Law360: Impax Investors’ Drug Price-Fixing Suit Revived By 9th Circ.
By Lauren Berg
January 11, 2021
The Ninth Circuit partially revived a shareholder suit Monday alleging generic-drug maker Impax Laboratories Inc. participated in a price-fixing scheme that led to a dip in the company’s stock price, finding that the investors sufficiently alleged the cause of some of their economic losses but missed the mark on others.
In a sparse nine-page opinion, a three-judge panel found that the California district court erred when it ruled that the investors hadn’t shown they suffered their claimed economic losses as a result of the alleged price-fixing conspiracy, finding that the investors’ allegations regarding May and August 2015 earnings misses are enough to trace their losses back to the anti-competitive scheme.
But the district court did not err when it ruled the investors had failed to allege loss causation regarding losses from November 2016 and January 2017, the panel said, finding that the media reports that formed the basis for the November losses consisted of speculation about whether Impax would be indicted as part of the U.S. Department of Justice’s investigation of price-fixing in the generic drug market.
“Because ‘the market [could not] possibly know’ whether defendants would be indicted, the decrease in Impax’s share price following these media reports could be attributed only to market speculation about the accuracy of the media speculation concerning potential criminal liability,” the panel said.
The investors first filed suit in November 2016, after which the New York Hotel Trades Council & Hotel Association of New York City Inc. Pension Fund was made the lead plaintiff and an amended complaint was filed in April 2017. When that complaint was tossed in September 2018, the investors filed the operative complaint in October 2018, which was then tossed in August 2019.
The investors allege that Impax entered into agreements with its competitors to fix the prices of the generic drugs Digoxin and pyridostigmine bromide. Impax and its rival Lannett Company Inc. allegedly increased the price of generic digoxin by more than 700% in November 2013 — from $0.16 per pill to $1.07 per pill, according to the investors’ opening appeal brief.
Impax then misled investors by attributing the resulting generic drug revenue increase to actual growth in the digoxin market, according to the brief.
“The concealed truth was that, between 2013 and 2016, the $220 million Impax reaped in Digoxin revenues was based on illegal collusion,” the investors said.
Then, between December 2014 and March 2015, the investors said Impax and another rival, Valeant Pharmaceuticals, raised the price of pyridostigmine by 116% — from $0.54 per pill to $1.16 per pill.
When the price of digoxin was increased, Impax and Lannett had a combined 94% of the digoxin market, while Impax and Valeant had 100% of the pyridostigmine when they colluded, the investors said.
“Both drugs treat serious illnesses and have no viable substitute — Digoxin is the prescription of choice for heart medication and Pyridostigmine is the first-line treatment therapy for [neuromuscular disorder] myasthenia gravis patients,” the investors said.
While concealing the antitrust conspiracy, the investors allege Impax was simultaneously making false statements about the company’s revenues and income based on the artificially inflated prices.
The investors also allege that Impax lied about its diclofenac product, a nonsteroidal anti-inflammatory drug, by giving investors false data about the drug’s actual pricing capacity, the company’s true market share of the drug and the overall price decline in the company’s generic drug portfolio.
In its opinion Monday, the three-judge panel found that the district court also erred when it held that the investors hadn’t alleged falsity regarding Impax’s statements about diclofenac’s past performance and the company’s forward-looking earnings projections.
The panel pointed out that the investors’ complaint alleges the company’s statement about an overall price decline of 10% during a May 2016 earnings call was false because it was actually 21%.
But the panel said the district court did not err when it ruled the investors hadn’t alleged falsity regarding other statements made by Impax and its officers, including claims that Impax had “managed its portfolio efficiently,” because it can’t be true or false on an objective standard.
Nor did the district court err when it ruled the investors failed to plead scienter regarding the allegedly misleading statements about Impax’s acquisition of a drug used to treat Crohn’s disease and ulcerative colitis, the panel said.
While the complaint alleges Impax knew those drug revenues were decreasing prior to the acquisition, knew the drug’s competition was set to increase and knew that the drug constituted a large percentage-by-revenue of the acquisition, the panel said the stronger inference to be made is that the company just overvalued the acquisition and underestimated the impacts of future competition.
Counsel for the parties did not immediately respond to requests for comment Monday.
U.S. Circuit Judges Mary H. Murguia and Morgan B. Christen and U.S. District Judge William K. Sessions III of the District of Vermont, sitting by designation, sat on the panel for the Ninth Circuit.
The investors are represented by Susan Alexander, Luke Brooks, Shawn Williams and Andrew Love of Robbins Geller Rudman & Dowd LLP.
Impax is represented by Marcy C. Priedeman, Peter A. Wald and Morgan E. Whitworth of Latham & Watkins LLP.
The case is New York Hotel Trades Council & Hotel Association of New York City Inc. Pension Fund et al. v. Impax Laboratories Inc. et al., case number 19-16744, in the U.S. Court of Appeals for the Ninth Circuit.