IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ABBVIE ENDOCRINE INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0953-SG
)
TAKEDA PHARMACEUTICAL )
COMPANY LIMITED, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: May 18, 2023
Date Decided: September 5, 2023
A. Thompson Bayliss, Eric A. Veres, and Joseph A. Sparco, ABRAMS & BAYLISS
LLP, Wilmington, Delaware; OF COUNSEL: Paul J. Loh, Jason H. Wilson, Eileen
M. Ahern, Amelia L.B. Sargent, Peter Shimamoto, Ashley L. Kirk, Kenneth M.
Trujillo-Jamison, Breeanna N. Brewer, and Caitlin F. Lynch, WILLENKEN LLP,
Los Angeles, California, Attorneys for Plaintiff AbbVie Endocrine Inc.
Kevin R. Shannon, Christopher N. Kelly, and Daniel M. Rusk, IV, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Fred A.
Kelly, Jr., Joshua S. Barlow, and Tiffany Jang, ARNOLD & PORTER KAYE
SCHOLER LLP, Washington, D.C.; Mark Basanta and Aakruti G. Vakharia, HAUG
PARTNERS LLP, New York, New York; and Christopher Gosselin, HAUG
PARTNERS LLP, Washington, D.C., Attorneys for Defendant Takeda
Pharmaceutical Company Limited.
GLASSCOCK, Vice Chancellor
The Defendant, Takeda Pharmaceutical Company Limited (“Takeda”), is a
producer of pharmaceutical drugs, including a drug used to treat cancer, Lupron
Depot (“Lupron”). The Plaintiff, AbbVie Endocrine Incorporated (“AbbVie”), is a
distributor of Lupron under a contract with the Defendant which requires Takeda to
supply Lupron sufficient to meet Plaintiff’s needs as expressed by AbbVie’s “firm
orders.” In 2019, however, Takeda found it necessary, intermittently, to shut down
one of the plants at which it manufactured Lupron, rendering it unable to supply the
Plaintiff’s requirements and creating a shortage for other distributors of the drug
around the world.
AbbVie sued in this Court, seeking to invoke equity to order the Defendant to
distribute such Lupron as it could manufacture to AbbVie, with priority over other
distributors. AbbVie also sought contractual damages. Much litigation has
followed.
This is my third Memorandum Opinion in the matter. In AbbVie I, I found
that equity could not support the injunctive relief sought by the Plaintiff. In AbbVie
II, I found that Takeda was in breach of its contract with AbbVie, and that its breach
had caused AbbVie cognizable damages. The current Memorandum Opinion
addresses, post-trial, the quantum of those damages.
I will not repeat here the extensive factual development pertinent to the issues
in AbbVie I and AbbVie II. Interested readers should consult those opinions. What
1
follows is a brief statement of only those facts necessary to understand my damages
analysis. I then address the quantum of those damages and how they were
demonstrated at trial.
I. BACKGROUND1
Plaintiff AbbVie is a Delaware incorporated drug distributor.2 One drug that
AbbVie distributes is Lupron, whose applications include the treatment of prostate
cancer.3 AbbVie receives its entire supply of Lupron from Defendant Takeda, the
drug’s sole producer.4 This supply relationship is governed by a requirements
contract (the “Supply Agreement”) under which Takeda fulfills AbbVie’s firm
orders.5
In late 2019, a piece of sterilization equipment failed its annual requalification
test at one of Takeda’s two Lupron-producing facilities.6 This set into motion a
chain of events that resulted in intermittent facility closures and, ultimately, a period
1
For a more detailed statement of this case’s factual background, see my memorandum opinions
of September 7 and 22, 2021. AbbVie Endocrine Inc. v. Takeda Pharm. Co. Ltd., 2021 WL
4059793, at *2–5 (Del. Ch. Sept. 7, 2021) (“AbbVie I”); AbbVie Endocrine Inc. v. Takeda Pharm.
Co. Ltd., 2021 WL 4302920, at *2–4 (Del. Ch. Sept. 22, 2021) (“AbbVie II”). Facts drawn from
the exhibits jointly submitted by the parties are referred to by the numbers provided on the parties’
joint exhibit list (cited as “JX __” unless otherwise defined). Phase II trial testimony is cited as
“TT (Name) __:__.”
2
Joint Pre-Trial Stipulation and Order (“Phase II PTO”) ¶ 2, Dkt. No. 411.
3
Id. ¶ 4.
4
AbbVie I at *1.
5
Id.
6
Joint Pre-Trial Stipulation and Order (“Phase I PTO”) ¶ 38, Dkt. No. 156; JX 390.
2
in which Takeda was unable to fulfill AbbVie’s firm orders.7 A Lupron shortage
resulted.8
AbbVie brought suit for breach of contract in November 2020,9 together with
motions for a preliminary injunction, which I denied, and for expedition, which I
granted.10 Following discovery, a four-day trial (“Phase I”) was held on the issues
of Takeda’s liability under the Supply Agreement and the appropriateness of final
injunctive relief.11 In AbbVie I, I held that the injunctive relief Plaintiff sought would
be unworkable.12 In AbbVie II, I determined that Takeda was liable for breaching
the Supply Agreement.13
A second, three-day, trial (“Phase II”) was held in January 2023 to determine
“the quantum of cognizable damages—if any[.]”14 Post-trial oral argument for
Phase II was held on May 18, 2023, and I consider the matter fully submitted as of
that date.15
7
See AbbVie I.
8
Id. at *4.
9
Verified Compl. for Specific Performance, Dkt. No. 1.
10
Telephonic Hr'g re: Pl.’s Mot. to Expedite and the Ct.’s Ruling, Dkt. No. 34.
11
See Trial Tr., Dkt. Nos. 165–68.
12
AbbVie I at *8–9.
13
AbbVie II at *7.
14
Id. at *4.
15
Tr. of Post-Trial Oral Arg., Dkt. No. 448.
3
II. ANALYSIS
The principal question before me is whether AbbVie has carried its burden
of presenting the Court with a responsible, non-speculative estimate of damages. I
begin by dealing with a number of threshold legal questions, including the
appropriate choice of law, measure of damages, and burden of proof. From there, I
move to an assessment of AbbVie’s damages estimation methodology, which is the
focal point of the parties’ Phase II disputes. Following a brief overview of that
methodology, I delve one-by-one into the disputed inputs. Finally, I address
Takeda’s arguments that any recovery should be reduced, or even eliminated, due
to AbbVie’s purported failures to mitigate or show causation.
A. Legal Standard
1. Delaware Law Applies to Phase II
My decision in AbbVie II applied Illinois law in determining that Takeda had
breached the Supply Agreement, the “validity and interpretation” of which is
governed by that state’s law.16 The Supply Agreement also provides that:
Except as otherwise provided in this Agreement, any and all disputes
arising out of or relating to this Agreement shall be governed by Section
15.05 of the [Contribution and Exchange Agreement, dated as of March
19, 2008, and amended and restated as of April 30, 2008 (the
“CEA”)].17
16
See AbbVie II; Phase I PTO ¶ 26. The parties further stipulate that the Contribution and
Exchange Agreement is a valid and enforceable contract. Id. ¶ 13.
17
Phase I PTO ¶ 27. The parties have further stipulated that the CEA governs the Supply
Agreement. Id. ¶ 28.
4
The CEA contains a broad choice of law provision applying Delaware law to
disputes, “except as otherwise explicitly provided[.]”18 Reading the two agreements
together, “all disputes arising out of or in connection with” the Supply Agreement
are assessed under Delaware law unless an explicit carve-out, such as the one made
for “validity and interpretation[,]” applies.19 Accordingly, Delaware law governs
this damages determination because no such carve-out applies.20
2. The Measure of Damages
“[U]nder Delaware law, the standard remedy for breach of contract is based
on the reasonable expectations of the parties that existed before or at the time of the
breach.”21 Expectation damages “require the breaching promisor to compensate the
promisee for the promisee's reasonable expectation of the value of the breached
contract, and, hence, what the promisee lost.”22 Lost profits are an accepted means
of quantifying expectation damages in a breach of contract action.23 However, “no
18
JX 100 § 15.06.
19
Id.
20
Defendant’s post-trial briefing does not discuss the choice of law issue and relies almost entirely
on Delaware caselaw. See Def. Takeda Pharm. Co. Ltd.’s Corrected Post-Trial Opening Br.
(“Takeda PTOB”), Dkt. No. 442; Def. Takeda Pharm. Co. Ltd.’s Answering Post-Trial Br.
(“Takeda PTAB”), Dkt. No. 432. Therefore, to the extent Defendant disputes the application of
Delaware law, such an argument is deemed waived. See Emerald P’rs v. Berlin, 726 A.2d 1215,
1224 (Del. 1999) (“Issues not briefed are deemed waived”) (citations omitted).
21
Siga Techs., Inc. v. Pharmathene, Inc., 132 A.3d 1108, 1132–33 (Del. 2015), as corrected
(Dec. 28, 2015) (“Siga”) (citation omitted).
22
Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001).
23
See generally Siga, 132 A.3d 1108 (discussing Delaware courts’ approach to lost profits
calculations).
5
recovery can be had for loss of profits which are determined to be uncertain,
contingent, conjectural, or speculative.”24
3. Burden of Proof
I noted in AbbVie II that the burden remains on AbbVie to prove “the quantum
of cognizable damages[.]”25 While a plaintiff must prove the fact of damages by a
preponderance of the evidence, the “proof required to establish the amount of
damage is not as great as that required to establish the fact of damage.” 26 Indeed,
showings of future lost profits need only meet the more relaxed “substantial
evidence” standard,27 requiring “such relevant evidence that a reasonable mind
might accept as adequate to support a conclusion.”28
Here, the fact of damages is established by my holding in AbbVie II “that
AbbVie has experienced injury sufficient to sustain a finding of liability[.]”29 As a
result, AbbVie’s showing of the amount of damages “can be an estimate, uncertain,
24
Id. at 1131 (quotation omitted).
25
AbbVie II at *4.
26
Beard Rsch., Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v. Beard
Rsch., Inc., 11 A.3d 749 (Del. 2010) (“Beard Rsch.”) (quoting Total Care Physicians, P.A. v.
O'Hara, 2003 WL 21733023, at *3 (Del. Super. July 10, 2003)) (emphasis added).
27
See Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *29 n.271 (Del. Ch. Feb. 18, 2010)
(“Agilent”).
28
See Standard Distrib., Inc. v. Hall, 897 A.2d 155, 158 (Del. 2006) (citations omitted).
29
AbbVie II at *4.
6
or inexact”30 as long as it provides the Court with “a basis to make [] a responsible
estimate”31 that goes beyond “mere ‘speculation or conjecture[.]’”32
a. The Wrongdoer Rule
AbbVie argues that, in addition to this reduced burden, “[a]ny uncertainty in
the damages calculation that can be traced to Takeda’s breaches is presumptively
resolved against Takeda” under the so-called “wrongdoer rule.”33 For its part,
Takeda contends that “the wrongdoer rule [only] applies to bad-faith or willful
breaches.”34
This Court has previously acknowledged the inherent imprecision involved in
crafting a remedy based on a hypothetical “but-for” world in which no breach
occurred.35 This complex reality is reflected in the discretion afforded to trial courts
in shaping remedies that reflect the facts and circumstances of a specific case.36 The
wrongdoer rule AbbVie articulates is, at its core, just one form this discretion can
take.
30
Siga, 132 A.3d at 1122 (quotation and citation omitted).
31
Beard Rsch., 8 A.3d at 613 (citing Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at
*15 (Del. Ch. Oct. 23, 2002)).
32
Id. (quoting Medek v. Medek, 2009 WL 2005365, at *12 n.78 (Del.Ch. July 1, 2009)).
33
Pl.’s Post-Trial Answering Br. (“AbbVie PTAB”) 12–13, Dkt. No. 431.
34
Takeda PTAB at 17.
35
See, e.g., Agilent, 2010 WL 610725, at *24 (discussing the relationship between uncertainties
and trial court discretion in the crafting of remedies).
36
Id.
7
Previous cases in which the Court employed AbbVie’s preferred approach to
resolving uncertainty all involved either bad faith or willful37 action on the part of
the defendant.38 My decisions in AbbVie I and II made no finding that Takeda
breached the Supply Agreement willfully or in bad faith, nor has AbbVie
subsequently made such a showing.39 Accordingly, I decline to apply the wrongdoer
rule as articulated by AbbVie. I do so because I find that the reduced burden of proof
described above appropriately balances AbbVie’s uncertainty concerns against
Takeda’s lack of wrongful intent.
B. The Damages Model
The next issue before me is the appropriateness of AbbVie’s damages model.
Takeda challenges the fundamentals of this model on two grounds: AbbVie’s
purported data manipulation and the overall methodology used to estimate damages.
I examine both of these arguments below.
37
That is, intentional.
38
See Siga, 132 A.3d at 1131 (explicitly discussing the trial court’s findings of bad faith and
willfulness in resolving uncertainties and determining damages); Bandera Master Fund LP v.
Boardwalk Pipeline P’rs, LP, 2021 WL 5267734, at *88 (Del. Ch. Nov. 12, 2021) (finding that
breach was willful and the wrongdoer rule applicable but exercising discretion not to apply), rev'd
and remanded on other grounds, 288 A.3d 1083 (Del. 2022); Great Am. Opportunities, Inc. v.
Cherrydale Fundraising, LLC, 2010 WL 338219, at *28 (Del. Ch. Jan. 29, 2010) (finding that
defendant acted willfully and maliciously); Agilent, 2010 WL 610725, at *34 (finding that
defendant acted willfully and maliciously); see generally Beard Rsch., 8 A.3d 573 (mentioning
Delaware courts’ willingness to resolve uncertainty against wrongdoers but making no explicit
application of this discretion).
39
See Pl.’s Post-Trial Opening Br. (“AbbVie PTOB”), Dkt. No. 421; AbbVie PTAB.
8
1. AbbVie’s Alleged Data Manipulation
Takeda contends that AbbVie intentionally inflated its Lupron orders during
the course of litigation in order to maximize its eventual damages.40 Per Takeda,
this “matters because a significant percentage of AbbVie’s claimed damages . . .
depend on AbbVie’s own projections of future Lupron sales and profits.”41 But
Takeda entirely neglects to explain how inflated order volume impacts AbbVie’s
damages calculations.42 Indeed, order volume is not a component of AbbVie’s
damages model.43 To the best of my understanding, Takeda instead invites me to
approach all AbbVie-generated data with skepticism, given AbbVie’s allegedly
underhanded approach to order volume. Such an inference, drawn post-trial, must
be adequately supported by the record. As discussed above, Takeda cannot marshal
sufficient arguments, let alone evidence, to support its desired inference.
Accordingly, my assessment of AbbVie’s model, including its inputs, is based solely
on the evidence in the record, free of adverse inferences.
2. Methodology
AbbVie’s damages estimate is drawn from the expert report of economist Dr.
Christine Meyer.44 While I address various contested components of Dr. Meyer’s
40
Takeda PTOB at 10–17.
41
Id. at 1–2 (emphasis in original).
42
Id. at 10–17.
43
AbbVie PTAB at 17–19; see generally JX 5399 (the “Meyer Report”); JX 5533 (the “Meyer
Supplement”).
44
See Meyer Report; Meyer Supplement.
9
damages model in greater detail below, I provide a generalized overview here in
order to better address Takeda’s critiques.
The model’s central premise is that the Lupron shortage caused customers to
jump to competitors’ products, costing AbbVie sales and, in some cases,
permanently eroding Lupron’s market share due to market characteristics that make
a switch back unlikely.45 Dr. Meyer begins by breaking damages out into three
categories based on Lupron’s principal applications: urology (“URO”), pediatrics
(“PED”), and gynecology (“GYN”).46 Both URO and PED are further divided into
past and future damages, given AbbVie’s allegations that the shortage’s impacts will
continue for years to come.47
a. Estimation of URO and PED Damages
Dr. Meyer calculates past damages for the URO and PED segments by taking
the difference between an estimated pre-shortage baseline and the actual sales data
for a given post-shortage month.48 After making necessary adjustments, such as for
the post-shortage launch of a new competitor drug, Dr. Meyer then multiplies this
difference by the actual average selling price per unit for that year.49 Finally, she
45
Meyer Report at 0026–47.
46
See generally id. at 0002–04 (laying out the general structure of Dr. Meyer’s expert report).
47
Id. at 0047–61, 0081–92, 0105–09.
48
Id. at 0047, 0059, 0081, 0091.
49
Where the data manipulations employed are identical for URO and PED, I cite only to the URO
section of Dr. Meyer’s report discussing those calculations. See, e.g., id. at 0054 (discussing this
calculation for the URO segment). For 2022 calculations, Dr. Meyer used AbbVie’s internal price
projections. Id.
10
incorporates the incremental costs AbbVie would have incurred in selling those
units.50 This results in a dollar figure representing AbbVie’s estimate of its lost
profits due to lost sales in that segment through October 2022.51
AbbVie’s estimate of future URO damages aims to quantify the difference
between (a) the profits AbbVie would have earned from October 2022 through 2031
had there been no shortage and (b) the reduced profits it expects to earn in the real
world during that same period.52 The URO model incorporates sales and pricing
projections from the expert report of Edward Buthusiem with data on that market
segment’s expected growth rate, yielding a dollar estimate of damages.53 Dr. Meyer
then discounts this figure to its present value using AbbVie’s weighted-average cost
of capital (“WACC”).54
AbbVie projects that the impact of the shortage on future PED profits will
have concluded in June 2023.55 Per AbbVie, the shortage provided a timely boost
to a new market entrant, Fensolvi, allowing that drug to capture a larger market share
than it otherwise would have.56 Dr. Meyer therefore begins calculating future
damages by taking the difference between Lupron’s pre-shortage PED market share,
50
Id. at 0056 (describing the incorporation of cost for URO).
51
Id. at 0058–59; see Meyer Supplement (bringing past damages data up to date through October
2022).
52
See JX 5381 at 0042 (“Buthusiem Supplement”); Meyer Report 0059–61.
53
Meyer Report at 0060.
54
Id. at 0060–61.
55
Id. at 0091–92.
56
Id. at 0084–88.
11
adjusted downward to account for competition from Fensolvi but not the shortage-
induced boost, and Lupron’s post-shortage market share projected forward.57 These
lost sales figures are then combined with sales price projections, as well as estimated
costs, before being discounted to the present value.58
b. Estimation of GYN Damages
AbbVie seeks only past damages for the GYN segment.59 Because Lupron
sales in the GYN market vary considerably from month to month, Dr. Meyer
employs a three-month rolling average to smooth this volatility.60 She then uses this
smoothed data as a baseline against which to compare the post-shortage data, finding
that AbbVie lost sales through October 2021.61 Dr. Meyer then uses AbbVie’s
pricing and incremental cost data to convert those lost sales into a dollar figure
damages amount.62
c. Incidental Damages
The final piece of AbbVie’s damages estimate involves two additional
categories of past damages not specifically associated with one of the three major
Lupron applications. The first category involves additional testing fees that AbbVie
incurred to ensure that certain shipments of Lupron received from the troubled
57
Id.
58
Id. at 0091–92.
59
Id. at 0092–93.
60
Id. at 0105–06.
61
Id. at 0106–08.
62
Id. at 0108–09.
12
manufacturing plant were safe for distribution.63 AbbVie also claims to have
incurred penalties from the federal government due to pricing penalties resulting
from the shortage.64
d. Takeda’s Critiques
Though Takeda’s economic expert, Dr. Michal Malkiewicz, adopts Dr.
Meyer’s methodology in his own damages estimate,65 Takeda contends that this does
not constitute an endorsement and that “Takeda has conceded nothing with respect
to the cause or amount of AbbVie’s alleged lost profits.”66 Despite this explicit lack
of concession, Takeda’s arguments focus on the model’s inputs and assumptions,
leaving the overarching methodology untouched.67 I find that the damages model
employed by the parties is capable of producing a reliable, non-speculative
estimation of damages. Accordingly, I adopt it.68
I address Takeda’s critiques of various model inputs below.
C. Damages Calculation
Having found Dr. Meyer’s damages calculation methodology fundamentally
reliable, I turn now to the principal source of the parties’ disputes: the model’s
63
Id. at 0110.
64
Id. at 0110–13.
65
See generally JX 5453 (the “Malkiewicz Report”).
66
Takeda PTAB at 16.
67
See Takeda PTOB at 40–78; Takeda PTAB at 6–51.
68
For the avoidance of doubt, the Court also adopts the numerous inputs and assumptions
underlying this model. To the extent a given input or assumption is not addressed in this opinion,
it is because I find it reasonable.
13
inputs. Below, I carefully assess each dispute, finding most of AbbVie’s proposed
inputs reasonable, with a key exception.
In the following brief paragraphs, I present an overview of the disputes
between the parties before beginning a more detailed analysis. Finally, having
adopted AbbVie’s fundamental damages model and resolved the disputes as to
inputs and application, I conclude by asking the parties to apply these rulings by
computing the appropriate damages figure.
I begin with an analysis of the appropriate discount rate, finding it more
sensible to apply AbbVie’s overall WACC, as calculated by the market, than the
company’s internal “hurdle rate.” Turning to the URO market segment, I find
AbbVie’s proposed 22-month benchmark credible in light of Lupron’s stable market
share pre-shortage. I further find that AbbVie’s estimated growth rate for the URO
market is reasonable in light of both the actual data and competitors’ projections.
While AbbVie has shown its 2022 pricing update succeeded in stabilizing Lupron
URO’s falling prices, the company fails to establish that the update will allow it to
steeply increase prices through 2031 without losing sales as it contends.
The only adjustment I make to AbbVie’s PED damages estimate is the
removal of a disputed period of volatility immediately preceding the shortage. I find
AbbVie’s estimate of GYN damages reasonable and decline to make Takeda’s
requested adjustments. Turning to AbbVie’s claims for incidental damages, I find
14
that it is entitled to some, but not all, of the damages it seeks. Finally, I find that,
because Takeda’s arguments on AbbVie’s failure to mitigate or establish causation
are unpersuasive, AbbVie is entitled to expectation damages as well as
accompanying pre- and post-judgment interest.
My reasoning follows.
1. Discount Rate
Generally, a discount rate consists of a component representing the time value
of money as well as a premium representing the risks associated with that specific
investment.69 Here, the risk premium represents the uncertainty associated with
AbbVie’s ability to achieve its projected profits.70 As touched on briefly in Section
II.2.A, the discount rate is used in the parties’ damages models to discount estimates
of future damages to their present value. A higher number will, all else equal, result
in a correspondingly lower present value.
Both parties’ experts use AbbVie’s WACC as their discount rate, reflecting
the average cost the company must pay its investors for their capital.71 They differ
in the source (and size) of the WACC. AbbVie proposes that the Court use the
company’s enterprise-level WACC of 6.6%, as calculated by Bloomberg.72 In
69
Jonathan Berk & Peter DeMarzo, Corporate Finance: The Core 241–42 (pages numbered
sequentially based on PDF) (5th ed. 2020) (“Berk & DeMarzo”).
70
See, e.g., Malkiewicz Report at 0050.
71
Berk & DeMarzo at 731.
72
AbbVie PTOB at 77–78.
15
contrast, Takeda argues that the Court should apply the 8.0% WACC AbbVie uses
as its “hurdle rate,” given that this is the figure AbbVie uses internally to calculate
the net present value of potential future investments.73 Per Takeda’s expert,
[The] [h]urdle rate is a minimum rate that a company expects to earn
from its investment project. Thus, in order to be accepted, the estimated
project’s rate of return should exceed the company’s hurdle rate.
Hurdle rate is also used as a discount rate to calculate the net present
value of investment. Hurdle rate can be adjusted up or down by a
company to reflect relevant risks of the specific investment project.
Therefore, it is a better measure of the discount rate for a specific
project (the Lupron franchise) that incorporates all relevant risks.74
This assessment draws a tenuous conclusion from a correct, if incomplete, overview
of its technical underpinnings. A company uses its internal hurdle rate as a
benchmark against which to assess which projects it should prioritize given limited
time and funds.75 While a hurdle rate can be “adjusted up or down by a company to
reflect relevant risks of the specific investment project[,]” that is not the case where,
as here, a company uses a single company-wide hurdle rate that is only adjusted
periodically.76 Instead, a company may opt to adjust its hurdle rate upwards for
various reasons unrelated to a given project’s risk,77 including a prioritization of the
most profitable projects in a research and development intensive industry.
73
Takeda PTOB at 56–58; Malkiewicz Report at 0050.
74
Malkiewicz Report at 0050 n.174.
75
TT (Meyer) 754:2–14.
76
Id. at 839:11–841:13; JX 5357 160:25–164:18.
77
TT (Meyer) 754:2–14.
16
I find that the evidence in the record supports a conclusion that the risks
associated with AbbVie’s Lupron profits through 2031 align more closely with the
company’s risk as a whole. I further find credible Dr. Meyer’s testimony that
AbbVie’s proposed discount rate of 6.6% may overstate the risk for a mature drug
like Lupron, given that Bloomberg’s estimate of the company-wide WACC includes
the risk of nascent drugs in development.78 Combined with my determination, infra,
that Lupron enjoyed a steady market share prior to the shortage, I conclude that
AbbVie has carried its burden in showing that its proposed discount rate of 6.6% is
an appropriate approximation.
2. URO – Past Damages
Takeda’s principal dispute with AbbVie’s estimate of past URO damages is
the length of the benchmark period used to calculate Lupron’s baseline market
share.79 As discussed above, this baseline is used to calculate the resulting post-
shortage drop in sales for a given month. Here, Dr. Meyer’s benchmark period runs
from October 2018 through July 2020,80 resulting in a stable baseline market share
of 64.3%.81
78
Id. at 752:20–754:1.
79
Takeda PTOB at 60–63.
80
Meyer Report at 0048.
81
Id. at 0051.
17
While Takeda faults this benchmark for excluding nearly two years of data,82
AbbVie presents compelling evidence in favor of the shorter period. AbbVie argues
that “the oldest available data contains a subtle downward trend that is not present
in later data.”83 Per AbbVie, that downward trend was replaced by the current
stability.84 As supporting evidence, AbbVie points to pre-shortage internal
documents, as well as testimony.85 Indeed, the stable baseline AbbVie projects is
robust to adjustments of the benchmark period by up to one year (i.e., as short as 10
months or as long as 34 months).86
Takeda argues that this “‘robustness analysis’ was outcome driven” and
obscures “Lupron’s historically declining market-share due to growing
competition.”87 Takeda bases this argument on select pieces of testimony from
AbbVie employees and vague contentions that Dr. Meyer’s exclusion of the oldest
data was unjustified.88 It has no real answer to the argument, borne out in the data,
82
Takeda PTOB at 60.
83
AbbVie PTOB at 54 (citing TT (Meyer) 725:15–21).
84
Id. at 54–56.
85
JX 448; TT (Lidtke) 137:2–16.
86
TT (Meyer) 718:3–16, 717:22–718:2.
87
Takeda PTAB at 32–33
88
Id. I find credible Dr. Meyer’s testimony that her model was not impacted by the anomalous
pre-shortage drop in Zoladex’s market share. TT (Meyer) 847:8–848:7. As a result, I decline
Takeda’s invitation to make an unspecified downward adjustment to AbbVie’s estimated Lupron
benchmark. See Takeda PTOB at 62–63; Takeda PTAB at 32 n.11.
18
that Lupron URO’s market share had reached a stable equilibrium prior to the
shortage.89
Accordingly, I find that AbbVie has carried its burden in showing that Lupron
URO enjoyed a stable market share prior to the shortage and that a 22-month
benchmark is appropriate.
3. URO – Future Damages
Turning to future URO damages, two disputed inputs remain before me: the
market growth rate and AbbVie’s “universal update” pricing changes.90
a. URO Market Growth Rate
AbbVie assumes an approximately 2.9% annual growth rate through 2030 for
the relevant androgyn deprivation treatment (“ADT”) market segment.91 This figure
is drawn from AbbVie’s January 2020 Long-Range Plan92 and is purportedly
89
See Takeda PTAB at 31–33 (fielding only conclusory accusations that Dr. Meyer erred by
excluding the “stale” data).
90
Takeda contends that there is a third dispute: the impact of 2022 market entrants in the form of
Camcevi and Lutrate, which it argues AbbVie’s model fails to account for. Takeda PTOB at 63–
64. This argument is too little, too late. Though Takeda argues that it “can illustrate AbbVie’s
mistakes without bearing the burden of soundly modeling their impact[,]” Takeda PTAB at 17,
Takeda cannot credibly argue the materiality of these competitors or their impact on AbbVie’s
model without some quantifiable evidence, which was not presented at trial. Perhaps realizing
this, on the eve of post-trial argument, Takeda filed a motion to supplement the trial record, which
included amended models purporting to estimate impact of the new URO competitors. Defs.’ Mot.
to Suppl. the Trial R., Dkt. No. 419. Finding that the proposed supplement contained improper
expert opinions, I granted AbbVie’s motion to strike. Pl.’s Opp’n to Mot. to Suppl. the Trial R.
and Cross-Mot. to Strike, Dkt. No. 427; Letter Op., Dkt. No. 438. Because Takeda’s arguments
here do not find sufficient support in the current record, such that they can move beyond mere
speculation, I need not address them further.
91
Buthusiem Supplement at 0046, Fig. 22. AbbVie assumes a growth rate of 1.9% for the target
market for 2031, the final year of the future damages period at issue here. Id.
92
Id.
19
consistent with the United Nations’ growth projections for ADT’s primary target
demographic.93 Takeda argues for a growth rate of 1.75% per year citing a 2019
GlobalData report on the ADT market,94 further informed by expert testimony.95
AbbVie contends that the GlobalData report Takeda relies on is stale and has
not been borne out by IQVIA’s96 ADT market data since 2019.97 Indeed, outside of
the shortage’s impact in 2020, GlobalData’s estimate underpredicts the actual data,
as reported by IQVIA, by at least 2% for each year from 2018 to 2022.98 While
Takeda attacks AbbVie’s use of United Nations’ demographic data, which includes
women, as an inappropriate proxy for the growth of the overwhelmingly male ADT
market,99 the data in question is merely one of a handful of sources AbbVie uses to
validate its estimate.100 Takeda declines to directly address the shortcomings of the
GlobalData report.101 Accordingly, I find that, absent credible evidence of an
impending drop in demand for ADT, AbbVie’s estimated growth rate of 2.9% is
both consistent with recent data and reasonably conservative.
93
Id.
94
Malkiewicz Report at 0102.
95
Takeda PTOB at 58–60.
96
IQVIA is a third-party, industry-standard data clearinghouse. AbbVie PTOB at 8.
97
AbbVie PTOB at 65–69.
98
JX 5592 at 0046; see AbbVie PTOB at 67.
99
Takeda PTAB at 33–36.
100
TT (Buthusiem) 453:16–456:1; JX 5592 at 0013–16.
101
See Takeda PTOB at 58–60; Takeda PTAB at 33–36.
20
Takeda draws upon the opinion testimony of its expert medical oncologist,
Dr. Marc Garnick, to argue “that the standard of care is shifting, and the relative use
of ADT will decrease.”102 This impending decrease, per Takeda, merits a downward
adjustment of the ADT market segment’s future growth.103 I found Dr. Garnick to
be an inspirational and persuasive witness in his discussion of the future of treatment
for prostate cancer. However, I find that Dr. Garnick’s opinion testimony does not
justify the adjustment Takeda seeks. Dr. Garnick, in both his expert report and trial
testimony, discussed recent “leading-edge” advances in the identification and
treatment of prostate cancer, concluding that ADT’s “usage will diminish[.]”104
However, Dr. Garnick’s report offers very little explanation of when this change will
occur and how fast it will take place.105 Thus, I find that, even if I agree with Dr.
Garnick’s ultimate conclusion that ADT usage will eventually diminish, Takeda has
not marshalled evidence showing that this diminution will occur by 2031, such that
a significant downward adjustment of AbbVie’s otherwise reasonable estimated
growth rate for the ADT market is merited.
102
Takeda PTOB at 59–60.
103
Takeda PTAB at 33–36.
104
TT (Garnick) 591:2–23; see JX 5382 (“Garnick Report”) at 0056.
105
See, e.g., Garnick Report 0056–59 (stating overall conclusions, with only one of nine providing
any sort of timeline).
21
b. Universal Pricing Update
The parties’ next dispute centers on the impact of AbbVie’s 2022 rollout of a
new pricing structure impacting many of its Lupron URO sales channels. This
update aims to increase the average sale price (“ASP”) of future units of Lupron sold
in the URO market, which would, obviously, increase the money damages arising
out of lost sales per unit. This raises two issues: (1) whether the pricing update was
a litigation-driven strategy and (2) whether AbbVie’s estimates of post-update ASP
are credible.
Takeda argues that “AbbVie’s claim that this radical change to Lupron pricing
was conducted in the ordinary course of business is suspect” because AbbVie had
been aware of Lupron URO’s declining profitability since at least 2015.106 This, per
Takeda, merits scrutiny of AbbVie’s mid-litigation implementation of the
strategy.107 AbbVie retained Boston Consulting Group (“BCG”) in October 2019 to
evaluate its Lupron URO business.108 BCG delivered its recommendations the
following spring.109 Per AbbVie, supply issues had already begun at that point and
the company could not implement the recommendations until supply stabilized.110
Takeda contends that the shortage did not start until August 2020, months after the
106
Takeda PTOB at 65. Notably, Takeda does not actually argue that AbbVie would not have
implemented a pricing update absent the shortage.
107
Takeda PTAB at 37–41.
108
TT (Lidtke) 139:22–140:21, 144:19–145:8.
109
Id. at 151:12–16.
110
Id. at 151:17–152:11.
22
recommendations were delivered.111 However, the record shows that both parties
were aware of problems at the Hikari plant by spring of 2019.112 Accordingly, I find
AbbVie’s justifications for its delayed implementation of BCG’s recommendations
credible and that Takeda’s contentions to the contrary lack sufficient supporting
evidence.
AbbVie projects that the pricing update will reverse a decade of declining
ASP in the URO segment. Mr. Buthusiem projects that the overall ASP will increase
in each subsequent year, starting from a low of $141 in 2022 and reaching $177—
or roughly 2015 levels—by 2031.113 In order to rectify declining profitability in the
indirect sales channel, purportedly borne out of an inconsistent patchwork of
discounts and elevated wholesaler fees,114 AbbVie moved its indirect contracted
customers from fixed price contracts to pricing based on Lupron’s wholesale
acquisition cost (“AC”).115 Under this new formula, the uniform ASP for the indirect
channel would be equal to the AC minus 91.75%, less a 2.05% returns and service
fee.116 AbbVie further plans to increase AC by 4.9% each year through 2031.117
111
Takeda PTAB at 38.
112
See, e.g., Takeda PTOB at 18–19 (discussing AbbVie’s May 2019 audit of the Hikari plant).
113
JX 5585 at 0030.
114
Buthusiem Supplement at 0059–61.
115
Id. at 0061–64. Wholesale acquisition cost refers to the price a drug company offers its
medication to a wholesaler. This figure is not for a single dose of the drug. For instance, Lupron’s
2022 wholesale acquisition cost is $1,854. Id. at 61.
116
Id. at 0065.
117
Id.
23
Because the channel subject to this pricing scheme accounts for 27.1% of AbbVie’s
URO sales, these changes are a major driver of the overall rebound in ASP that
AbbVie projects.118
Takeda argues that AbbVie’s projections lack support in both basic economic
principles and reality. AbbVie’s projections assume that the negative repercussions
of its 4.9% annual price increases will be limited to a one-time drop in sales volume
of 15% in the channel impacted by the pricing update.119 This figure of 15% is
based, it would appear, on a single email between AbbVie employees, rather than
any economic analysis that has been explained in this case.120 Nor does AbbVie
explain how Lupron would maintain both increasing prices and a stable market share
in the face of competition from both Eligard and new market entrants. Instead,
AbbVie argues that evidence of the pricing update’s initial success justifies the
Court’s adoption of Mr. Buthusiem’s ASP projections.121 Evidence that AbbVie’s
pricing update has not caused customer demand to drop is probative of the
company’s ability to stem price erosion in the indirect channel.122 It does not, to my
mind, justify AbbVie’s argument that Lupron will maintain its market share despite
compounding 4.9% price hikes every year through 2031. In short, customers’
118
See id. at 0067, Fig. 44 (breaking out the various components of ASP).
119
Id. at 0069; TT (Matthew Williams) 210:9–22; TT (Buthusiem) 524:23–528:13.
120
Buthusiem Supplement at 0069; TT (Meyer) 773:14–774:4.
121
AbbVie PTOB at 59–61.
122
See id. at 59–60 (arguing that a post-update increase in indirect channel sales volume proves
the pricing update successful).
24
tolerance for an indirect channel price of $114.95 in 2022, absent more, does not
prove that they would maintain their purchasing habits in the face of a price of
$176.80 in 2031.123
Accordingly, I find that, while AbbVie has shown that the pricing update
stabilized the dropping price of Lupron in the indirect channel, it nonetheless fails
to carry its burden of showing that the ambitious price increases it has planned will
not have a negative impact on customer demand. Combined with my finding, infra,
that Lupron URO’s market share was stable with AbbVie’s showing that a stabilized
price has not resulted in customer flight, I therefore find it reasonable that AbbVie
will maintain its 2022 pricing in the indirect channel through 2031.124
4. PED – Past Damages
Moving next to the pediatrics market for Lupron, the parties disagree over two
aspects of the benchmark: the extent to which a volatile period from April to August
2020 should be included and the appropriate adjustment for a new competitor drug,
Fensolvi.
123
See Buthusiem Report at 0065, Fig. 42.
124
Id. For the avoidance of doubt, the figure I reference is equal to $114.95. I decline to alter
other components of the overall ASP pricing model because Takeda has not presented sufficient
evidence that AbbVie will diverge from its pricing strategy.
25
a. The Appropriate Benchmark Period
Takeda accuses AbbVie of inflating the benchmark by including data from
April 2020, “in which Lupron market-share was anomalously high.”125 Though
AbbVie acknowledges that April 2020 saw a “spike in market share,” it contends
that both this spike and a subsequent “‘valley’ of lower-than-usual market share” are
related to the drop, and subsequent recovery, in market share of a surgically-
implanted competitor at the beginning of the COVID-19 pandemic.126 Per AbbVie,
by removing the spike and keeping the valley, Takeda “cherry-pick[s]” its data.127
Takeda responds by pointing out that AbbVie’s drop-and-recovery theory lacks
evidentiary support and is further undermined by the fact that the valley “extends
months beyond” the parties’ benchmark period.128 What Takeda fails to mention is
that the mid-point of this extended valley also coincides with the start of backorders
in August 2020, further confounding the analysis.129
I find that, during the period from April to August 2020, the PED market
experienced a variety of disruptions that contributed to market share volatility,
including both the pandemic and early impacts of the shortage.130 Neither party’s
125
Takeda PTOB at 70.
126
AbbVie PTAB at 30.
127
AbbVie PTOB at 73.
128
Takeda PTAB at 42.
129
See Meyer Supplement at 0024 (graphing market share in the PED segment).
130
TT (Meyer) 736:19–737:2 (acknowledging that some of the “valley” may be due to early
impacts of shortages).
26
explanation convinces me that the additional market share information contained in
these datapoints outweighs the noise they bring to the benchmark estimate.
Accordingly, I find that the parties should exclude from the benchmark period all
data from April 2020 onward.
b. The Impact of Fensolvi
The parties further dispute how Lupron PED’s but-for market share should be
adjusted to account for Fensolvi, a competing drug that was launched in June
2020.131 AbbVie takes the position that, because Fensolvi “was launched
contemporaneous with the peak of the [Lupron PED] shortage[,]”132 it received a
competitive boost that allowed it to achieve a larger market share than it otherwise
would have.133 AbbVie therefore models two but-for market share scenarios: one in
which Fensolvi enjoyed no boost from the Lupron shortage, and a second in which
the shortage caused Fensolvi to take some of Lupron’s market share.134 In order to
isolate what piece of Fensolvi’s market share is attributable to the shortage-induced
boost, AbbVie’s economic expert estimates the boost enjoyed by a third, established,
competing PED drug, Triptodur.135 She does so by comparing Triptodur’s post-
shortage market share to a pre-shortage baseline, finding a boost of approximately
131
See Meyer Report at 0084 (discussing the launch of Fensolvi).
132
Id.
133
AbbVie PTOB at 36.
134
Meyer Report at 0085, 0186–87, Exs. 37A–B.
135
Id. at 0085–86.
27
62%.136 She then applies this and other adjustments to Fensolvi’s market share to
determine what portion of this share would have gone to Lupron in a but-for world,
resulting in an overall upward adjustment of Lupron’s but-for market share
compared with the “no boost” scenario.137
Takeda disputes two of the assumptions underlying this analysis: Triptodur’s
suitability as a proxy and the degree to which Fensolvi’s growth can be attributed to
the shortage.138 In justifying her choice of Triptodur as a proxy, Dr. Meyer points
out that, other than Fensolvi and Lupron, the main drugs on the market are Triptodur
and Supprelin.139 While Supprelin requires a surgical implant,140 both Fensolvi and
Triptodur are injectables that come in a six-month dose.141 Additionally, Triptodur,
which launched in October 2017, has a similar market share to Fensolvi.142 Despite
these similarities, Takeda argues that Triptodur is an inappropriate proxy because
(1) Fensolvi’s injection is subcutaneous, rather than intramuscular, and (2) Triptodur
is made by Tolmar, the producer of Eligard, which, per Takeda, makes it “a more
potent threat to Lupron-PED than Triptodur.”143 Takeda’s implied argument is that
136
Id. at 0086.
137
Id. at 0086–88. For an illustration, compare id. at 0186, Ex. 37A with id. at 0187, Ex. 37B.
138
Takeda PTOB at 71–74.
139
TT (Meyer) 730:1–23.
140
Pl.’s Pre-Trial Br. (“AbbVie Pre-Trial Br.”) 50, Dkt. No. 405; Takeda PTOB at 70–71.
141
TT (Meyer) 730:4–15.
142
See Meyer Report at 0180, Ex. 35 (showing comparative market shares of Lupron, Supprelin,
Triptodur, and Fensolvi).
143
Takeda PTOB at 72–73.
28
I should decline any proxy estimation as overly speculative because it is based on a
good but not perfect comparison. I disagree. Because I find Triptodur to be a
reliable proxy for the purposes of calculating Fensolvi’s market share boost, I adopt
it.
Takeda’s second quarrel with Dr. Meyer’s treatment of Fensolvi is that her
projections fall within AbbVie’s own pre-shortage predictions of Fensolvi’s market
share.144 Per Takeda, this undermines AbbVie’s contention that AbbVie lost market
share to Fensolvi due to the shortage.145 However, while AbbVie’s internal
projections are helpful, they are not dispositive.146 Here, I find credible the
testimony by AbbVie’s Vice President of Endocrinology, Metabolics, and Women’s
Health that AbbVie will routinely “project ambitiously on behalf of” new
competitors for planning purposes, only to “make the correction backwards once the
actuals come in.”147 I therefore find that AbbVie’s pre-shortage predictions do not
fatally undermine the argument that Lupron PED lost market share to Fensolvi as a
result of the shortage.
Finally, Takeda argues that Fensolvi’s capture of market share is at least partly
attributable to a COVID-driven preference for longer-acting PED formulations.148
144
Id. at 73.
145
Id.
146
Indeed, Takeda itself argues as much on numerous occasions. See, e.g., id. at 2, 9 n.12, 38–42
(arguing at times that AbbVie’s internal projections are untrustworthy, overly rosy, etc.).
147
TT (Medgar Williams) 5:16–22, 115:2–22.
148
Takeda PTOB at 73–74.
29
Lupron, as the dosage with the shortest duration, would be on the losing end of this
preference.149 However, other than testimony from Dr. Meyer acknowledging this
trend and stating that she accounted for it in her model,150 Defendants can point to
no evidence in the record supporting an alternative adjustment.151 I therefore decline
to diverge from my finding that Dr. Meyer’s adjustments for Fensolvi were
appropriate.
5. PED – Future Damages
AbbVie claims future damages in this segment through June 2023, which it
calculates as the difference between the but-for baseline and Lupron PED’s post-
shortage market share, projected forward.152 AbbVie’s expert opines that the real-
world data from December 2021 to October 2022 exhibits no linear trend, suggesting
that Lupron’s share of the PED market post-shortage has flattened.153
Takeda’s remaining argument boils down to a contention that, by ignoring
favorable data on new patient/therapy starts (“NTS”), AbbVie’s expert
underestimates Lupron’s recovery of market share.154 Per Takeda, NTS data
indicating that 70% of new PED patients are going to Lupron confirms Takeda’s
149
Id.
150
TT (Meyer) 804:7–806:5.
151
See Takeda PTOB at 73–74 (citing only to Meyer’s testimony); see also Takeda PTAB at 41
(citing the same).
152
Meyer Report at 0091–92. Though June 2023 came and passed prior to the publication of this
opinion, the record that I rely upon was closed far earlier, necessitating projections.
153
TT (Meyer) 741:5–742:9; AbbVie PTOB at 74.
154
Takeda PTOB at 74.
30
higher projections of actual market share.155 However, Takeda’s argument ignores
the fact that NTS data, which is limited to prescriptions at retail pharmacies,
undercounts Supprelin, Lupron’s surgically-implanted competitor, by almost two
thirds and excludes Triptodur entirely.156 I therefore find that the NTS data does not
undermine AbbVie’s evidence that a steady post-shortage PED market share is
reasonable.157
6. GYN
Takeda contends that AbbVie’s calculation of past damages in the GYN
segment is flawed because it (1) uses an incorrect endpoint and (2) ignores
“cannibalization” of Lupron GYN market share by competing AbbVie drugs.158
Using three-month rolling averages to smooth the extreme volatility of monthly
Lupron GYN sales, AbbVie’s economic expert bases her past damages endpoint on
an assessment of when average sales returned to or exceeded benchmark levels.159
The use of trailing averages, by design, carries a risk of overestimating the length of
the shortage.160 This is because a given month’s average combines the data from
155
Id. at 75.
156
TT (Medgar Williams) 49:4–52:6.
157
Takeda also argues that AbbVie’s theory of a stable post-shortage Lupron PED market share
of 50.3% is belied by a single month in which that market share reached 52%. Takeda PTOB at
74–75 (citing Meyer Supplement at 0028). This argument ignores both the historical volatility of
PED market shares and the basic math of averages.
158
Id. at 75.
159
Meyer Report at 0106.
160
Malkiewicz Report at 0067.
31
that month as well as the two previous months, giving more weight to the past than
the present.161 This weighting could therefore cause the impact of the shortage to
appear to persist a month or two after it had, in fact, ended. However, I find that,
given the volatility of the monthly sales data, this methodology is the best available
to provide the Court with a reasonable, non-speculative endpoint for past damages
calculation.
Without challenging the propriety of Dr. Meyer’s rolling average
methodology, Takeda argues that only “actual monthly data” can reveal the
appropriate endpoint for the past damages period.162 Per Takeda, the damages period
should end in January 2021 because its economic expert “performed a regression
analysis on monthly sales, which shows no significant differences between” the
benchmark period and post-January 2021 damages period.163 But the fact that “it’s
really hard to ascertain trends in noisy data” is precisely why AbbVie’s expert
employed rolling averages,164 a methodological decision that Takeda’s expert voiced
no quibbles with.165 Other than a more favorable result (to Takeda), Takeda presents
no argument for why the trends its expert now pulls from this noisy data allay these
161
Id.
162
Takeda PTOB at 75–76.
163
Id. at 76.
164
TT (Meyer) 747:3–11.
165
See Malkiewicz Report at 0064–68 (expressing no critiques of the rolling average methodology
other than the potential to overestimate shortage length).
32
concerns or are reliable.166 Further, Takeda declines to respond to AbbVie’s
argument that Takeda’s expert ends the past damages calculation in the middle of
ongoing instances of Lupron GYN customer orders exceeding available
inventory.167 Accordingly, I find that Takeda has presented no evidence to impugn
the reliability of AbbVie’s calculation of the Lupron GYN damages endpoint.
Takeda next argues that AbbVie overstates its Lupron GYN damages by
ignoring market share cannibalization from two competing AbbVie drugs: Orilissa
and Oriahnn.168 Most of Takeda’s evidence indicates that these are possible
alternatives to Lupron.169 Takeda’s sole piece of evidence that these drugs actually
eroded Lupron’s market share comes from Mr. Buthusiem’s rebuttal report of March
15, 2021, in which he acknowledges that “[i]t appears that Orilissa did erode a
portion of Lupron sales.”170 What Takeda declines to address is that, consistent with
AbbVie’s position that there has been no substitution post-shortage,171 Mr.
Buthusiem concluded that Orilissa’s market share growth and, presumably, any
cannibalization occurred “prior to the July 2020 shortage[.]”172 Takeda’s
cannibalization argument therefore is not persuasive.
166
Id. at 0067–68; Takeda PTOB at 76.
167
TT (Malkiewicz) 914:16–917:17; see Takeda PTAB at 44–45 (failing to address the stockout
argument raised in AbbVie’s opening brief).
168
Takeda PTOB at 75–77.
169
JX 2225 at 0016; JX 2449 36:21–37:16, 42:1–14, 23:19–24:3, 69:5–23; JX5455 at 0002.
170
Takeda PTOB at 76–77 (quoting JX 2522 at 0024).
171
Meyer Report at 0095–96.
172
JX 2522 at 0025 (emphasis added).
33
7. Incidental Damages
In addition to the lost profits analyzed above, AbbVie also claims damages
arising from additional testing costs and pricing penalties necessitated by the
shortage.173 I find that, while AbbVie fails to carry its burden of proof with regard
to the testing costs, it may recover damages for the pricing penalties incurred as a
result of Takeda’s breach.
Pre-trial, AbbVie argued that it was owed $1.3 million for testing costs it
incurred after it “told the FDA it would perform additional oversight and testing on
each lot of Lupron coming from [Takeda’s production facility at] Hikari.”174 Post-
trial, AbbVie is curiously vague when it comes to specifics.175 Dr. Meyer’s expert
report notes that $1,187,289 of this testing cost “is the amount that AbbVie paid
Takeda for the Lupron products that were tested.”176 However, AbbVie cites no
evidence indicating that the testing was destructive, or that this cost was not
173
AbbVie PTOB at 40.
174
AbbVie Pre-Trial Br. at 66–67.
175
AbbVie PTOB at 40.
176
Meyer Report at 0110.
34
otherwise recouped.177 AbbVie therefore fails to carry its burden with regard to these
purported costs.178
AbbVie claims that it suffered an additional $4,341,604 in incidental damages
as a result of “penny pricing” penalties triggered by the shortage.179 The following
is a simplified version of the causal chain alleged: Under the Veterans Healthcare
Act (the “VHA”), AbbVie sells Lupron to federal agencies, at a discount, through
wholesalers.180 Also pursuant to the VHA, AbbVie must report an annual Non-
Federal Average Manufacturer’s Price (“non-FAMP”) to the government based on
a subset of Lupron sales.181 The VHA imposes a pricing penalty if the year-on-year
increase in non-FAMP exceeds the consumer price index.182
Due to the shortage, Lupron sales in the third quarter of 2020 were
depressed.183 However, chargebacks,184 which typically lag sales data by a month
177
See id. at 0110 (describing Dr. Meyer’s understanding only that the figure represents what
AbbVie paid); JX 5146 144:13–145:5 (confirming only that testing took place); AbbVie Pre-Trial
Br. at 66–67 (citing only to the previous two sources); AbbVie PTOB at 40 (citing only to JX
5146); AbbVie PTAB at 36 (citing only to Meyer Report at 0110).
178
AbbVie’s claim to the remaining $140,887 also fails as speculative. Even Dr. Meyer admitted
that she could not identify what the cost corresponds to. See Meyer Report at 0110 (admitting that
some or all of the figure may represent an allocation of overhead at AbbVie’s testing facility).
179
AbbVie PTOB at 40; Meyer Report at 0110–13.
180
Meyer Report at 0110.
181
Id. at 0110–11.
182
Id. at 0111–12.
183
See, e.g., Fig. 1, infra.
184
Per AbbVie, a chargeback is “[a] cost issued by a wholesaler to AbbVie, which AbbVie pays,
for Lupron units sold by that wholesaler. The amount is equal to the difference between [wholesale
acquisition cost] and the contracted price paid to the wholesaler by the end customer.” AbbVie
Pre-Trial Br., Table of Definitions.
35
or two,185 continued to roll in. This artificially deflated the 2020 non-FAMP.186 One
year later, Lupron sales had begun to recover, causing a pronounced rise between
the 2020 and 2021 non-FAMP.187 This triggered discounts under the VHA, which
caused the Federal Ceiling Price, which is calculated as a 24% discount to a drug’s
previous year’s non-FAMP,188 to turn negative in 2022,189 allowing federal agencies
to purchase certain Lupron formulations at a price of one penny per syringe. 190 Dr.
Meyer calculates the economic loss due to these additional discounts by assuming
that the discounts AbbVie would have provided to these agencies, but for the
shortage-induced pricing, would have been the same as they were in 2020.191
Though AbbVie explicitly raises this category of damages in both its pre- and
post-trial briefing,192 Takeda’s declines to address the issue directly,193 waiving the
argument.194 Thus, the only question is whether AbbVie has carried its burden with
regard to the penalty pricing damages. I find that it has, and that Dr. Meyer’s
185
JX 5329 at 261:3–264:3.
186
Meyer Report at 0111.
187
Id. at 0111–12 n.310.
188
Id. at 0112 n.311.
189
Id. at 0112 n.312.
190
Id. at 0112.
191
Id. at 0112–13.
192
AbbVie Pre-Trial Br. at 67–68; AbbVie PTOB at 40.
193
See Def. Takeda Pharm. Co. Ltd.’s Pre-Trial Br., Dkt. No. 406 (making no mention of incidental
damages); Takeda PTOB at 77 (addressing only the $1.3 million in testing costs); Takeda PTAB
at 51 (mentioning penalty costs only in the context of rejecting AbbVie’s argument that Takeda’s
expert had conceded the point).
194
Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived”) (citations omitted).
36
calculation provides the Court with a reasonable estimate of the quantum of
damages.195
D. Causation, Mitigation
1. Causation
It is indisputable that AbbVie suffered lasting damages as a result of the
Lupron shortage. The impact of the shortage is perhaps best demonstrated
graphically:
Figure 1: U.S. ADT Market Share, Q1 2017 to Q1 2022196
195
I find that AbbVie has proven both the fact of damages, as well as causation, by a preponderance
of the evidence.
196
Meyer Report at 0145.
37
The shortage sent Lupron URO’s market share crashing down, with limited recovery
even a year later. As discussed above, AbbVie also suffered damages in the PED
and GYN markets.
While Takeda acknowledges that AbbVie suffered some damages as a result
of the shortage,197 it argues that AbbVie simply assumes causation and thus fails to
“sufficiently isolate damages caused by the breach alone[.]”198 Per Takeda, this
alleged failure to show causation means that “‘no damages may be awarded.’”199
Because Takeda’s position on causation largely repackages arguments that I
addressed in Section II.C,200 I limit my analysis here to the non-duplicative
contentions.
Takeda’s principal argument on causation is that AbbVie failed to account for
customers that, for reasons unrelated to the shortage, switched away from Lupron
during the damages period.201 As evidence, Takeda points to a survey in which its
economic expert reached out to the “physicians, pharmacists, practice managers, and
purchasing/procurement managers, who were affiliated or employed with an
197
See, e.g., Takeda PTAB at 6–7 (acknowledging, albeit impliedly, that the shortage caused some
of AbbVie’s losses).
198
Id. at 6.
199
Id. (quoting Deville Ct. Apts, L.P. v. Fed. Home Loan Mortg. Corp., 39 F. Supp. 2d 428, 433
(D. Del. 1999)).
200
Compare Takeda PTOB at 21–22 with Takeda PTOB at 60–63 (offering the same arguments
about Lupron URO’s declining market share).
201
Id. at 22–27.
38
institution” that AbbVie reported had stopped or decreased Lupron purchases
because of the shortage.202 Takeda pays particular attention to three former Lupron
customers—Mayo Clinic, Huntington Internal Medicine Group, and Urologic
Specialists of Oklahoma—that reported in the survey that they switched away for
reasons unrelated to the shortage.203 Per Takeda, the inclusion of these accounts in
the damages calculation “is unjustified, and evidence of a much broader error.”204
Takeda, I think, fundamentally misunderstands the underlying damages
methodology used by both parties’ experts. In estimating damages for the URO
segment,205 both experts calculate a baseline market share against which shortage-
induced damages can be assessed.206 Changes to Lupron’s market share in the form
of routine losses and gains of customer accounts are “baked in” to this baseline. For
example, the loss of a customer to Eligard in May 2019 would be reflected in a drop
in Lupron’s market share from that month onward. Similarly, the gain of a customer
in July 2019 would bring with it a corresponding increase in market share, all else
equal. A pervasive pattern of customer losses pre-shortage would present itself as a
202
Malkiewicz Report at 0082 n.305.
203
Takeda PTOB at 24–25.
204
Id.
205
I limit my discussion to URO because that is the segment from which Takeda’s examples are
drawn and that dominates the list of accounts AbbVie claims to have lost. Takeda PTOB at 24;
JX 5087 at 0017–27.
206
See Section II.B.2.a; see also Meyer Report at 0048–49.
39
downward slope in the baseline.207 Thus, absent evidence of confounding trends not
accounted for in the model, AbbVie’s damages methodology adequately
demonstrates causation by isolating the impact of the shortage from the but-for world
conditions incorporated in the market share baseline.
In order to show a lack of causation, Takeda would need to point to more than
anecdotal evidence that specific switches were unrelated to the shortage. Instead,
Takeda must show a pattern of post-shortage customer behavior that deviates from
the pre-shortage behavior reflected in the damages model. For example, if, from
October 2021 onward, price-based switches to Eligard accelerated vis-à-vis the
baseline for reasons unrelated to the shortage, AbbVie would not be entitled to
damages for the loss of sales associated with that new trend. Takeda’s survey-based
causation argument reflects no such trend or pattern absent from the baseline.
Instead, it represents an attempt to argue via anecdote what Takeda has failed to
prove with data.
2. Mitigation
Takeda argues that AbbVie’s damages must be reduced because of its failure
to mitigate the damages resulting from Takeda’s breach.208 Specifically, Takeda
207
In fact, this is precisely the adjustment that Takeda’s economic expert advocated for in response
to alleged price competition from Eligard. Malkiewicz Report at 0047–49. I rejected that
adjustment as based on stale data. See Section II.C.2.
208
Takeda PTOB at 18–21; Takeda PTAB at 46–51.
40
contends that AbbVie knew of the breach in May 2019 and could have mitigated
starting then by (1) exercising its contractual rights to audit Takeda’s manufacturing
process more closely, (2) stockpiling additional Lupron, and (3) not implementing a
plan—“Operation Phoenix”209—that purportedly shifted Lupron supply towards
lower-profit sales channels.210 Even assuming that Takeda is correct as to AbbVie’s
knowledge of the breach in May 2019, Takeda’s arguments fail.
Takeda argues that, because AbbVie had joint responsibility for current good
manufacturing practices violations at the Hikari plant, it could have exercised its
rights to “audit Takeda every two years, inspect documents, attend regulatory
inspections, and put a ‘person in the plant’ to inspect manufacturing.”211 Takeda’s
implied argument, as I understand it, is that it would have complied with these steps,
potentially averting or mitigating the supply shortage. This argument strains
credulity, given that, in June 2019, as Takeda’s manufacturing woes became visible,
Takeda repeatedly downplayed the concerns of AbbVie’s auditor and denied
requests for further information.212 I therefore find that the record does not support
Takeda’s argument that AbbVie could have mitigated via the exercise of its
contractual rights.
209
This was a mitigation effort by AbbVie aimed at maintaining core URO customers in the direct
channel until the shortage passed. Buthusiem Supplement at 0013–20.
210
Takeda PTOB at 18–21.
211
Id. at 20.
212
JX 339; JX 351 at 0002.
41
Takeda next argues that, had AbbVie stockpiled Lupron starting in May 2019,
“[e]very week of additional inventory AbbVie had on-hand would have reduced the
shortage by a week.”213 In addition to benefiting from a healthy dose of hindsight,
this argument ignores the reality that Takeda has no “best efforts” duty when it
comes to fulfilling orders exceeding 120% of previously projected requirements.214
Therefore, even if AbbVie had attempted to increase its orders in the hopes of
creating a stockpile, Takeda would have had little obligation to cooperate.215
Finally, Takeda also turns a blind eye to the fact that AbbVie submits its firm orders
to Takeda five months in advance,216 which means that hypothetical stockpile
shipments ordered in May 2019 would have run into the FDA-ordered hold on
Lupron shipments.217
Finally, Takeda argues that AbbVie’s shortage-response plan, Operation
Phoenix, “drove volume away” from profitable sales channels in order to preserve
supply in other, less profitable, channels.218 This argument attacks AbbVie’s
mitigation attempts merely because they do not comport with what Takeda now
believes would have been the best course of action. Other than labelling Operation
213
Takeda PTAB at 50.
214
JX 1849 at 0063, Section 9.2(b).
215
Given Takeda’s response to AbbVie’s auditor, I conclude that the record does not support a
finding Takeda would have complied with stockpiling efforts, absent some contractual duty.
216
Phase I TT (Laegeler) 14:20–16:16.
217
See AbbVie I at *7–8.
218
Takeda PTOB at 21.
42
Phoenix “a failure[,]” Takeda does not present evidence that the plan was
unreasonable.219 Accordingly, Takeda’s speculative mitigation arguments lack both
legal and factual support.
E. Pre- and Post-Judgment Interest
In its post-trial briefing, AbbVie makes an unopposed request for pre- and
post-judgment interest.220 I find that an award of interest at the legal rate is
appropriate given the facts of the case and that such an award is consistent with
Delaware caselaw.221
III. CONCLUSION
I find that AbbVie’s damages methodology is reliable and appropriate, subject
to the foregoing adjustments. I instruct the parties to submit an adjusted damages
calculation consistent with this decision.
To the extent the foregoing requires an order to take effect, IT IS SO
ORDERED.
219
See id.; Takeda PTAB at 50–51; see also W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza,
LLC, 2009 WL 458779, at *8 (Del. Ch. Feb. 23, 2009) (holding that the injured party need only
make reasonable mitigation efforts, even if they are ultimately unsuccessful).
220
AbbVie PTOB at 83–84; AbbVie PTAB at 38; see Takeda PTAB (failing to contest the issue).
221
See, e.g., Gholl v. eMachines, Inc., 2004 WL 2847865, at *18 (Del. Ch. Nov. 24, 2004)
(explaining the rationale behind an award of interest).
43