MSP Recovery Claims, Series LLC v. Mallinckrodt Ard Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

SERIES 17-03-615, a designated series

of MSP RECOVERY CLAIMS, SERIES LLC,

et al.,

Plaintiffs, NO. 3:20-CV-50056

v. HONORABLE IAIN D. JOHNSTON

EXPRESS SCRIPTS, INC., et al.,

Defendants.

MEMORANDUM OPINION AND ORDER

Before the Court are three motions and an objection to an order of the Magistrate

Judge, all pertaining to MSP Recovery’s bid for class certification. In support of class

certification, MSP offers an expert report; Express Scripts1 too offers an expert report

in opposition. Each side mounts a Daubert challenge against the other.

For substantially the same reasons as the damages model offered by the City of

Rockford in similar litigation was excluded,2 the Court likewise finds that Dr. Russell

W. Mangum III’s damages models are unreliable under Rule 702 and must be ex-

cluded. Express Scripts’ Daubert motion is therefore granted to that extent. That

alone forecloses the certification of MSP’s proposed classes, so the motion for class

1 The defendants include Express Scripts, Inc., Express Scripts Holding Co., Accredo

Health Group, Inc., CuraScript, Inc., Priority Healthcare Distribution, Inc., and United Bio-

Source Corp., LLC—for simplicity, they shall be referred to collectively as Express Scripts.

2 City of Rockford v. Mallinckrodt ARD, Inc., No. 3:17-CV-50107, 2024 WL 1363544, at

*5-10 (N.D. Ill. Mar. 29, 2024).

certification is denied. MSP’s Daubert motion and Express Scripts’ objection are thus

moot and accordingly denied without prejudice.

BACKGROUND

MSP brings this putative class action under the Sherman Act and the Florida De-

ceptive and Unfair Trade Practices Act (FDUTPA), alleging that Mallinckrodt (a

pharmaceutical manufacturer) and Express Scripts (a drug distributor, among other

things) conspired to act anticompetitively, and thereby raised the price of one of

Mallinckrodt’s drugs—Acthar—to a supracompetitive level. Dkt. 706 at 1. MSP is the

assignee of a claim held by a third-party payor that alleges it paid a supracompetive

price for Acthar. Id. Mallinckrodt is no longer a defendant because the claims against

it were discharged in bankruptcy. Dkt. 532.

MSP moves for the certification of two classes seeking damages—(1) a direct pur-

chaser class and (2) an indirect purchaser class.3 Dkt. 706 at 1. It offers the opinions

3 The classes are defined as follows:

(1) Direct purchaser class. All third-party payers (TPP) who, at any time from

August 27, 2007 to the present, on behalf of the TPPs’ Medicare Advantage

Plan beneficiaries and Medicare Part D Prescription Drug Plan beneficiaries,

through Express Scripts as Pharmacy Benefit Manager (PBM), paid some or

all of the purchase price of Acthar (or later provided reimbursement for same

under a legal obligation to do so).

(2) Indirect purchaser class. All third-party payers (TPP) who, at any time from

August 27, 2007 to the present, on behalf of the TPPs’ medical and/or pharmacy

benefit plan beneficiaries, and through a Pharmacy Benefit Manager (PBM)

other than Express Scripts, paid some or all of the purchase price of Acthar (or

later provided reimbursement for same under a legal obligation to do so).

Dkt. 706 at 1.

of Dr. Russell W. Mangum III of the economics consultancy Cirque Analytics in sup-

port. Dkt. 710 Ex. 1 at 1.

LEGAL STANDARD

I. Rule 23

To be certified, any proposed class must satisfy several requirements. All proposed

classes must first satisfy the four prerequisites set out in Rule 23(a): (1) numerosity,

(2) typicality, (3) commonality, and (4) adequacy of representation. If Rule 23(a) is

satisfied, a proposed class must further be among one of the three types set out in

Rule 23(b). Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 811 (7th Cir.

2012).

In assessing whether these requirements are met, the Court does not accept the

plaintiff’s allegations as true but must rigorously ensure the factual sufficiency of the

plaintiff’s motion for class certification, resolving those factual disputes that are ma-

terial to the class certification decision, even if such an inquiry trenches on the merits

of the action. See Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 676 (7th Cir.

2001). The proponent of the class bears the burden of showing that the elements of

class certification have been proven by a preponderance of the evidence. See Messner,

669 F.3d at 811.

II. Daubert Motions and Class Certification

A “full Daubert analysis” must be undertaken in advance of deciding class certifi-

cation when the reliability of expert evidence that bears on the class certification de-

cision is challenged. Am. Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 814 (7th Cir.

2010). Still, Daubert motions need be decided at this juncture only to the extent that

they are “critical”—that is, “important to an issue decisive”—to the class certification

decision. Messner, 669 F.3d at 812-13.

III. Federal Rule of Evidence 702 and Daubert

Rule 702 governs the admissibility of expert testimony, requiring, among other

things, that an expert’s opinion be the “product of reliable principles and methods”

that are “reliably applied” to the facts of the case at hand. Fed. R. Evid. 702. The

Supreme Court has explained that the overarching aim of the Court’s “gatekeeping”

function under Rule 702 and the Daubert regime is “to make certain that an expert,

whether basing testimony upon professional studies or personal experience, employs

in the courtroom the same level of intellectual rigor that characterizes the practice of

an expert in the relevant field.” Kumho Tire Company, Ltd. v. Carmichael, 526 U.S.

137, 152 (1999). The proponent of an expert’s testimony bears the burden of estab-

lishing its admissibility by a preponderance of the evidence. Gopalratnam v. Hewlett-

Packard Co., 877 F.3d 771, 782 (7th Cir. 2017).

ANALYSIS

Both proposed classes seek damages and look to be certified under Rule 23(b)(3).

Dkt. 706 at 12-13. This requires a showing that (1) the questions of law or fact com-

mon to the members of the proposed class predominate over questions affecting only

individual class members, and (2) that a class action is superior to other available

methods of resolving the controversy. Messner, 669 F.3d at 811. The predominance

analysis always begins with the elements of the underlying claims. Erica P. John

Fund, Inc. v. Halliburton Co., 563 U.S. 804, 809 (2011).

Common to all of MSP’s claims is the requirement that it show the extent of its

harm from Express Scripts’ illegal conduct—in other words, the damages. See Mess-

ner, 669 F.3d at 815 (federal antitrust claims); Marrache v. Bacardi U.S.A., Inc., 17

F.4th 1084, 1097 (11th Cir. 2021) (FDUTPA claims). Under Comcast Corp. v. Beh-

rend, a failure to “establish[] that damages are capable of measurement on a class-

wide basis” precludes a finding of predominance. 569 U.S. 27, 34 (2013).

I. The Proposed Damages Models

Mangum proposes two ways of estimating class damages—

1. The “legacy” approach. Under this method, but-for prices (i.e., those that would

have obtained in the absence of illegal conduct by Express Scripts) are derived for-

mulaically from a procedure whose first step is the inflation of the wholesale acquisi-

tion cost (WAC) of Acthar at the beginning of the alleged conspiracy by 8% per year

through 2022. This is said to be reasonable because in 2006, internal Mallinckrodt4

documents forecasted yearly increases at least that great until 2011. Dkt. 710 Ex. 1

at 82.

2. The “benchmark” approach. Under this method (also known as the yardstick

approach), but-for prices are similarly derived from a procedure whose first step is to

inflate the pre-conspiracy WAC by the growth in the pharmaceutical producer price

index (PPI), a measure of price level based on data collected by the Bureau of Labor

Statistics. The benchmark approach depends on identifying a similar market—

4 Strictly speaking, it was Questcor’s projection; Mallinckrodt merged with Questcor in

2014. Dkt. 706 at 1 n.3.

unaffected by the illegal conduct at issue—which can be taken as a counterfactual

proxy for the market at issue, by which but-for prices can be estimated.

Mangum asserts that pharmaceutical prices are driven primarily by “demand and

the availability and cost of therapeutic substitutes.” Accordingly, the pharmaceutical

industry as a whole is a reasonable benchmark because of Acthar’s “long history and

lack of novelty as a therapy and its relatively limited patient base”; thus, rather than

using “competing treatments in Acthar’s main therapeutic areas” as benchmarks, the

PPI—which is “broader,” containing a “wide spectrum [of] drugs”—is more appropri-

ate, and “may even overstate Acthar’s but-for growth in prices.” Id. at 84-85.

II. The Proposed Models Are Not Reliable

Both models fail to satisfy Rule 702. The “legacy” approach is not reliable for at

least two related reasons. First, it lacks what Express Scripts refers to as “empirical

validation” of the assumptions underlying the projected 8% price increase per year.

Dkt. 807 at 8. The 2006 planning document was conditional and predictive; this is

evident from the fact that it also mooted other possible pricing strategies. See Dkt.

710 Ex. 1 at 81-83. Mangum fails to identify any of the conditional assumptions un-

derlying the 8% plan, which obviously precludes any assessment—any “empirical val-

idation”—of whether the assumptions obtained, and thus whether a but-for price in-

crease of 8% each year is a reliable estimate. Cf. Target Mkt. Pub., Inc. v. ADVO, Inc.,

136 F.3d 1139, 1145 (7th Cir. 1998) (finding no abuse of discretion in a district court’s

exclusion of an expert’s opinions as to damages that, although regarding forecasted

profits and not a unilateral pricing decision, depended on “certain assumptions that

had not yet, and might never, come to pass”); Tawfilis v. Allergan, Inc., No.

815CV00307JLSJCG, 2017 WL 3084275, at *4 (C.D. Cal. June 26, 2017) (refusing to

exclude a similar analysis by Mangum based on a pharmaceutical company’s plan-

ning document where he in fact analyzed the assumptions underlying the projections,

did not “appear to have overlooked any assumptions or documents in his analysis,”

and explained “why he did not incorporate other [company] documents or additional

economic variables into his analysis”).

Mangum evinces awareness of the importance of this step in his discussion and

rejection of another potential pricing strategy proposed in the 2006 planning docu-

ment—an increase by a multiple of four to five times Acthar’s initial price—which

would have greatly reduced the aggregate damages figure. He concludes that such an

increase would have been “unlikely” because “the triggering event” for it—receiving

FDA approval to market Acthar to treat infantile spasms—“failed to materialize.” Id.

at 83. Unless the assumptions undergirding the projected 8% price increase are sim-

ilarly grappled with, there is no way of knowing whether that projection represents

a reliable counterfactual for Mallinckrodt’s behavior, and thus a reliable estimate of

but-for damages on the facts of this case.

Secondly, the 2006 document was only a five-year plan, but Mangum projects an

annual 8% price increase through 2022. Id. at 84. That the 8%-increase-per-year pric-

ing strategy would persist for this long is an unreasoned opinion. For it to be a reliable

conclusion, we would have to know something about (1) what Mallinckrodt expected

to be the case from 2006-2011; (2) what in fact was the case during that time; (3) how,

if at all, any divergence between (1) and (2) might reasonably be expected to have

changed its behavior; and (4) whether and to what extent (1) through (3) can be ex-

trapolated from to predict the but-for price over the succeeding decade. Here, nothing

connects the existing data (such as they are) to the extrapolated conclusion except

“the ipse dixit of the expert.” Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).

Mangum’s proposed “legacy” approach therefore must be excluded.

As for the “benchmark” approach, its reliability “hinges on the extent to which it

can stand in for the market under consideration . . . but for the alleged anticompeti-

tive conduct, ceteris paribus.” City of Rockford, 2024 WL 1363544 at *7. If there is

“too great an analytical gap between the facts of the case and the benchmark cho-

sen”—such that it cannot be said that the prices of the two markets “would move in

tandem” but for the anticompetitive conduct—an expert’s opinion to that effect is not

reliable. In re Wholesale Grocery Prod. Antitrust Litig., 946 F.3d 995, 1002 (8th Cir.

2019).

As was true of the expert’s use of the PPI in City of Rockford v. Mallinckrodt,

Mangum’s selection of it as a counterfactual yardstick is “fundamentally unrea-

soned.” 2024 WL 1363544 at *7. Mangum asserts that “demand and the availability

and cost of therapeutic substitutes” are the prime determinants of pharmaceutical

prices. Dkt. 710 Ex. 1 at 84. If that is so, he must establish that the characteristics of

the drugs composing the PPI bear a rough similarity to Acthar with respect to those

characteristics for it to be a reliable proxy for Acthar’s but-for prices throughout the

alleged conspiracy. No such analysis was carried out. Further, he must establish that

any other likely, nonconspiratorial determinants of price—market power, for

instance—were irrelevant, or if not, that they somehow be accounted for, by a regres-

sion or otherwise. City of Rockford, 2024 WL 1363544 at *7-10. Mangum “neither

employed” any analytically rigorous methods “nor explained why he hadn’t.” Zenith

Elecs. Corp. v. WH-TV Broad. Corp., 395 F.3d 416, 419 (7th Cir. 2005). For these

reasons, the “benchmark” approach he proposes does not exhibit the same “level of

intellectual rigor that characterizes the practice of an expert in the relevant field”

and must be excluded. Kumho, 526 U.S. at 152.

III. Class Certification Is Denied

With Mangum’s damages models excluded—the only evidence regarding damages

common to the class—MSP cannot carry its burden as to predominance. See Olean

Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 31 F.4th 651, 667 (9th Cir.

2022); City of Rockford, 2024 WL 1363544 at *10. Individual damages calculations

will “inevitably overwhelm questions common to the class” with no common evidence,

Comcast, 569 U.S. at 34, so certification of the two proposed damages classes under

Rule 23(b)(3) is denied.

CONCLUSION

MSP’s motion for class certification is denied. Express Scripts’ Daubert motion is

granted as to Mangum’s opinion concerning the calculation of damages for the clas-

ses. The remainder of Express Scripts’ Daubert motion, as well as MSP’s Daubert

motion challenging Dr. Mark Israel’s opinions, are denied without prejudice as un-

necessary to the class certification decision. To the extent that the opinions not ad-

dressed continue to be relevant, the Daubert challenges may be renewed. The

objection to the Magistrate Judge’s order denying Express Scripts a surreply is denied

as moot.

Date: April 26, 2024 □□□

HONORABLE IAIN D. JOHNSTON

United States District Judge

10