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In re EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation

United States District Court, D. Kansas

December 21, 2017

IN RE EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation (This Document Applies to the Sanofi Case)


          Daniel D. Crabtree United States District Judge

         On September 14, 2017, the court ordered that this MDL proceed on two separate tracks. Doc. 42. This Order affects just one of those tracks-the Sanofi case.

         Plaintiff Sanofi-Aventis U.S. LLC (“Sanofi”) is a pharmaceutical company who purportedly competes with defendant Mylan, Inc. Sanofi filed a lawsuit against defendants Mylan, Inc. and Mylan Specialty, L.P. (collectively “Mylan”) in the District of New Jersey on April 24, 2017. Sanofi-Aventis U.S. LLC v. Mylan Inc., et al., Case No. 3:17-cv-02763-FLW-TJB (D.N.J. Apr. 24, 2017), ECF 1 (“Sanofi Complaint”). The Sanofi Complaint alleges that Mylan engaged in a variety of anticompetitive conduct designed to prevent Auvi-Q®-a rival product once sold by Sanofi-from gaining access to the epinephrine autoinjector market, and designed to prevent consumers from acquiring Auvi-Q®. Sanofi asserts three claims against Mylan under Section 2 of the Sherman Antitrust Act. These claims assert: (1) monopolization through exclusive dealing; (2) deceptive conduct to further monopolization; and (3) an overall scheme to monopolize. Sanofi brings this action only for itself, and not on behalf of any other plaintiffs or putative class members.

         On August 3, 2017, the Judicial Panel on Multidistrict Litigation transferred the Sanofi case and five others to our court for coordinated and consolidated proceedings. Doc. 1. Before transfer, while the case still was pending in New Jersey, Mylan had filed a Motion to Dismiss the Sanofi Complaint. Doc. 43. The motion seeks dismissal under Federal Rule of Civil Procedure 12(b)(6) for failing to state a claim. Id. After transfer, Sanofi filed in our court its Memorandum in Opposition to the Motion to Dismiss. Doc. 44. And, at the court's Initial Scheduling Conference on September 7, 2017, Sanofi asked the court to place its case on a separate track and decide the pending Motion to Dismiss the Sanofi Complaint. The court granted that request, designating the Sanofi case on a separate track and ordering Mylan to file any Reply to the pending Motion to Dismiss by October 6, 2017. See Doc. 42. Mylan filed its Reply consistent with the court's order. Doc. 57. Thus, the Motion to Dismiss is now fully briefed, and after carefully considering the arguments presented by the parties' filings, the court is prepared to rule. For the reasons explained below, the court grants Mylan's Motion to Dismiss the Sanofi Complaint in part and denies it in part.

         I. Factual Background

         The following facts are taken from the Sanofi Complaint. The court accepts the facts asserted in the Sanofi Complaint as true and views them in the light most favorable to plaintiff. Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013) (citing Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)).

         Anaphylaxis is a serious allergic reaction that has a rapid onset and may cause death. Anaphylaxis can result from allergic reactions to foods, pets, insects, or exposure to other allergens. Epinephrine is the recognized first-line treatment for anaphylaxis. One can administer a controlled dose of epinephrine during an anaphylactic episode using an epinephrine auto-injector (“EAI”) drug device. Doctors thus recommend that patients at risk for anaphylaxis always carry a portable EAI drug device and have training about its use.

         Since 2007, Mylan has marketed and distributed in the United States an EAI drug device known as the EpiPen® The EpiPen® has been the number-one prescribed EAI drug device in the United States for over 25 years. Indeed, in December 2012, Mylan touted that EpiPen® “has been the number one prescribed epinephrine auto-injector for more than 20 years and constitutes more than 99% of the epinephrine auto-injector market.” Sanofi Complaint ¶ 3. And, on August 1, 2013, Mylan reported to investors that the EpiPen® had a “93.3% market share.” Id. ¶ 39.

         An EAI drug device gains access to the market almost entirely through contracts with third-party payors-such as commercial insurance companies, pharmaceutical benefit managers, and state-based Medicaid agencies-because a significant majority of patients with prescription drug insurance coverage receive their benefits through third-party payors. From 2013 to 2015, commercial third-party payors accounted for about 71% of the EAI drug device market in the United States. During this same period, state-based Medicaid plans made up another 16% of the EAI drug market. So, from 2013 to 2015, almost 90% of the EAI drug device market in the United States consisted of commercial third-party payors and Medicaid plans.

         For a competitor to enter and compete vigorously in the EAI drug device market, it is crucial that it have access to these third-party payors' drug formularies. Third-party payors use formularies to govern a drug's coverage. Commercial third-party payors commonly use tiered formularies, placing drugs on different tiers that establish the enrollee patient's co-pay and create incentives for the enrollee to prefer the lowest cost yet clinically effective drug. Most state-based Medicaid plans use a formulary that distinguishes only between drugs that are covered or not covered. If a drug is not covered under a third-party payor's formulary, the patient probably cannot access the product. Historically, third-party payors covered all available EAI drug devices at difference coverage tiers but, typically, they never excluded EAI drug devices from coverage altogether.

         Also, it is common for pharmaceutical companies to provide rebates to third-party payors. In some circumstances, rebates can create a form of price competition that ultimately helps lower prices for end consumers, both for the costs that they pay for prescription drugs and what they pay for health insurance premiums. In some cases, a pharmaceutical company may offer rebates for exclusive coverage on a given third-party payor's drug formulary.

         In 2013, Sanofi launched a competing EAI drug device in the United States known as Auvi-Q®. Auvi-Q®'s creators developed the product for patients who were not satisfied with the EpiPen®'s design and wanted something better. After its launch, Auvi-Q® garnered praise for its smaller size and shape that made it more likely that at-risk children and adults would carry their EAI drug device and have it available to treat anaphylaxis. As a result, Auvi-Q® gained traction quickly in the marketplace in the first few months after its launch.

         Sanofi launched Auvi-Q® at price parity with EpiPen®. One of the reasons Sanofi chose this pricing point was to ensure that patients would have equal access to Auvi-Q® as they had for EpiPen®. Sanofi wanted to avoid giving formularies an incentive to provide preferential treatment to a lower-priced drug. Thus, Sanofi chose to offer Auvi-Q® at a price competitive with EpiPen®. In response to the competitive threat posed by Auvi-Q®, Mylan began erecting artificial barriers to consumers' access to and use of Auvi-Q® in the United States. Mylan did so in several ways.

         First, shortly after Sanofi launched Auvi-Q®, Mylan began to offer large rebates (30% or higher) to third-party payors. But, Mylan expressly conditioned the rebates on exclusivity. That is, Mylan required the third-party payors to exclude Auvi-Q® from the formularies and only offer EpiPen® to their enrollees.[1] Using its monopoly market share and these large rebates, Mylan successfully coerced third-party payors to accept huge rebates in exchange for offering EpiPen®exclusively instead of foregoing those rebates and allowing Auvi-Q® to compete in the market.

         According to Sanofi, Mylan subsidized its large exclusionary rebates by misclassifying the EpiPen® to the federal and state governments. By misclassifying the EpiPen®, Mylan paid substantially less in required rebates for patients covered by Medicaid. And, with those savings, Mylan, in turn, was able to offer the large rebates to third-party payors conditioned on their excluding Auvi-Q®. Mylan also drove up EpiPen®'s price in the years leading up to Sanofi's launch of Auvi-Q®. Since 2007, EpiPen®'s price has increased by more than 500%. According to Sanofi, one purpose for the price increase was to help Mylan absorb the large conditional discounts it offered to third-party payors who excluded Auvi-Q®.

         Sanofi could not match Mylan's large rebates unless it offered rebates in excess of its revenues from Auvi-Q®. That is, Sanofi would lose money on its sales of Auvi-Q® if it tried to compete against EpiPen® in the market. With its rebate program, Mylan successfully blocked Auvi-Q® from accessing almost 50% of the United States EAI drug device market. In some states, where the number of third-party payors who did not cover Auvi-Q® was over-represented, Auvi-Q® was blocked from an even higher percentage of the market.

         Second, Mylan imposed contractual exclusivity provisions in its schools programs. Both Mylan and Sanofi had programs designed to provide free or discounted EAI drug devices to schools. But, unlike Sanofi, Mylan required schools taking part in its discounted EpiPen®program to certify in writing that the school would not purchase any products that compete with the EpiPen® within the next year. According to Sanofi, Mylan's contractual exclusivity term had one purpose: to prevent schools from having access to Auvi-Q®. Mylan later eliminated its school programs' exclusivity policy after the New York Attorney General and other legal commentators questioned whether it violated the antitrust laws.

         Third, after the Auvi-Q® launch, Mylan started offering consumers $0 co-pay coupons for the EpiPen®. Sanofi also offered $0 co-pay coupons for Auvi-Q®. But, because of Mylan's rebate offers to third-party payors, most of Auvi-Q®'s coverage-even when it was on the same drug formulary with the EpiPen®-was at a less preferential tier. This typically meant the co-pay for an EpiPen® was $25 and the co-pay for Auvi-Q® was $50 to $75. As a result, Sanofi was forced to absorb two to three times the cost Mylan absorbed when offering the $0 co-pay to consumers. In this way, Mylan drove up Sanofi's costs to cover patients' co-pays.

         Finally, Mylan created and spread misinformation about Auvi-Q® and its bioequivalence to EpiPen®, even though the United States Food & Drug Administration had determined that the epinephrine used in Auvi-Q® was bioequivalent to the EpiPen®'s epinephrine. Mylan also marketed physicians, contending that Auvi-Q® was not covered under third-party payors' formularies and suggesting that the decision to exclude Auvi-Q® from the formularies was based on clinical recommendation-and not Mylan's huge, conditional rebate offers.

         In the first six months after Sanofi launched Auvi-Q®, Sanofi's market shares tracked its projected market shares. And, Auvi-Q®'s market share was poised to continue to grow. But, as a result of Mylan's conduct, Auvi-Q®'s market share decreased dramatically. By the end of 2013 and into 2014, Auvi-Q®'s market share was about half of its projected market share. And, by October 2015, Auvi-Q®'s national market share was less than half of what Sanofi had projected. But, in Canada, Auvi-Q® (known there as Allerject®) had a stronger performance, even though EpiPen® similarly dominated the Canadian EAI drug device market before Sanofi had launched the Allerject® there. In Canada, provincial authorities control drug formularies, the Allerject® was treated at parity with the EpiPen®, and the two devices were equally available for physicians to prescribe to consumers. By the end of 2013-its first year on the Canadian market-Allerject® exceeded its projections, growing to 21% market share. In 2014 and 2015, Allerject® continued to gain market share. It reached 25% market share by the end of 2014, and it peaked at 32% market share in 2015.

         In October 2015, Sanofi undertook a voluntary recall of Auvi-Q® following reports of manufacturing issues with some devices. Sanofi never relaunched Auvi-Q®. Instead, in February 2016, Sanofi returned the rights in the drug to kaléo, inc. Sanofi asserts, though, that Mylan's conduct contributed to Sanofi's decision to forego its investment in Auvi-Q® and return its rights to kaléo, inc. Sanofi also alleges that Mylan's conduct cost it hundreds of millions of dollars in lost sales within the United States EAI drug device market.

         II. Legal Standard

         Fed. R. Civ. P. 8(a)(2) provides that a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although this Rule “does not require ‘detailed factual allegations, '” it demands more than “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action'” which, as the Supreme Court explained, “will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court must assume that the factual allegations in the complaint are true. Id. (citing Twombly, 550 U.S. at 555). But, the court is “‘not bound to accept as true a legal conclusion couched as a factual allegation.'” Id. (quoting Twombly, 550 U.S. at 555). “‘Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice'” to state a claim for relief. Bixler v. Foster, 596 F.3d 751, 756 (10th Cir. 2010) (quoting Iqbal, 556 U.S. at 678). Also, the complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citations omitted).

         For a complaint to survive a motion to dismiss under Rule 12(b)(6), the pleading “must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Iqbal, 556 U.S. at 679 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556); see also Christy Sports, LLC v. Deer Valley Resort Co., Ltd., 555 F.3d 1188, 1192 (10th Cir. 2009) (“The question is whether, if the allegations are true, it is plausible and not merely possible that the plaintiff is entitled to relief under the relevant law.” (citation omitted)).

         In the antitrust context, the Supreme Court observed in Twombly that “proceeding to antitrust discovery can be expensive.” Twombly, 550 U.S. at 558 (applying the plausibility pleading standard to Sherman Act claims). So, courts must “‘insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.'” Id. (quoting Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 528 n.17 (1983)). But, still, antitrust cases are not subject to a standard requiring “heightened fact pleading of specifics.” Id. at 570. Instead, an antitrust Complaint must allege “only enough facts to state a claim to relief that is plausible on its face” sufficient to “nudge[ ] the[ ] claims across the line from conceivable to plausible.” Id.; see also In re Urethane Antitrust Litig., 663 F.Supp.2d 1067, 1074 (D. Kan. 2009) (explaining on a Rule 12(b)(6) motion to dismiss antitrust claims that “the Court must ensure that plaintiffs have alleged facts to support those elements sufficient to provide the ‘heft' to show an entitlement to relief and to ‘nudge' plaintiffs' claims over the line from mere[ ] possibility or speculation to plausibility” (quoting Twombly, 550 U.S. at 557, 570)).

         The court's analysis, below, applies this governing standard to Mylan's Rule 12(b)(6) dismissal arguments.

         III. Analysis

         Mylan asserts that Sanofi's three claims under Section 2 of the Sherman Antitrust Act fail to state plausible claims for relief. “Section 2 of the Sherman Act prohibits actions by ‘person[s] who shall monopolize, [or] attempt to monopolize . . . any part of the trade or commerce.'” Cohlmia v. St. John Med. Ctr., 693 F.3d 1269, 1280 (10th Cir. 2012) (quoting 15 U.S.C. § 2). To state a claim under Section 2, a plaintiff must plead facts that, if true, make two elements plausible. They are: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

         Mylan's papers never assert that Sanofi has failed to allege the first element of a Sherman § 2 claim-i.e., monopoly power in the relevant market. Indeed, the Sanofi Complaint alleges that the relevant product market is EAI drug devices, that this market has high barriers to entry, and that Mylan has monopoly power in that market with a share market exceeding 90%. Sanofi Complaint ¶¶ 39, 116, 123, 126-34. So, Sanofi has alleged facts sufficient to establish that Mylan possessed monopoly power in the relevant market, thus satisfying the first element of its Sherman § 2 claims.

         Instead, Mylan asserts that Sanofi has not satisfied the second element of a Sherman § 2 claim. Specifically, Mylan argues that the Complaint fails to allege facts sufficient to make a plausible showing of Mylan's willful acquisition or maintenance of its monopoly power. Mylan thus asks the court to dismiss the Sanofi Complaint under Federal Rule of Civil Procedure 12(b)(6) for failing to state a claim. Mylan asserts five principal arguments in support of its request. The court addresses each argument, in turn, in subsections A through E, below.

         A. Does the Sanofi Complaint State a Claim for Unlawful Exclusive Dealing Based on Mylan's Rebate Offers?

         First, Mylan contends that the Sanofi Complaint fails to state a plausible Sherman Act claim based on Mylan's rebate offers. Mylan asserts two arguments to support its contention. First, Mylan contends that Sanofi's exclusive dealing claim fails as a matter of law because the Complaint never alleges that Mylan's rebates priced the EpiPen® below its costs to produce it. Second, Mylan argues that the Noerr-Pennington doctrine bars Sanofi's exclusive dealing claim to the extent Sanofi bases it on discounts or rebates offered to state or state agencies. The court addresses each argument separately. As explained below, the court finds Mylan's first argument unpersuasive. But the court agrees with Mylan's second argument.

         1. The Sanofi Complaint alleges facts about Mylan's rebate offers to non-governmental third-party payors that plausibly state a claim for exclusive ...

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