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TAP Pharmaceutical Products Inc. v. Atrix Laboratories

July 7, 2006

TAP PHARMACEUTICAL PRODUCTS INC., TAKEDA CHEMICAL INDUSTRIES, LTD., AND WAKO PURE CHEMICAL INDUSTRIES, LTD., PLAINTIFFS,
v.
ATRIX LABORATORIES, INC. AND SANOFI-SYNTHELABO INC., DEFENDANTS.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

Plaintiffs wish to retain the services of Dr. Gregory K. Bell to serve as a witness against Defendants in an upcoming damages trial, which follows upon a finding that Defendants infringed a valid patent. Defendants hold Dr. Bell in some regard, since they too (along with Plaintiffs) retained him in connection with their (and Plaintiffs') defense against pending litigation over pharmaceutical pricing.*fn1 Defendants argue that two provisions of an agreement between TAP and Sanofi-Synthelabo and Dr. Bell's firm, Charles River Associates ("CRA"), preclude Plaintiffs from calling Dr. Bell as an adverse witness in this case.

The first provision states:

If our firm is retained to provide services for an adversary of any of the Companies in other litigation related to AWP issues, the persons working on this [the pharmaceutical pricing case] engagement will not work on that engagement, and steps will be taken to ensure that confidential information relating to this engagement is not disclosed to the persons working on that engagement.

CRA was retained pursuant to the agreement, and Dr. Bell and his team are working on the pharmaceutical pricing case.

Plaintiffs contend that the provision in the CRA agreement is inapplicable because the damages trial here does not involve "AWP issues" in the sense meant and understood by the signatories to the CRA agreement. Defendants respond, correctly, that Plaintiffs will have to address the subject of AWP (Average Wholesale Price) in this case. Plaintiffs' revenues are affected by AWP because payments for their drug are sometimes calculated either as a percentage of, or by reference to, the AWP. Plaintiffs' argument, however, is also correct. The conditions in the CRA agreement address a dispute very different from the dispute here. The "AWP issues" referred to in that agreement cannot fairly be construed to include the damages issue to be tried in this case.

The agreement itself refers to one pending case, Swanton v. TAP Pharm. Prod. Inc. et al., CV 2002-004988 (Super. Ct. Ariz.),which is pending in the Superior Court of Arizona. It is a class action filed against what appears to be all, or nearly all, pharmaceutical companies dealing in "cancer drugs and other prescription drugs" and charges them with "a fraudulent marketing, pricing, sales and distribution scheme" causing governments, insurers and individuals "to overpay" for the drugs. It alleges that all Plaintiffs here as well as Defendant Sanofi (through Aventis) "engaged in a practice of deliberately inflating the AWP for prostate cancer drugs." Whereas the jury in the case before me will be asked to decide whether, and to what extent, the marketing and sale of Eligard caused lost profits through price erosion or lost sales to Plaintiffs, they will not be asked to consider the issue of the fairness and accuracy of Plaintiffs' pricing practices.*fn2

A group of cases now pending in United States District Court in Massachusetts raises issues similar to the claims made in the Arizona litigation (though there are far more lawyers appearing for the putative classes in Massachusetts since that case is proceeding under Multi-District Litigation practice.) See In re Pharm. Indud. Average Wholesale Price Litig., 230 F.R.D. 61 (D. Mass. 2005). Several of Judge Saris's observations in her class certification ruling in that case are helpful in setting the factual background for my ruling here.*fn3 The following language is taken from Judge Saris's opinion.

Throughout the class period, from 1991 to the present, AWP has been the pricing benchmark for most pharmaceutical sales in the United States. It is akin to a sticker price for automobiles, setting the pricing baseline. Private publications such as the Drug Topics Red Book, the First Data Bank Blue Book, and the Medi-Span Master Drug Data Base list the AWPs. For each drug, the publications list one or more eleven-digit National Drug Code numbers ("NDCs"), which convey information such as dosage, package size, and manufacturer; each NDC of a drug may have its own AWP.

Dr. Berndt states:

To knowledgeable industry observers, it has long been widely understood that in the U.S. pharmaceutical industry, the term "average wholesale price" [AWP] is a misnomer: it is not a measure of prices generally paid by wholesalers to manufacturers, it is not a measure of prices frequently paid by retail or mail order pharmacies to wholesalers, nor is it some average of these.

Nonetheless, "real and understandable" confusion still remains, even within the industry, as to what AWP is. Mockingly referred to as "Ain't What's Paid," AWP has been defined in the literature in various ways. For example, according to the American Society of Consultant Pharmacists' website, First Data Bank stated as late as 2000 that AWP is "the average wholesale price." That is, AWP is the average of the prices charged by the national drug wholesalers for a given product (NDC). The operative word is "average." Other recent documents continue to state that AWP is an actual average of prices, even as government reports and other sources have stated that AWP is not an accurate measure of wholesale prices.

Related to the AWP is a drug's Wholesale Acquisition Cost ("WAC"), which also is listed in publications. WAC is understood to be the price at which a pharmaceutical firm typically sells a drug to wholesalers. The WAC for single-source drugs correlates with the AWP over the life of a drug. Typically, the AWP for a brand-name, self-administered drug is 20% or 25% above WAC. In the generic drug context the relationship is less predictable, with AWPs sometimes reaching 50% to 100% above WAC.

In almost every sale of prescription drugs, reimbursement from the government or TPP [Third Party Payor] is based on AWP, WAC, or a discount from one of these numbers (e.g., AWP minus 15%). As plaintiffs' expert Hartman states, "The AWP, or its formulaic equivalent the WAC (Wholesale Acquisition Cost), is interpreted by industry as the signal for the underlying structure of list and transaction prices for almost all drugs." However, manufacturers actually sell drugs to providers like pharmacies and doctors at prices far below AWP and WAC. This creates a "spread" between the price healthcare providers pay to acquire drugs from wholesalers or manufacturers (the average acquisition cost, "AAC") and the reimbursement rate paid by ...


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