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In re Solodyn (Minocycline Hydrochloride) Antitrust Litigation

United States District Court, D. Massachusetts

January 25, 2018

IN RE SOLODYN MINOCYCLINE HYDROCHLORIDE ANTITRUST LITIGATION

          MEMORANDUM AND ORDER

          Denise J. Casper United States District Judge

         I. Introduction

         This is a class action in which Direct Purchaser Plaintiffs (“DPPs” or “direct purchasers”) allege that Defendants Medicis Pharmaceutical Corporation (“Medicis”) and Impax Laboratories, Inc. (“Impax”) (collectively, “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. 92.[1] The remaining claim of Retailer Plaintiffs[2] 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.

         For the 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.[3] The Court also ALLOWS Defendants' motion for leave to serve Dr. Louis Rossiter's expert testimony, D. 892.

         II. Standard of Review

         A. Summary Judgment

         The 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).

         B. Motions to Exclude Expert Opinions (Daubert Motions)

         Pursuant 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.

         III. Relevant Factual Background

         In 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.

         Medicis 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.

         On May 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.

         Medicis 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.

         In 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.

         In 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. 808.[4]

         IV. Relevant Procedural History

         On 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 advisement.

         V. Discussion

         The 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.

         A. Market Power

         The DPP 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.”[5]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%.”[6] 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.

         Plaintiffs 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.[7] 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).

         1. Circumstantial Evidence

         “[C]ircumstantial 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”).

         Defendants 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.”[8] Vashi Rpt. ¶ 24.

         Even if 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.[9] 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.

         Plaintiffs 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.[10] 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.”[11] Id. ¶ 38.

         Rosenthal 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[12] 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.[13] Baum Rpt. ¶ 13. The model predicts expenditure shares for Solodyn and six other oral antibiotic drugs[14] 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.”[15] 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.

         Defendants 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.

         Plaintiffs 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 *88-89.

         Thus, 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.[16] 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.

         Defendants 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 market.

         Given 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.

         Plaintiffs 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.

         Even 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)).

         The 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.

         Even 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.

         This 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 competitors.

         The 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.

         2. Direct Evidence

         Plaintiffs 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”).

         Plaintiffs 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.

         Plaintiffs' 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.[17] D. 747-1 at 10-11; D. 851 at 10-15.

         Defendants 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.

         The 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 costs. Id.

         Defendants 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.[18] 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.

         Defendants 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.

         More 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).

         Plaintiffs 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 show ...


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