Antitrust Law Daily FTC, state claims of scheme to maintain monopoly for toxoplasmosis drug proceed
Wednesday, August 19, 2020

FTC, state claims of scheme to maintain monopoly for toxoplasmosis drug proceed

By Jeffrey May, J.D.

Vyera Pharmaceuticals, LLC and company founder Martin Shkreli, who is serving a seven-year sentence for securities fraud, unsuccessfully questioned antitrust theories of a "generic-blocking strategy" and agency’s authority under FTC Act, Sec. 13(b).

The FTC and eight states can move forward with antitrust claims against biopharmaceutical company Vyera Pharmaceuticals, its parent company, and former executives for engaging in a purported scheme to block lower-cost generic drug competition to Daraprim, a drug used to treat the potentially fatal infection toxoplasmosis. The federal district court in New York City denied the defendants’ motion to dismiss, with the exception of a claim brought under Pennsylvania’s unfair trade practices law (FTC v. Vyera Pharmaceuticals, LLC, August 18, 2020, Cote, D.).

Enforcement action. The FTC and New York attorney general in January 2020 filed a complaint in the federal district court in New York City alleging that Vyera Pharmaceuticals, LLC, together with its parent company, Phoenixus, AG, and two of the companies’ former executives, Martin Shkreli and Kevin Mulleady, engaged in an anticompetitive scheme to block lower-cost generic drug competition to Daraprim and thereby preserve a monopoly for the toxoplasmosis treatment. Other states later joined the suit in an amended complaint. According to the enforcers, the unlawful scheme enabled the defendants to raise the price of Daraprim from $17.50 per tablet to $750 per tablet overnight, even though Daraprim had long ago lost its patent protection.

To effect the alleged scheme, Vyera entered into three categories of challenged contractual agreements: (1) restricted distribution agreements to prevent generic drug manufacturers from obtaining sufficient quantities of Daraprim to conduct bioequivalence testing; (2) exclusive supply contracts with manufacturers of pyrimethamine (Daraprim’s active pharmaceutical ingredient) to preclude others from obtaining access to an Food and Drug Administration-approved pyrimethamine manufacturer; and (3) data-blocking agreements pursuant to which Vyera paid two of its distributors a fee in exchange for their agreement not to sell their sales data to aggregators of market data in an effort to prevent competitors from assessing the market size and opportunity for competing with Vyera in its distribution of Daraprim.

Section 13(b) authority. At the outset, the court rejected the defendants’ argument that, because the alleged violation of law was not ongoing, the FTC lacked authority under § 13(b) of the FTC Act to bring the federal lawsuit. The agency sufficiently alleged that the individual defendants, as well as Vyera, were still engaged in the challenged conduct as of the date that the agency filed the lawsuit. In the court’s view, the defendants "overread" a 2019 Third Circuit decision, FTC v. Shire ViroPharma, Inc., 917 F.3d 147, that held that the FTC lacked authority under Sec. 13(b) where the misconduct had ended, and the FTC did not assert that the defendant was "currently" violating the law.

Sherman Act, Section 1 theory. To support a Sherman Act, Section 1 theory, the FTC plausibly alleged that Vyera orchestrated a conspiracy with its suppliers and distributors with the purpose of blocking competitors from entering the market for pyrimethamine products, thereby maintaining the inflated price of Daraprim. In addition to describing the contractual terms, the amended complaint recited conversations with co-conspirators acknowledging Vyera’s purpose to block competition by generic drug manufacturers, the court pointed out.

The agency adequately alleged that the restrictive distribution system, the exclusive supply contracts, and the data-blocking agreements were unreasonable restraints of trade that adversely affect competition in the relevant market. According to the complaint, multiple manufacturers of generic pharmaceuticals that wished to compete with Vyera were delayed for years in FDA approval because of their inability to obtain Daraprim for bioequivalence testing and the active pharmaceutical ingredient from an FDA-approved manufacturer.

The court rejected the defendants’ arguments that the Section 1 claim did not adequately allege that Vyera’s distributors and pyrimethamine suppliers shared Vyera’s anticompetitive goal for purposes of finding a conspiracy and that it did not allege an adverse effect on competition. Potential competitors were apparently delayed as they sought FDA approval for a generic competitor to Daraprim because access to FDA-approved manufacturers of pyrimethamine was allegedly blocked by Vyera, it was noted.

Sherman Act, Section 2 theory. The same allegations that adequately stated the Section 1 claim supported a Section 2 claim. Thus, the plaintiffs adequately alleged that the defendants willfully engaged in anticompetitive conduct to maintain that monopoly. In response to the defendants’ contention that they had no duty to transact business with a competitor, the court simply said that the defendants were alleged to have blocked competitors from accessing Daraprim, which was by regulation necessary for potential competitors to enter the market, for the purpose of maintaining their monopoly.

As for the individual defendants, Shkreli and Mulleady, their performance of the activities described in the amended complaint as corporate officers and agents was sufficient to subject them to liability for antitrust violations, according to the court.

State law claims. California, Illinois, North Carolina, Ohio, Pennsylvania, and Virginia joined as plaintiffs in April. The amended complaint alleged that anticompetitive contracts, agreements, and/or arrangements are in violation of the California Business and Professions Code, the Illinois Antitrust Act, the North Carolina Unfair or Deceptive Practices Act, the Ohio Revised Code, Pennsylvania Unfair Trade Practices and Consumer Protection Law, and the Virginia Antitrust Act.

The court granted the defendants’ motion to dismiss the claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The amended complaint did not adequately allege that the anticompetitive conduct it described was "fraudulent," "deceptive," or likely to create "confusion" or "misunderstanding" to support that claim. Challenges to other state law claims were rejected.

The case is No. 1:20-cv-00706-DLC.

Attorneys: Markus H. Meier for the FTC. Letitia James, Office of the New York Attorney General, for State of New York. Michael D. Battaglia, Office of the Attorney General of California, for State of California. David Yost, Office of the Ohio Attorney General, for State of Ohio. Josh Shapiro, Pennsylvania Office of Attorney General, for Commonwealth of Pennsylvania. Richard S. Schultz, Office of the Attorney General of Illinois, for State of Illinois. Joshua H. Stein, North Carolina Dept. of Justice, for State of North Carolina. Mark R. Herring, Office of the Attorney General of Virginia, for Commonwealth of Virginia. Stacey Anne Mahoney, Sarah E. Hsu Wilbur, Steven A. Reed, Francis A. DeSimone, and Noah J. Kaufman (Morgan, Lewis & Bockius LLP) for Vyera Pharmaceuticals, LLC and Phoenixus AG. Christopher H. Casey and A.J. Rudowitz (Duane Morris LLP) and Edward T. Kang and Kandis L. Kovalsky (Kang, Haggerty & Fetbroyt LLC) for Martin Shkreli. Kevin J. Arquit, Albert Shemmy Mishaan, and Kenneth R. David (Kasowitz Benson Torres LLP) for Kevin Mulleady.

Companies: Vyera Pharmaceuticals, LLC; Phoenixus AG

MainStory: TopStory Antitrust FederalTradeCommissionNews StateUnfairTradePractices NewYorkNews GCNNews

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