Appeals Court Denies AstraZeneca in AWP Case

BOSTON – The First Circuit of the United States Court of Appeals yesterday upheld an earlier ruling of the trial court in a Massachusetts case against AstraZeneca (NYSE:AZN) that concluded the drug giant engaged in unfair and deceptive trade practices by inflating the price of prescription drug Zoladex, clearing the way for a national class-action lawsuit to move forward.

The 98-page ruling affirms a judgment of $12.9 million against the company for violating the Massachusetts Consumer Protection Act.

The ruling also clears the way for a national class-action lawsuit originally certified by U.S. District Court Judge Patti Saris on Sept. 29, 2008, which was temporarily stayed until the resolution of AstraZeneca's appeal.

The case was originally filed Sept. 2, 2002 and claimed AstraZeneca grossly inflated the price of Zoladex, primarily used to treat prostate cancer, by misstating the Average Wholesale Price (AWP) of these drugs in industry publications.

The published AWP sets the price that consumers, insurance companies and other third-party payors pay for the drug, and the lawsuit contends that consumers and third-party payors often paid more than market value because of the drug company's deceptive AWP reporting.

In the original trial, the court ruled that many pharmaceutical companies, including AstraZeneca, "unscrupulously took advantage" of the AWP reimbursement system "by establishing secret mega-spreads between the fictitious reimbursement price reported and the actual acquisition costs of doctors and pharmacies."

Steve Berman, managing partner of Hagens Berman Sobol Shapiro and lead attorney said he is looking forward to extending the state ruling and using it to represent consumers and other third-party payors in the national class.

"We expected AstraZeneca to appeal Judge Saris' ruling and are very pleased that the First Circuit saw the logic and solid thinking in the trial judge's well-reasoned ruling," Berman said. "We believe that consumers and insurers across the country fell victim to this pricing scheme and believe our national action will make them whole."

"After more than seven years of pursuing justice for those who reimbursed for Zoladex, we are looking forward to trying the case on behalf of those who reside outside of the state of Massachusetts," Berman continued.

The ruling the court upheld affects patients and insurers who made co-payments and reimbursements for Zoladex from December 1997 to 2003.

The original filings claim that the defendants' published AWPs are fictitious because they do not reflect the true average sales price. The inflation is decided upon by drug companies to create a spread between the doctor's acquisition costs and the fictitious AWP, the industry benchmark for determining drug pricing. This spread ultimately works to gain market share over a competitor.

The First Circuit ruling, which is the first appellate examination of the legal issues underlying the massive AWP litigation, endorsed the trial courts tripartite approach to liability. First, the appellate court upheld the trial court's analysis of the spread between the published price and the cost to the doctors, which in the case of AstraZeneca was found to be "egregious." Second, the ruling considered AstraZeneca's history of selling the bulk of the drug at the spread and not at the published price. And third, the Court of Appeals upheld the trial court's examination of AstraZeneca's proactive "spread marketing" in which AstraZeneca showed doctors how they could make money off the spread if they chose Zoladex.

The First Circuit also cited two documents where AstraZeneca moved to increase the spread in reaction to Congress' attempts to rein in Medicare costs. The Court also rejected the defense that third-party payors knew of the spreads and thus were not deceived.

Berman indicated the class plaintiffs will seek a trial of the nationwide case next year "during which we intend to showcase the shocking story of how this company marketed its drug on profits to doctors and not on efficacy."

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