July 2012 – Ala. Court Nixes $78M Price Inflation Verdict Against Sandoz

By Carolina Bolado

The Alabama Supreme Court on Friday overturned a $78.4 million jury verdict against generic-drug maker Sandoz Inc. for charging the state’s Medicaid program artificially inflated drug prices, marking the second time the state’s high court has dismantled a jury award against a drug company.

Citing its decision in a similar case involving AstraZeneca LP, Alabama’s high court said the state’s fraud claims fail because it hadn’t relied on Sandoz’s allegedly false information.

“Alabama law requires that a party claiming to be the victim of fraud must have actually relied on the false information it received and that such reliance must have been reasonable,” the court said. “Because in this case, the state knew that the prices reported by Sandoz were not what the state claims they should have been, Alabama law does not allow the state to claim that its reliance on that information was reasonable.”

The court added that the state’s reimbursement decisions were not based on the allegedly false information provided by Sandoz, but on policy concerns and the requirements of the federal Medicaid program.

“We are very pleased by today’s ruling of the Alabama Supreme Court, as it confirms our belief that these allegations are without merit,” Sandoz President Don DeGolyer said. “Sandoz is steadfast in its commitment to conducting business activities in compliance with laws and regulations, as well as high ethical standards.”

A Montgomery County jury in February 2009 reached a verdict that directed the Novartis AG unit to shell out $28.4 million in compensatory damages and an additional $50 million in punitive damages.

Alabama Attorney General Troy King rounded up Sandoz and 71 other drugmakers in a 2005 suit in Montgomery County Circuit Court, alleging the companies massively overcharged the Alabama Medicaid Agency for prescription drugs by fraudulently inflating the reported prices of the medications from 1991 to 2005.

Following the jury verdict against Sandoz, six major drugmakers — including Sanofi-Aventis, Abbott Laboratories and Teva Pharmaceuticals USA Inc. — settled with the state for $89 million.

In October 2009, the Alabama Supreme Court overturned two jury decisions awarding the state nearly $275 million from AstraZeneca, Novartis Pharmaceuticals Corp. and GlaxoSmithKline PLC, finding the state could not claim it had been misled by the drugmakers’ pricing policies because for at least 30 years it knew that the average wholesale prices did not accurately reflect the actual costs pharmacists paid for the medications.

A representative for the state could not immediately be reached for comment Friday.

Sandoz is represented by Michael Gallagher of White & Case LLP, M. Christian King of Lightfoot Franklin & White LLP and Tabor Novak of Ball Ball Matthews & Novak PA.

The case is Sandoz Inc. v. State of Alabama, case number 1081402, in the Supreme Court of Alabama.