-makers in
that market, do not know prescription drug prices and
insurers, the principal payors, do not make the prescription
decisions. D. 741-1 at 7-9. Plaintiffs argue that
“numerous high-quality peer-reviewed studies” use
demand models like Baum's AIDS model to analyze the
pharmaceutical industry. D. 845 at 10; see Baum Rpt.
Attach. C ¶¶ 2-3. Moreover, Defendants'
critique that the model is unreliable because
“physicians are the principal decision makers and
generally they do not know prescription drug prices, ”
D. 741-1 at 7, is unpersuasive, particularly in light of
Defendants' expert's reliance on the assumption that
physicians have some general awareness of costs to patients
and rebate programs for his own analysis, Addanki Rpt.
¶¶ 115-16. Defendants also object that Baum's
model is particularly unreliable because it does not account
for Medicis rebates and coupons. D. 741-1 at 9-11. Plaintiffs
argue, however, that Baum's model works with percentage
changes rather than absolute prices, so the inclusion of
rebates and coupons would not have any meaningful effect. D.
845 at 14-15. Additionally, Baum explains how he contemplates
promotional efforts in his model. Baum Rpt. Attach. C
¶¶ 6-7. Defendants can critique Baum's report
relying upon the opinion of their own expert (Addanki,
discussed infra), vigorous cross-examination, and
other traditional methods. The Court declines to exclude his
proffered opinion on this basis.
also proffer evidence that Defendants themselves did not
previously view any of the allegedly therapeutically
interchangeable products they now identify as economic
competitors. Defendants did not identify other acne
treatments as competitors in their forecasts, reports or
advertising. See, e.g., D. 747-1 at 15 (citing
Impax's 2012 representations to the FTC); D. 747-2 ¶
13 (referring to Impax's forecasts from 2008). In
Impax's filings to the Federal Trade Commission in 2012
in response to a civil investigative demand, Impax listed the
competing products of Solodyn and generic Solodyn as
“the brand AB-rated equivalents, currently Barr/Teva,
Lupin, Matrix Labs, Sandoz, and Medicis.” D. 747-1 at
15 n.29 (quoting D. 755-42 at 2). In Medicis's own
forecasts, Medicis identified the entry of generic Solodyn,
and not the entry of generic Doryx or any other product, as
likely to lower Solodyn's prices and capture brand sales.
D. 916 at 12; D. 747-2 ¶¶ 11-13; Leffler Rpt.
¶ 40. Medicis marketing documents from 2006 describe
Solodyn as having “unique pharmacokinetics.”
Rosenthal Rpt. ¶ 19. In Medicis's 2011 and 2012
strategic overview establishing its plan for marketing to
physicians, it emphasized the therapeutic differences Solodyn
provided, or its “clinical efficacy, ” rather
than benefits Medicis offered on a price dimension, stating
that the emphasis on clinical efficacy and safety led to an
increase in Solodyn prescriptions in 2011. Id.;
see Leffler Rpt. ¶ 42. This evidence further
supports Plaintiffs' arguments that Solodyn operated in a
relevant market limited to its AB-rated generic equivalents.
See Lidoderm, 2017 U.S. Dist. LEXIS 182940, at
Plaintiffs argue that the relevant market did not include any
products beyond Solodyn and its AB-rated generic equivalents.
As to Medicis's conduct in 2009, Rosenthal opines that
“price competition was part of their strategic
response” to generic launches that year, even if those
launches were abbreviated. Rosenthal Rpt. ¶ 63. She
demonstrates that in a but-for world of generic launch in
September 2008-in accordance with Medicis and Impax
forecasts-these AB-rated generics exhibit large cross-price
elasticity with Solodyn. Id. ¶ 64. At the time
when Medicis and Impax entered their agreements, Medicis
controlled 100% of this narrower market. D. 747-1 at 15;
Leffler Rpt. ¶ 48.
argue that an econometric analysis supports a broader view of
the relevant market. D. 721 at 15-16. Defendants' expert
Dr. Sumanth Addanki (“Addanki”), an economist and
managing director at National Economic Research Associates,
Inc., concludes that Solodyn also competed with other branded
and generic minocyclines and doxycyclines. Addanki Rpt.
¶¶ 1, 68. Addanki argues that because of the
pharmaceutical distribution chain, or “the
institutional structure of this market, ” an
econometric demand model like Baum's and Rosenthal's
cannot “provide reliable or meaningful elasticity
estimates in the market for prescription pharmaceutical
products.” Id. ¶ 34. Addanki details the
way therapeutic alternatives compete at many steps in the
distribution chain, including at the physician, third-party
payor, pharmacy and consumer levels. Id.
¶¶ 71-75. Even in the pharmaceutical market,
however, cross-elasticity must be demonstrated between
products to establish a market definition that includes them.
See Lidoderm, 2017 U.S. Dist. LEXIS 182940, at
*81-92 (rejecting the argument, similar to Defendants'
argument here, that cross-elasticity need not be shown
because of the unique characteristics of the pharmaceutical
market). Addanki's critique, therefore, does not
undermine Plaintiffs' showing that cross-elasticity
exists for Solodyn and its generics, but not the broader
Addanki's criticisms, Defendants concede that Addanki
does not quantify the magnitude of cross-price elasticity in
his report. D. 859 at 19. Instead, Addanki explains that
Medicis's “[e]xtensive promotional activity”
demonstrates that “Medicis viewed other minocycline and
doxycycline oral tetracycline products as competing with
Solodyn.” Addanki Rpt. ¶ 98. He concludes that
promotional activities at the prescriber and payor levels by
Medicis resulted in increased sales of Solodyn. Id.
¶¶ 97-108. Addanki analyzes economic
interchangeability by focusing on the effect rebate and
promotional programs for Solodyn and its alleged competitors
(Doryx, Adoxa, Monodox, Oracea, and their generic
equivalents) had on prescriptions of Solodyn and those
competitors. Id. ¶¶ 110-22. Addanki's
model uses IMS data on prescriptions to analyze the effects
of “several market events, such as changes in coupons
offered by branded manufacturers, on new prescriptions of
branded and generic minocycline and doxycycline
products.” Id. ¶ 120. He concludes that
“the number of new Solodyn prescriptions written were
sensitive to changes in the price of Solodyn as well as price
changes of competing products, such as doxycycline.”
Id. ¶ 122.
seek to exclude Addanki's opinion, D. 748, on the basis
that he “did not consider Solodyn's cross-price
elasticity of demand.” D. 748-1 at 8. Addanki does not
purport to conduct such an econometric test, but he uses
other models to examine how Medicis's rebate programs and
Doryx's launch impacted the rate of new Solodyn
prescriptions and new prescriptions of “generic
immediate-release minocycline”-or generic
Solodyn-arguing that particularities of the pharmaceutical
market limit the ability to conduct a SSNIP (Small but
Significant and Non-transitory Increase in Price) test.
See Addanki Rpt. ¶¶ 118-22. Although
Plaintiffs dispute his approach, they have not demonstrated
that his methods are unreliable or poorly fit the question of
market power. See D. 894 at 9 (explaining that
Addanki “conduct[ed] a regression analysis here that
shows Solodyn and other oral tetracyclines are economic
substitutes: demand for these drugs is sensitive to price
changes among them”). Plaintiffs' motion to exclude
portions of Addanki's opinion is thus denied.
admitting Addanki's expert testimony, however, Plaintiffs
argue that Addanki's report does not create a genuine
dispute of material fact as to market definition.
Addanki's report is not a quantitative cross-price
elasticity of demand study. See D. 862 at 11; D. 916
at 13-14. Plaintiffs argue that Addanki's focus on new
prescriptions omits reference to actual prices of the alleged
competitors, total prescriptions and total sales.
See D. 916 at 14 n.49. Plaintiffs rely heavily upon
Lidoderm to argue that Addanki's testimony does
not amount to an opinion on cross-price elasticity. D. 851 at
16-17; D. 916 at 13-14; see Lidoderm, 2017 U.S.
Dist. LEXIS 182940, at *96 (explaining that defendants'
evidence of the impact of rebates on branded product use
creates “at most, an issue regarding Lidoderm's
market share for PHN and pain treatment with respect
to only a few of the drugs defendants believe should be
included in the relevant antitrust market . . . but those
discrete references are insufficient to raise a material
question of fact on whether the availability of those drugs
constrained the price charged for Lidoderm”
(emphasis in original)).
Court understands Plaintiffs' point, but concludes that
Lidoderm is distinguishable for at least two
reasons. First, the relevant market that Defendants there
sought to have the court adopt was a broad one, including a
wide array of pain medications, including opioids,
anticonvulsants, antidepressants, muscle relaxers,
nonsteroidal anti-inflammatory drugs and topical anesthetic
creams and gels as the relevant market for Lidoderm, a
lidocaine 5% patch. Lidoderm, 2017 U.S. Dist. LEXIS
182940, at *74-75. Defendants here do not take such a broad
view, seeking to define the relevant market as a class of
oral tetracyclines used for acne, both branded and generic, a
point for which, although disputed by Plaintiffs, they
proffer significant product interchangeability evidence as to
Solodyn. See D. 721 at 7, 12-19. Second, unlike the
defendants in Lidoderm, Defendants appear to
acknowledge, as the current state of law requires, that some
showing of cross-elasticity of demand is a necessary part of
defining the relevant market. See D. 721 at 16; D.
859 at 19-20; cf. Lidoderm, 2017 U.S. Dist. LEXIS
182940, at *81-90. Unlike defendants there,
“essentially ignoring cross-elasticity, ”
Lidoderm, 2017 U.S. Dist. LEXIS 182940, at *84,
Defendants here provide a basis, which amounts to a disputed
issue of fact, regarding Plaintiffs' purported showing
that cross-elasticity of demand, under Baum and Rosenthal
models, demonstrate that the relevant market is limited to
Solodyn and its generic equivalents.
putting aside Addanki's critique that demand models are
not appropriately used in the pharmaceutical field, Addanki
Rpt. ¶¶ 34-37, his report opines that
Plaintiffs' experts' analysis contains critical flaws
in estimation of price, id. ¶¶ 46-53, for
example, failing to account for Solodyn's rebating,
id. ¶ 59, samples distributed to physicians,
id. ¶ 60, and other matters, such that he
provides a sufficient basis for questioning whether
Plaintiffs have shown (or can show at trial) that no
cross-elasticity of demand exists beyond Solodyn and its
generics. While rejecting a demand model given the contours
of the pharmaceutical field (which involves consumers,
physicians, pharmacies and insurance companies as
decisionmakers), Addanki uses an econometric model to
determine whether there was any effect on new prescriptions
of oral tetracyclines based upon effective price changes
corresponding with certain marketplace events. Id.
¶¶ 120-22. Accordingly, he concludes that the
number of new Solodyn prescriptions were not only sensitive
to its own price changes, but also the price changes of other
products, including doxycycline and a number of new generic
immediate-release minocycline prescriptions that, in turn,
were also sensitive to changes in Solodyn's price.
Id. ¶ 122. That Addanki uses a different
economic analysis, one that explicitly considers the changes
in effective pricing (i.e., accounting for coupons, discounts
and rebates) does not mean that such analysis fails to bear
upon a showing of cross-elasticity of demand. Whether, when
weighed against the Rosenthal and Baum demand models, such
analysis will carry the day as a matter of fact is for the
jury to decide.
ruling, denying summary judgment as to both parties, is not
inconsistent with Doryx II, in which the Third
Circuit affirmed the lower court's ruling for the
defendants on market definition. Doryx II, 838 F.3d
at 437-38. In Doryx II, the court characterized
Addanki's study there as demonstrating that “when
Defendants increased the price of Doryx, its sales decreased,
and the sales of other tetracyclines increased.”
Id. at 437. There, however, plaintiffs failed to
rebut this testimony with any “quantitative
analyses.” Id. That is not the situation here.
Plaintiffs' experts have provided quantitative analyses
analyzing sales and prices of Solodyn and its supposed
Court thus DENIES both summary judgment motions, D. 717; D.
747, as to this issue. Circumstantial evidence of market
power-including the question of what is the relevant market-
goes to the jury.
also argue that undisputed direct evidence establishes market
power here. D. 747-1 at 10-12; D. 851 at 9-15. Defendants
argue that Plaintiffs' purported direct evidence is
insufficient as a matter of law. D. 721 at 22-26. Direct
evidence of market power may include evidence of
“actual supracompetitive prices and restricted
output.” Coastal Fuels, 79 F.3d at 196. Proof
of market power using direct evidence does not require that
the plaintiff first establish the relevant market. See
Díaz Aviation, 716 F.3d at 265 (explaining that
“[a]bsent direct proof of supracompetitive prices,
monopoly power is typically proven by defining a relevant
market and showing that the defendant has a dominant share of
that market”); Nexium, 968 F.Supp.2d at 388
n.19 (explaining that “[w]here direct evidence of
market power is available . . . a plaintiff need not attempt
to define the relevant market”).
argue that their evidence of supracompetitive prices is
sufficient to show market power because “the ability to
charge supracompetitive prices . . . is the sine qua
non of market power.” D. 747-1 at 10 (quoting
Aggrenox, 199 F.Supp.3d at 664-65). They contend
that undisputed evidence here demonstrates that “[f]rom
2006 through 2012, Medicis's price for Solodyn was 10 to
16 times its cost of production, distribution and
marketing.” D. 747-1 at 10; D. 747-2 ¶ 8. Retailer
Plaintiffs' expert economist Leffler opines on
Medicis's pricing of Solodyn during this period.
See Leffler Rpt. ¶¶ 51-55. Leffler
explains that Solodyn's prices were nearly ten times the
cost of generic minocycline and three times the cost of
branded competitors Doryx and Adoxa. Id. ¶ 51.
Leffler concedes, however, that the branded product Minocin
was priced seventeen percent higher than brand Solodyn during
this period. Id. ¶ 51 n.57. Leffler's
analysis of market power uses the Lerner Index, which is a
ratio of a product's margin, or the difference between
the price and marginal cost, to its price. Id.
¶ 51; see D. 847 ¶ 43. The ratio falls
between 0 and 1, 0 indicating complete absence of market
power and 1 representing complete market power, and
Plaintiffs argue-and Defendants dispute, D. 859 at 13
n.10-that a ratio of .05 indicates potentially
supracompetitive market power. D. 747-1 at 10-11; Leffler
Rpt. ¶ 51. Here, Solodyn's prices produce a ratio of
over 0.9, Leffler Rpt. ¶ 52, twenty times the typical
threshold of supracompetitive market power. D. 747-1 at 11.
expert Rosenthal also opines on direct evidence of
Medicis's market power. See Rosenthal Rpt.
¶¶ 45-53. Rosenthal's Lerner Index calculations
conclude that Medicis's margins averaged ninety percent
between 2009 and 2011, while generic firms averaged between
forty and sixty-two percent during that time. Rosenthal Rpt.
¶ 48. Rosenthal explains that “when generic
companies were selling pills at prices that were about double
their marginal costs on average, Solodyn was selling at
prices that were 25 to 50 times higher.” D. 851 at 15.
Plaintiffs argue that these margins provide sufficient direct
evidence of market power. D. 747-1 at 10-11; D. 851 at
argue that direct evidence of market power cannot be
demonstrated solely through high margins and prices. D. 859
at 11-12. Defendants explain that high margins ignore the
high fixed or sunk costs “prevalent in
innovation-intensive industries” such as the
pharmaceutical industry. D. 721 at 23; see United States
v. Eastman Kodak Co., 63 F.3d 95, 109 (2d Cir. 1995)
(explaining that “deviations between marginal cost and
price, such as those resulting from high fixed costs, are not
evidence of market power”). Plaintiffs do not dispute
that models like the Lerner Index do not take sunk costs into
account, but they argue that sunk costs are not relevant to
margins and pricing. D. 847 ¶ 44; D. 851 at 13.
Plaintiffs urge the Court instead to follow
Aggrenox, in which the court rejected brand
manufacturers' sunk costs argument because the fact that
“brand manufacturers incur enormous fixed costs
developing and marketing new drugs . . . . does not mean that
the price of the brand drug is not supracompetitive, ”
Aggrenox, 199 F.Supp.3d at 666. D. 851 at 13. The
court there explained that “prices in a competitive
market will tend (perhaps asymptotically) toward marginal
cost, so prices substantially above that cost are
supracompetitive by definition.” Aggrenox, 199
F.Supp.3d at 667. While the Court agrees that existence of
sunk costs may not be sufficient, without more, to show that
apparently supracompetitive prices were in fact only
competitive, sunk costs are relevant to the inquiry because
in a market with high fixed costs like the pharmaceutical
industry, “even competitive prices may exceed marginal
cost.” Asacol, 2017 U.S. Dist. LEXIS 186009,
at *94-96. Indeed, Plaintiffs concede that during the period
in question, generic firms' gross margins ranged from
forty to sixty-two percent. D. 747-1 at 11 n.13. Although
this is significantly lower than ninety percent, as those
margins are alleged as to Solodyn, it is also significantly
higher than the five percent point that, according to
Plaintiffs, establishes “market power of
concern.” D. 747-1 at 11; see Leffler Rpt.
¶ 51. That is, generic pricing during this time
illustrates that high margins alone do not conclusively
demonstrate supracompetitive pricing.
parties do not dispute that brand pharmaceutical companies
like Medicis “incur substantial sunk costs to develop
new products.” D. 724-1 ¶ 48; D. 847 ¶ 48.
The parties dispute, however, whether Leffler took fixed
costs into account sufficiently when calculating
supracompetitive prices here. Compare D. 721 at 24
with D. 851 at 10 n.7. Leffler's analysis using
the Lerner Index incorporated Medicis's “marginal
costs” for Solodyn development, see D. 747-1
at 10, including “the costs of producing, distribution,
and marketing Solodyn, and also on-going R&D, and certain
fixed costs such as Building/Office, ” Leffler Rpt.
¶ 52. Defendants argue that the margin did not include
“all of the relevant costs Medicis faced,
” including all sunk costs. D. 721 at 25. Leffler
concedes he is “not aware of data sufficient to answer
th[e] question” of “whether Medicis made a long
run economic profit on its sales of Solodyn.” Leffler
Rpt. ¶ 58. Leffler does note, however, that from 2006 to
2015, Medicis made profits of $2.1 billion from Solodyn,
compared to its $43 million for research and development
also argue that high margins cannot show market power alone
because such margins can be explained by factors that are not
inherently anticompetitive, such as a superior product or
superior advertising or marketing. D. 721 at 23. Plaintiffs
counter that if Defendants' advertising and product were
indeed superior, “Medicis would have had no reason to
pay Impax to delay generic entry.” D. 851 at 11.
again proffer the expert testimony of Addanki, who criticizes
the reports of both Rosenthal and Leffler, arguing that they
conclude that Solodyn was priced supracompetitively without
determining what a competitive price for Solodyn would be.
Addanki Rpt. ¶ 13. Addanki explains that high margins do
not automatically indicate market power, and he argues that
Rosenthal and Leffler incorrectly compare the margins of
brand Solodyn with generic margins, which are typically
lower, as they should be. Id. ¶ 24.
Additionally, Addanki opines that “[p]rice premiums
that result from brand- and demand-building efforts are
simply the economic returns earned by those efforts”
and “do not connote market power.” Id.
¶ 25. For all of these reasons, Defendants have
presented a legitimate dispute as to whether Solodyn's
prices were supracompetitive.
significantly, as to the resolution of this issue as a matter
of law, Defendants also contend that even if Plaintiffs'
evidence of high margins were sufficient to establish that
Solodyn's pricing was actually supracompetitive,
Plaintiffs have failed to carry their burden on this theory
because evidence of supracompetitive prices alone is
insufficient direct evidence to show market power. D. 721 at
22-23; D. 859 at 9-12. They argue that direct evidence also
requires evidence of restricted output. D. 859 at 10-11.
Indeed, in Coastal Fuels, the First Circuit
explained that a plaintiff can show direct evidence of market
power “perhaps by showing actual competitive prices and
restricted output.” Coastal Fuels, 79 F.3d at
196; see Sterling Merch., Inc. v. Nestle, S.A., 724
F.Supp.2d 245, 268 (D.P.R. 2010) (explaining that
“market power exists only when competitors lack
capacity to increase short run output, allowing for the
monopolist to unilaterally restrict output in order to charge
higher prices”), aff'd, 656 F.3d 112 (1st
Cir. 2011); Broadcom Corp. v. Qualcomm, Inc., 501
F.3d 297, 307 (3d Cir. 2007) (stating that “monopoly
power may be proven through direct evidence of
supracompetitive prices and restricted output”);
Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d
1421, 1434 (9th Cir. 1995) (explaining that “evidence
of restricted output and supracompetitive prices” is
“direct proof” of exercise of market power).
argue that the evidence of supracompetitive prices
“necessarily means that Medicis's conduct reduced
output, ” relying upon “the law of supply and
demand, ” D. 916 at 9, but evidence of restricted
output is used to determine whether high margins and prices
are indicative of monopoly power. See Geneva Pharms.
Tech. Corp. v. Barr Labs., Inc., 386 F.3d 485, 500 (2d
Cir. 2004) (explaining that without evidence of restricted
output, plaintiffs were “asking [the court] to infer
the basis for the higher prices”). Plaintiffs have
failed to provide any actual evidence of restricted output
here. See Doryx II, 838 F.3d at 435 (holding that
Mylan failed to provide direct evidence of monopoly power
where Mylan had not provided evidence of restricted output);
Meijer, Inc. v. Barr Pharms. Inc., 572 F.Supp.2d 38,
55-56 (D.D.C. 2008) (holding that plaintiffs had failed to