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From Antitrust Law Daily, October 17, 2018

Generic pharmaceutical price-fixing litigation go forward

By Nicole D. Prysby, J.D.

The bulk of Sherman Act claims against generic pharmaceutical manufacturers alleging a price-fixing conspiracy can go forward, held a federal district court in Pennsylvania. The litigation against the manufacturers includes a number of plaintiffs and defendants, as well as allegations relating to dozens of generic drugs. The defendants who produce one group of drugs ("Group 1" drugs) motioned to dismiss the claims, arguing that the plaintiffs failed to sufficiently allege a conspiracy. The court agreed as to a single defendant, but found that for the remaining 20 defendants, the complaints were sufficient. Allegations related to price increases were sufficient because although the price increases were not simultaneous, they were reasonably proximate. The plaintiffs sufficiently alleged "plus factors" to support the suggestion of an agreement among the defendants, including motive and facts implying a traditional conspiracy (e.g., attendance at the same trade organization meetings or other meetings), save one defendant that was not a member of the trade organization. The Sherman Act claims were also bolstered by allegations regarding the existence of multiple state and federal investigations into generic drug pricing (some of which had resulted in guilty pleas). The court rejected an argument from the manufacturers that indirect purchasers had no standing to bring Sherman Act claims, because the indirect purchasers sought only an injunction and not monetary damages (In re: Generic Pharmaceuticals Pricing Antitrust Litigation, June 5, 2018, Rufe, C.).

Background. Several groups of consumers including Direct Purchaser Plaintiffs (DPPs), End-Payer Plaintiffs (EPPs), and Indirect-Reseller Plaintiffs (IRPs), brought Sherman Act claims against pharmaceutical companies, alleging an "overarching conspiracy to ‘minimize if not thwart competition across the generic drug industry’" as to dozens of generic drugs. DPPs include drug purchasing cooperatives and retail pharmacy operators. EPPs include third party payors (employee welfare benefits funds, labor unions, and private insurers) and individual plaintiffs who either allege that they indirectly purchased generic pharmaceuticals manufactured by one or more defendants or that they provided reimbursements for the drugs. IRPs include independent pharmacies that allege they acquire drugs indirectly through drug wholesalers rather than directly from drug manufacturers. The multidistrict litigation expanded over time to include an antitrust enforcement action filed by 40 states (the State Plaintiffs).

Group 1 Plaintiffs alleged that the drugs relevant to their claims underwent a dramatic price increase at some point in time between 2012 and 2014. They contended that the price increases were "the result of an agreement among Defendants," with most alleging there was an agreement "to increase pricing and restrain competition for the sale of [the relevant drug] in the United States." Group 1 Plaintiffs asserted that the Defendants had opportunities to conspire through: (1) representation on trade association boards of directors; (2) trade association membership; (3) attendance at trade association meetings and events; and (4) other industry gatherings. They allege these contacts facilitated "secret, conspiratorial meetings, discussions, and communications [that] helped to ensure that all Defendants agreed to participate in, implement, and maintain an unlawful bid-rigging, price-fixing, and market and customer allocation scheme." Group 1 Plaintiffs’ complaints each cite an ongoing Justice Department criminal investigation regarding certain drug manufacturers’ conduct with respect to generic drugs and allege that an ongoing separate investigation by 45 states has "uncovered a wide-ranging series of conspiracies implicating numerous different generic pharmaceuticals and competitors."

The pharmaceutical manufactures motioned to dismiss the claims brought by the DPPs, EPPs, and IRPs related to the six "Group 1" drugs: (1) clobetasol; (2) digoxin; (3) divalproex ER; (4) doxycycline; (5) econazole; and (6) pravastatin.

Reliance on State Plaintiffs’ allegations. The court first considered whether the Group 1 Plaintiffs can bolster the allegations in their complaints by relying on the overarching conspiracy allegations in the State Plaintiffs’ now-operative complaint, a pleading that was filed after the Group 1 complaints and after Group 1 Defendants filed their motions to dismiss. The court determined that it could not consider the allegations from the State Plaintiffs, because they were mere allegations and because they did not all relate to the same drugs address in the Group 1 complaints (in fact, only one drug overlapped between the Group 1 Plaintiffs drug complaints and the State Plaintiffs complaint).

Group 1 Plaintiffs’ Sherman Act claims. Certain Group 1 Plaintiffs (the doxycycline plaintiffs) alleged that they had stated Sherman Act claims based on direct evidence, citing guilty pleas from pharmaceutical manufacture executives who pleaded guilty to conspiracy concerning "doxycycline hyclate." The court agreed in part. The executives’ company never produced Doxy RR, only Doxy DR. Therefore, there was no direct evidence as to a doxycycline conspiracy for any defendant that only manufactured Doxy RR. As to Doxy DR, the claims could go forward.

The bulk of the claims were based on indirect evidence. The Group 1 Defendants contended that dismissal of Group 1 Plaintiffs’ claims is warranted because they have not pleaded parallel conduct. The court found the allegations related to price increase to be sufficient; plaintiffs are not required to plead simultaneous price increases, just increases that are reasonably proximate. The court also found the pricing data relied on by the Group 1 Plaintiffs (from sources widely used in the industry) to be sufficiently reliable, given that transactional data from the Defendants is not publicly available. The court found that allegations related to "late" defendants who raised their prices months after other defendants were sufficient, because merely being a latecomer to a conspiracy is not a defense. The court also noted allegations that the "late" defendants engaged in parallel conduct—for example, several defendants were out of the market when the prices for a drug sharply increased, but reentered the market at supracompetitive prices.

The court found that the Group 1 Plaintiffs sufficiently alleged "plus factors" to support the suggestions of an agreement among the Defendants. The alleged motive was plausibly based on the general trend of declining generic drug prices. They also plausibly alleged that Group 1 Defendants’ pricing practices would be irrational in a competitive market, because the dramatic price increases were not correlated with changes in demand or manufacturing costs. The Group 1 Plaintiffs also identified facts implying a traditional conspiracy, with one exception. The Group 1 Defendants had opportunities to conspire at trade organization meetings and other industry gatherings and the plaintiff provided dates of meetings and which parties attended. While more specific detail regarding interfirm communications may be required for Group 1 Plaintiffs ultimately to prevail, their allegations regarding defendants’ participation in industry groups and gatherings contribute to a finding that they have plausibly alleged that these Defendants had an opportunity to conspire. The one exception was a defendant (Teligent, manufacturer of econazole) that was not a member of the trade association and for which some of the allegations relied on unnamed representatives. The claims against Teligent were dismissed.

Group 1 Plaintiffs asserted that their Sherman Act claims are also made plausible through their allegations regarding the existence of multiple investigations into generic drug pricing. For example, the guilty pleas resulting from a Justice Department investigation as allegations of evidence implying a traditional conspiracy. The court agreed, finding that in determining whether the claims are plausible it could consider the government investigation and guilty plea allegations. Although the guilty pleas did not relate to the exact same list of drugs listed in Group 1, there was some overlap and the allegations were probative of broadly anticompetitive conduct in the market. Therefore, Group 1 Plaintiffs sufficiently alleged that there is a plausible link between the federal and state investigations, the alleged Doxy DR conspiracy, and Group 1 Defendants’ conduct with respect to the other Group 1 drugs such that they could rely on the investigations and the guilty pleas as plus factors in support of their Sherman Act claims.

Standing issues. The Defendants argued that the Group 1 EPP and IRP federal (and state) antitrust claims should be dismissed because Group 1 EPPs and IRPs only allege that they made indirect purchases of drugs with prices affected by the Defendants’ alleged conduct and thus suffered injuries that are too remote to make them proper plaintiffs. The Defendants based their argument on an assertion that apportionment of damages between DPPs, EPPs, and IRPs would be economically complex. But the court rejected that argument, because EPPs and IRPs sought only injunctive relief and not monetary damages. The Defendants also argued that EPPs and IRPs have not sufficiently alleged a basis for antitrust standing because EPPs and IRPs are far removed from the manufacturers’ pricing decisions, noting numerous links in the chain of distribution between Defendants and EPPs and/or the IRPs. But the court sided with the plaintiffs, finding that EPPs and IRPs contend that they have sufficiently alleged a basis for antitrust standing because they have clearly alleged causation—they pay supracompetitive prices because Defendants conspired to fix the prices of the generic pharmaceuticals for which they paid.

The case is No. 2:16-md-02724-CMR.

Attorneys: Peter D. St. Phillip (Lowey Dannenberg, PC) for Humana Inc. Bonny Sweeney (Hausfeld LLP) for 1199SEIU National Benefit Fund. David F. Sorensen (Berger Montague PC) for Direct Purchaser Plaintiffs PSC. Adam J. Zapala (Cotchett Pitre & McCarthy LLP) for End-Payer Plaintiffs PSC. Anthony Van Vuren (Morgan Lewis & Bockius LLP) for Breckenridge Pharmaceutical, Inc.

Companies: Humana Inc.; 1199SEIU National Benefit Fund; Mutual Pharmaceuticals Co., Inc.; Actavis Holdco US, Inc.; Apotex Corp.; Breckenridge Pharmaceutical, Inc.

MainStory: TopStory Antitrust PennsylvaniaNews

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