Pharmaceutical Giants Lose Key Court Ruling on 'Average Wholesale Price' Litigation

BOSTON - Today a U.S. District Court dealt a major blow to a group of pharmaceutical companies including AstraZeneca (NYSE: AZN); Johnson & Johnson (NYSE: JNJ); Schering-Plough (NYSE:SGP) and Bristol-Myers Squibb Co. (NYSE:BMY), denying the companies' motion to dismiss a nationwide class action law suit alleging they defrauded consumers by illegally inflating the cost of prescription drugs.

The key ruling was issued just days before the trial is set to begin on November 6 in Boston.

The suit, led by attorney Steve W. Berman, managing partner of Seattle-based Hagens Berman Sobol Shapiro LLP, targets the companies' practice of inflating the Average Wholesale Price (AWP) that they reported through publications for certain drugs, including costly chemotherapy agents. In turn, Medicare, Medicaid and third-party payers such as insurance companies, reimburse pharmacies and physicians for drugs they provide based on the AWP. Individual patients also pay out-of-pocket costs on this basis.

Today's ruling roundly rejects the defendants' assertions that while the data was termed "average wholesale price," Congress and others responsible for setting reimbursements inherently understood that the figures were not accurate, and had little reflection on the actual average wholesale price, but rather was a benchmark used for negotiation purposes.

U.S. District Judge Patti B. Saris' ruling states that "determining the plain language meaning of the regulatory and statutory term 'average wholesale price' is a straightforward exercise that begins with the dictionary." Judge Saris goes on to cite Webster's Third New International Dictionary of the English Language entries for the words 'average,' 'wholesale,' and 'price'.

"In essence, the court found that average wholesale price means just that: the average price at which wholesalers sell drugs to their customers, and not a fictitious figure made up by defendants to game the system," Berman added

"This was the last big hurdle we faced before trial," Steve Berman said. "The defendants have been trying to hide behind a miasma of misinformation and deceit, and we are happy the judge saw through it. We are looking forward to Monday."

Earlier this year, the plaintiffs reached a $70 million settlement with GlaxoSmithKline (NYSE: GSK) on behalf of consumers and third-party purchasers, removing them from this litigation. In the proposed settlement agreement, 30 percent of the $70 million settlement will go to consumers who incurred co-payments based on AWP for a list of specific Medicare Part B covered drugs manufactured by GSK. The remaining 70 percent will go to third-party payers including health plans, HMOs and other organizations who purchased certain GSK drugs.

Hagens Berman Sobol Shapiro also recently announced a settlement with First Data Bank (FDB), a primary publisher of the Average Wholesale Price list for pharmaceutical products. In that settlement, FDB will adjust the Wholesale Acquisition Cost to AWP mark-up on 95 percent of pharmaceuticals sold in the U.S.. United States drug savings from this settlement are estimated to reach $4 billion in 2007 alone. If the settlement is approved, $3.3 billion will go to third-party payers, while approximately $400 million will go to the uninsured. FDB has also agreed to stop publishing the AWP list for pharmaceutical products after a two year notice period.

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