By Nicole D. Prysby, J.D.
Direct and indirect purchasers of the biologic infliximab drug Remicade sufficiently alleged anticompetitive conduct to withstand a motion to dismiss from Johnson & Johnson in an action against the pharmaceutical company for using exclusive agreements and coercive bundled rebates to foreclose competition posed by biosimilar versions of its product. The plaintiffs did not rely on allegations that competitors priced their products lower, but instead on allegations that the pharmaceutical company maintained dominance over the relevant market through its exclusionary contracting scheme. They alleged that the exclusionary terms in the agreements with insurers led to higher prices, which was sufficient to plead antitrust injury. However, sham patent litigation claims against the manufacturer failed because the plaintiffs did not demonstrate that the litigation was meritless. A number of state antitrust and consumer protection claims against the manufacturer also could go forward, although some New York state claims failed (In re Remicade Antitrust Litigation, December 7, 2018, Joyner, J.).
Johnson & Johnson’s Remicade is a biologic drug used to treat conditions such as rheumatoid arthritis, ulcerative colitis, and Crohn’s disease. A biologic is a complex mixture derived from living systems. Because their chemical structure cannot be precisely known, biologics are more difficult to replicate and produce. As a result, knock-offs of biologics that are (1) highly similar to a reference drug already approved by the Food and Drug Administration (FDA) and (2) have no clinically meaningful differences in terms of safety, purity, and potency are referred to as biosimilars, rather than as generics.
The company dominated the biologic infliximab market from the time it developed Remicade in 1999 until Pfizer developed a biosimilar drug called Inflectra, received FDA approval for it, and then launched it in 2016 at prices that were lower than Remicade’s price. At that point, Johnson & Johnson launched a "Biosimilar Readiness Plan" consisting of exclusive contracts, multi-product bundling, and rebate penalties that threatened providers and insurers with significant financial losses for administering or insuring a biosimilar.
Direct and indirect purchasers of Remicade brought an antitrust action against Johnson & Johnson, along with its wholly owned subsidiary, Janssen Biotech, Inc. (collectively, "J&J"). They claimed J&J undertook an anticompetitive scheme, consisting of exclusive agreements and coercive bundled rebates, to foreclose competition posed by biosimilar versions of Remicade, specifically Pfizer’s Inflectra and Merck’s Renflexis. The scheme allegedly caused providers and insurers to pay overcharges for infliximab products that they would not have paid absent J&J’s anticompetitive conduct. J&J motioned to discuss the claims.
Sherman Act antitrust and other federal claims. J&J argued that the plaintiffs failed to sufficiently plead antitrust injury or anticompetitive conduct. The court found that the purchasers sufficiently alleged injury because they offered facts making it plausible that J&J’s Biosimilar Readiness Plan prevented competition in the relevant product market within the relevant geographic and pharmaceutical market. They alleged that the exclusionary terms in J&J’s agreements with insurers led to higher prices, which was sufficient to plead antitrust injury.
As to anticompetitive conduct, J&J alleged that the purchasers had benefitted from rebates and therefore made a free choice to purchase Remicade. But the court rejected that argument, pointing out that it was the coercive threat of losing the rebates that formed the basis for the allegations of anticompetitive conduct. The purchasers also alleged harm to competition by asserting that J&J’s exclusive contracts and rebate bundles made it impossible for competitors like Pfizer’s Inflectra to compete. The probable effect of the Biosimilar Readiness Plan was to substantially lessen competition. The court also rejected J&J’s argument that the direct purchasers were free to purchase competitor products at prices lower than Remicade, because the exclusivity imposed by J&J prevented competitors from entering the market. The court found that the allegations of bundled rebates made it plausible that J&J’s conduct had the effect of foreclosing competition in the infliximab market, resulting in plaintiffs paying supracompetitive prices for infliximab products. Finally, the court rejected J&J’s argument that the plaintiffs failed to allege specific facts showing that biosimilar manufacturers were unable to offer competitive price (rather than simply unwilling to engage in price competition), finding that the issue could not be decided until sufficient discovery is completed.
The Indirect purchasers also alleged that J&J aimed to delay the entry of biosimilars through sham patent litigation and a Citizen’s Petition to the FDA. But the court found that the Indirect Purchasers failed to sufficiently plead that the patent litigation was meritless when filed or that it delayed the entry of competitor biosimilars into the infliximab market. Although J&J lost a patent suit related to antibodies in Remicade, that did not mean the suit was baseless. The court declined to consider J&J’s overall "win-loss" record as evidence of sham litigation, because the plaintiffs only alleged two proceedings against competitors, which was insufficient to show a pattern. Additionally, the court found, the Indirect Purchaser Plaintiffs failed to allege that biosimilar competitors were forestalled from entering the infliximab market. The court also held that the patent fraud allegations lacked the requisite specificity to allow it to draw a reasonable inference that J&J was liable for patent fraud, because they failed to specify the alleged misleading statements or practices. Therefore, the patent-related claims fail.
State antitrust and consumer protection claims. J&J argued that the Indirect Purchaser Plaintiffs had no standing to bring claims in states where they have not yet paid or reimbursed for Remicade. The court rejected that argument, finding that the Indirect Purchaser Plaintiffs have Article III standing to bring their state law claims, because the alleged anticompetitive scheme resulted in overcharges to the plaintiffs, making it plausible that they are threatened with an injury traceable to J&J which can be redressed by the court. Also, the Indirect Purchaser Plaintiffs’ capacity to represent individuals from states other than where Indirect Purchasers reside depends upon obtaining class certification. Because class certification issues are ‘logically antecedent’ to the standing concerns, the court deferred ruling on them until class certification is appropriate.
J&J argued that the Indirect Purchaser Plaintiffs failed to allege a significant nexus to the state, as required by state antitrust laws in the District of Columbia, Mississippi, North Carolina, South Dakota, Tennessee, and West Virginia. The court found the complaint sufficient to survive dismissal in the District of Columbia because it alleged that District of Columbia purchasers paid supracompetitive prices for infliximab. For the same reason, the Mississippi, South Dakota, and West Virginia claims go forward. The North Carolina claims go forward because the plaintiffs alleged that J&J restrained trade by monopolizing the North Carolina infliximab market, resulting in artificially inflated prices creating an effect on North Carolina commerce. The Tennessee claims go forward because the plaintiffs alleged that Remicade is administered in person – suggesting that the anticompetitive conduct had not been completed by the time Remicade was imported to Tennessee. The court also rejected an argument from J&J that the Indirect Purchaser Plaintiffs fail to allege requisite concerted activity under the laws of California, Kansas, New York, and Tennessee.
J&J also moved to dismiss claims that it violated state consumer protection statutes of Arkansas, California, District of Columbia, Florida, Hawaii, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, Rhode Island, Utah, Vermont, and West Virginia. The District of Columbia claims go forward because the allegations involved the ultimate retail customers and because non-profit organizations may bring an action on behalf of members. J&J’s argument that Indirect Purchaser Plaintiffs’ state consumer protection claims are insufficiently pled under the "substantial nexus" requirement of California, New York and North Carolina fails because Plaintiffs allege that Defendants’ exclusionary scheme resulted in Remicade and other infliximab products being sold at artificially inflated prices and caused overcharges in those states. The court rejected J&J’s argument that Indirect Purchaser Plaintiffs fail to state a claim under consumer protection laws of New Mexico and Utah, which require an unconscionable, unfair or deceptive act. Although the allegations fail to establish "deceptive" conduct, they have sufficiently alleged "unconscionable" or "unfair" acts under the consumer protection statutes of New Mexico and Utah. However, the New York consumer protection claims fail because New York’s law requires a plaintiff to allege both a deceptive act or practice directed toward consumers and that such act or practice resulted in actual injury to a plaintiff. The court found that the plaintiffs fulfilled the notice requirements under West Virginia’s consumer protection statute, where they sent notice within three months of filing the lawsuit. The court also rejected an argument that the plaintiffs failed to meet the venue requirements of Arizona’s antitrust and the District of Columbia’s consumer protection statutes; the Arizona statute did not, by its plain language, bar federal jurisdiction, and Congress has not provided that removal to federal court was improper.
The case is No. 2:18-cv-00303-JCJ.
Attorneys: David F. Sorensen (Berger Montague PC) for Rochester Drug Cooperative, Inc. Adeel A. Mangi (Patterson Belknap Webb & Tyler LLP) and Ashley E. Bass (Covington & Burling LLP) for Johnson & Johnson and Janssen Biotech, Inc.
Companies: Rochester Drug Cooperative, Inc.; Johnson & Johnson; Janssen Biotech, Inc.
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