By Edward L. Puzzo, J.D.
In the consumer class portion of ongoing multi-district litigation against pharmaceutical companies Mylan and Pfizer in connection with the manufacture and marketing of EpiPens, the federal district court in Kansas City, Kansas, refused to dismiss the majority of the antitrust, RICO and consumer protection violation claims. The court found the consumer class' antitrust violation allegations in the form of tying agreements, exclusive dealing arrangements and reverse payment settlements were sufficiently pleaded to survive the motion to dismiss (In re: EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation, August 20, 2018, Crabtree, D.).
EpiPen is a prescription disposable portable auto-injection medical device for use in administering epinephrine to treat anaphylaxis, a life-threatening allergic reaction that can occur rapidly after exposure to an allergen. Since untreated anaphylaxis can result in death within as little as 30 minutes, patients prone to anaphylaxis are advised to carry an epinephrine auto-injector (EAI), such as EpiPen, at all times.
In this aspect of the ongoing multi-district litigation, a consolidated putative class of individual consumers and third-party payor purchasers of EpiPens (the consumer track cases) asserted federal and state antitrust claims, federal RICO Act violations, and various state consumer protection law violations against EpiPen manufacturer Pfizer (Pfizer, Inc., King Pharmaceuticals, Inc., and Meridian Medical Technologies, Inc.) and exclusive EpiPen marketer Mylan (Mylan N.V., Mylan Specialty L.P., Mylan Pharmaceuticals, Inc.).
EpiPen has been the number one prescribed auto-injector for more than 25 years. Since 2009, EpiPen's share of the EAI market has been as much as 100 percent and not less than 80 percent. Annual sales in 2015 reached $1 billion. While the cost of epinephrine has remained stable, Mylan has increased the price of an EpiPen by more than 600 percent since 2007.
The consumers' complaint alleges that Mylan and Pfizer have maintained a monopoly over the EpiPen market and its profitable revenues by devising an illegal scheme to monopolize the market for EAI devices utilizing the following methods: (1) by paying Pharmacy Benefit Managers (PBMs)—third-party administrators (i.e. Express Scripts and CVS Caremark) of prescription drug programs for various health insurance plans—in order to exclude competition; (2) by foreclosing competition in an EAI submarket—American public schools—by supplying schools' EAI devices for free or at a discount on the condition the school enter into exclusive dealing contracts; (3) by working together, using patent litigation and the Food and Drug Administration (FDA) regulatory process, to erect barriers to market entry and delay EAI competition; (4) by working together to stop generic competition to the EpiPen by filing patent infringement lawsuits against three generic EpiPen rivals—Sandoz, Teva, and Intelliject—and then entering into anticompetitive settlements with the impending generic manufacturers; (5) by using the FDA Citizen Petition process to further delay generic manufacturer Teva’s entry into the EAI market; (6) by discontinuing the sale of single packs of EpiPens in favor of medically-unnecessary double packs—even though the EpiPen expires annually and the vast majority of EpiPens expire before they can be used—in order to increase Mylan's sales and profits; and (7) by spreading false and misleading information about their scheme to monopolize the EAI market, including falsely claiming that the epinephrine in the Auvi-Q competing EAI device was not bioequivalent to the epinephrine in the EpiPen, mispresenting their reasons for discontinuing sales of single-pack EpiPens, falsely claiming that 80 percent of consumers with insurance would pay nothing for the EpiPen, and making false statements to Congress misrepresenting Mylan's profits on the sales of EpiPens. Mylan and Pfizer moved to dismiss.
Tying allegations. Mylan challenged the plaintiffs' tying claim based on the sale of the EpiPen 2-Pak, alleging that tying requires the existence of two distinct products, not two identical products. Plaintiffs countered that two different markets existed: one for the primary EAI device, and another for a spare or backup EAI device. The court acknowledged that the class plaintiffs were alleging a tying relationship based on two products that are functionally identical. The parties were not able to cite any tying cases involving identical products with different and distinct uses. However, the court ruled, the class plaintiffs' assertion that two distinct markets exist for primary and backup EAI devices was a plausible factual allegation that was sufficient to survive at the Motion to Dismiss stage.
Exclusive dealing allegations. Mylan challenged plaintiffs' allegations that its exclusive dealing contracts with PBMs and schools were antitrust violations. The court stated that that no legitimate business reason existed for Mylan to offer large rebates to PBMs to exclude Auvi-Q from the formularies other than to exclude Auvi-Q from the market; that the rebates effectively prevented competitors from accessing formularies of Express Scripts and CVS Caremark, the two largest PBMs; and that Mylan's marketing materials asserting that EpiPen was the "preferred" EAI device for 99 percent of patients based on clinical recommendations rather than the rebates were misleading. Thus, plaintiffs' adequately alleged that Mylan’s rebate program involved anticompetitive conduct, beyond pricing alone, that was designed to exclude competition in the EAI drug market, according to the court.
Mylan also asserted that the plaintiffs never alleged that Mylan’s exclusive dealing contracts harmed competition. But the court noted plaintiffs had alleged that Mylan raised the price of EpiPens by 600 percent over 9 years, allowing it to share monopoly profits with PBMs through larger rebates in exchange for exclusionary contracts, which prevented consumers from choosing competing products, These allegations, if true, were capable of supporting a finding or inference of harm to competition, and thus, they stated a plausible antitrust claim, the court ruled.
The court did find that plaintiffs' allegations concerning exclusive dealing based on Mylan’s discounts or rebates to state-based Medicaid agencies was barred by the Noerr- Pennington doctrine, which precluded antitrust liability for this type of conduct, even if the intent was to exclude competition.
Mylan also argued that the plaintiffs never alleged that Mylan’s EpiPen4Schools program foreclosed competitors from a substantial share of the relevant market. The court noted that the complaint alleged that Mylan created a substantial, additional need for EpiPens by adding bulk purchases by school districts to the market for EAI devices, and by opening up the school market, gained access to nursing staff and creating familiarity with the EpiPen among parents. Although these allegations never assert definitively that the EpiPen4Schools program’s exclusionary contracts foreclosed a substantial share of the market, the court declined to conclude at the motion to dismiss stage that these facts fail to plead adequate foreclosure.
Reverse payment settlements. Mylan argued that the class plaintiffs lacked standing to assert their antitrust claims based on the patent litigation settlements with potential competitors. They cited several cases where district courts have dismissed antitrust claims based on reverse payment settlements for lack of causation because, those courts held, the absence of FDA approval had caused the generic’s delay in entering the market—not defendants’ alleged conduct. But here, the court noted, plaintiffs allege that defendants had caused the delay to secure FDA approval, in that defendants’ reverse payment settlements delayed competing products—not only from entering the market but from securing FDA approval. These allegations sufficed to state a claim for relief at the pleading stage, the court ruled.
Although reverse payment settlements—agreements by a brand-name manufacturers and patent holders to compensate a generic manufacturer and alleged patent infringer in exchange for settling patent infringement litigation and thus delaying the generic’s market entry—do not always violate antitrust laws, the court ruled that, based on its examination of the patent litigation settlements with Teva, Intelliject, and Sandoz, the plaintiffs' plausibly asserted that these were unlawful reverse payment settlements.
Conspiracy. Mylan argued that the plaintiffs failed to allege a plausible conspiracy between Mylan and Pfizer under the antitrust laws, and only described "loosely parallel conduct." The complaint alleged that the defendants, because they had a unified interest in protecting their monopoly, executed a fraudulent scheme to obtain and maintain a monopoly in the EAI market by combining and conspiring to assert and prosecute invalid patents to dissuade competitors from entering the EAI market; intervene in regulatory proceedings to delay competitors’ entry in the EAI market; and enter into unlawful "pay-for- delay" settlement agreements with competitors to maintain Mylan’s power. The court ruled that each of the allegations of circumstantial agreement standing alone might not be sufficient to imply agreement, but, taken together, they alleged sufficient "plus factors" to plausibly allow the inference that an actionable agreement existed.
RICO. The plaintiffs alleged that the RICO enterprise was an "association-in-fact enterprise," consisting of the Mylan and Pfizer, as well as least four PBM conspirators formed for the purpose of engaging in a scheme to defraud the public regarding the pricing of the EpiPen, the medical necessity, quality, and characteristics of EpiPens and the EpiPen 2-Pak, and Mylan’s profits and efforts to control the price of the EpiPen.
The defendants argued that the relationship between the Mylan and Pfizer defendants was no more than routine business relationships. But the court stated that accepting that characterization would require the court to draw inferences against the plaintiffs’ allegations, which is not a proper endeavor for the court on a motion to dismiss. Viewing the allegations in a light most favorable to the plaintiffs, as is required, it could plausibly be inferred that the Mylan and Pfizer defendants formed relationships sufficient to satisfy the pleading requirements for a RICO enterprise.
The defendants further argued that plaintiffs’ allegations about PBMs failed to allege adequately their participation in a RICO enterprise. The court noted that the allegations were that the PBM conspirators exerted substantial control over the EpiPen pricing enterprise by actions such as misrepresenting and concealing the existence, amount, and purpose of the EpiPen discounts; misrepresenting and concealing the true nature of the relationship and agreements between the enterprise’s members as well as its effect on the pricing of the EpiPen; and, ensuring that the other RICO defendants and members of the EpiPen pricing enterprise concealed the fraudulent scheme. The court ruled that these allegations that the PBMs formed relationships with defendants that were sufficient to plead a plausible RICO enterprise.
The court ruled that the allegations were sufficient to plead that the defendants conduced or participated, directly or indirectly, in the conduct of the enterprise’s affairs through a pattern of racketeering activity; that a pattern of racketeering activity existed; that defendants’ pattern of racketeering activity had injured the class plaintiffs in their business or property; that plaintiffs had standing because defendants’ RICO violations proximately caused their injuries; that defendants engaged in a pattern of racketeering activity involving mail and wire fraud; and that a RICO conspiracy existed.
State consumer protection laws. Plaintiffs alleged that defendants entered the unlawful "pay-for-delay" agreements in 2011 and 2012. The defendants argued that these state consumer protection claims were time-barred by state statutes imposed a statute of limitations of four years or less. The plaintiffs responded that under the continuing violation doctrine, their claims accrued—not when defendants entered the alleged "pay-for-delay" settlement agreements—but instead each time they were overcharged for the EpiPen at artificially inflated prices. Construing the allegations in the light most favorable to class plaintiffs, the "pay-for-delay" settlements were not the "final" act of the conspiracy, the court stated. Rather, defendants engaged in new and additional acts each time they charged the allegedly inflated prices for the EpiPen.
Based on the above, the court denied the defendants motion to dismiss except as to specified limited aspects.
The case is No. 2:17-md-02785-DDC-TJJ.
Attorneys: Adam Scott Tolin (Weil, Gotshal & Manges LLP) for Sanofi-Aventis U.S. LLC. Adam K. Levin (Hogan Lovells US LLP) for Mylan N.V. and Mylan Specialty, LP.
Companies: Sanofi-Aventis U.S. LLC; Mylan N.V.; Mylan Specialty, LP
MainStory: TopStory Antitrust RICO StateUnfairTradePractices KansasNews
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