Price-Fixing: Steakhouse Dinner, Emails Do Not Show Conspiracy, Generic Firms Contend

Companies argue why 40 US attorneys general have no antitrust case against them in joint and individual motions to dismiss complaint.

Generic manufacturers struck back against an antitrust suit by US state attorneys general, arguing the AGs have no evidence to support their allegations of price-fixing. They specifically rejected claims that industry dinners and email and text messages between company representatives could infer collusion.

The six defendants – Aurobindo Pharma USA Inc., Citron Pharma LLC, Heritage Pharmaceuticals Inc., Mayne Pharma USA, Mylan Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc. – filed a joint motion on May 1 to dismiss the AG's amended complaint and Mylan, Teva, Aurobindo and Mayne also filed individual motions.

Twenty state attorneys general filed suit against the six firms in December. The complaint arose from a probe of generic drug pricing initiated by the Connecticut attorney general's office in July 2014 in the wake of dramatic price increases of several drugs. Twenty more AGs joined the case and they filed an amended complaint on March 1. They asked the court to enjoin the companies from continuing to engage in anticompetitive conduct and award them disgorgement of the companies' ill-gotten gains, damages, and civil penalties.

The litigation is being closely watched by industry as it could have ramifications for drug pricing and the ability of state and federal governments to pursue enforcement actions and impose hefty settlements.

Price-Fixing Case At A Glance

• 40 states filed antitrust complaint; federal Justice Department conducting parallel criminal probe.
• Allegation: Mylan, Heritage and Mayne conspired to elevate prices for generic Doxy DR; and
• Allegation: Heritage, Teva, Citron and Aurobindo conspired to elevate prices for generic Glyburide.
• Potential implications for drug pricing, scope of government authority to pursue enforcement actions

The Department of Justice is conducting a parallel criminal investigation of generic firms. It has subpoenaed them for information on their pricing and communications with payers. In December, the DOJ unsealed criminal charges against two former Heritage executives for fixing prices, allocating customers and rigging bids. (Also see "Generic Price Fixing Probe: First Charges Unsealed, More May Come Before Inauguration Day" - Pink Sheet, 14 Dec, 2016.)

The companies argue in their joint motion that the "bare allegation" that consumers nationwide paid higher prices for the generic pharmaceuticals at issue in the suit, Doxy DR (doxycycline delayed release) and Glyburide, is not enough. They say the AGs offer no factual allegations connecting limited bidding allegations to nationwide price increases supposedly impacting consumers throughout all 40 states.

"To find that defendants' alleged conspiracies caused an anticompetitive effect would require a showing that price increases were passed down uniformly through various entities along the supply chain to end consumers across 40 different states," they state. "Plaintiffs' allegations provide no support for this speculative causal chain."

They also assert that the states and the citizens they purport to represent have no standing to seek monetary recoveries either through monetary damages or disgorgement under the federal antitrust laws.

Phone Call, LinkedIn Connection Does Not Show Conspiracy. . .

The AGs' complaint alleges that Heritage and Mylan executives agreed to allocate market share for Doxy DR and refrain from competing with one another for customers. It says Mylan agreed to "walk away" from at least one large national wholesaler and one large pharmacy chain to allow Heritage to obtain the business and increase its market share.

Mylan asserts in its motion that there are no facts to support this allegation. The compliant also cites communications between Mylan and Heritage on three occasions, including a connection between the two on LinkedIn and a phone call.

"It is impossible to infer a complex conspiracy in which defendants purportedly agreed to allocate market share and refrain from competing for customers from these limited communications," Mylan responds.

Mylan says the conspiracy theory alleged by the states is similar to that in Bell Atlantic Corp. v. Twombly. In a 2007 ruling in that case, the Supreme Court held that a complaint must have sufficient facts to suggest an agreement was made. The AGs "allege no actual facts connecting Mylan to purported conspiracy to allocate customers," Mylan states.

. . . Nor Does Attendance At Dinner

Aurobindo similarly argues in its motion that the amended complaint does not allege any facts "that plausibly suggest Aurobindo actually participated in a conspiracy to manipulate the prices of Glyburide."

The complaint alludes to an email and a text message from a Heritage employee to a Citron employee as support of its claim that Aurobindo reached an agreement with one of the other defendants to raise the price of the drug. But Aurobindo says the complaint is silent as to what Aurobindo agreed to; what price, if any, it agreed to charge; which customer, if any, was overcharged; and who from Aurobindo made the alleged agreement.

The complaint also points to the attendance of high-level executives of generic drug manufacturers at industry dinners. It notes that in January 2014, at least 13 high-ranking executives of various companies met at a steakhouse in Bridgewater, New Jersey. Aurobindo is the only company named as having an executive at the dinner.

"There are no allegations of any business-related discussions at this dinner, including the prices of any generic drugs, generally, or Glyburide, specifically," Aurobindo states. "Aurobindo's participation in the alleged conspiracy cannot be inferred from an executive's attendance at a dinner with more than a dozen executives."

Teva says in its motion that the complaint relies heavily on allegations drawn from emails and text messages and yet does not cite a single Teva email or text message, or any other alleged factual evidence, suggesting it ever agreed to join a price-fixing conspiracy. Teva says the complaint also does not include any specific factual allegation that Teva increased the sales price of Glyburide.

Lilly Joins Insulin Pricing Probe

The actions of the state AGs and DOJ have prompted plaintiffs' firms to file more than 90 antitrust suits against generic drug makers on behalf of third party payers. The complaints allege price fixing of 14 generic drugs. (Also see "Generic Industry Hit With Avalanche Of Price Fixing Suits" - Pink Sheet, 22 Feb, 2017.)

The claims against generic firms come as all companies, generic and brand, are facing government scrutiny for their pricing policies. The DOJ has launched investigations of companies seeking information about their patient assistance programs, contractual agreements with pharmacy benefit managers (PBMs), and support of non-profit organizations. (Also see "Pharma Pricing, Non-Profit Ties Get Increasing Scrutiny From Prosecutors" - Pink Sheet, 14 Sep, 2016.)P

State AGs have also honed in on the rising cost of insulin. In January, the Minnesota Attorney General's office sent civil investigative demands to Novo Nordisk AS and Sanofi requesting information on the pricing of their insulin products. And last year, the two companies received civil investigative demands from the US Attorney's Office for the Southern District of New York for documents relating to their contracts and relationships with PBMs involving these products. (Also see "Insulin Pricing, PBM Relationships Under Government Microscope" - Pink Sheet, 16 Mar, 2017.)

Eli Lilly & Co. is also facing a probe of its insulin pricing. The company noted in its May 1 10-Q Securities and Exchange Commission filing that it received a civil investigative demand from the state of New Mexico's Office of Attorney General relating to the pricing of its insulin products and a civil investigative demand from the AG's Office in Washington state relating to the price of its insulin products and relationships with PBMs.