In re: EpiPen Direct Purchaser Litigation

Background

Rochester Drug Co-Operative, Inc. and Dakota Drug, Inc. are drug wholesalers that sued Mylan Inc. and Mylan Specialty L.P., the manufacturers of the EpiPen, along with pharmacy benefit manager defendants. The plaintiffs alleged that Mylan paid increased rebates and other fees to the pharmacy benefit managers in exchange for maintaining the EpiPen’s preferred formulary status, excluding or restricting competing epinephrine auto-injectors, and abandoning efforts to restrain EpiPen price increases. They alleged that the scheme violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and that Mylan unlawfully maintained monopoly power in violation of section 2 of the Sherman Antitrust Act.

The plaintiffs alleged that the EpiPen’s list price increased from below $240 at the end of 2012 to $609 by May 2016. Because some payments to pharmacy benefit managers were calculated as a percentage of the EpiPen’s list price, the complaint alleged that higher prices increased the payments received by those defendants. The wholesalers alleged that they were injured because they directly purchased EpiPens from Mylan at artificially inflated prices.

Motions to Dismiss and Timeliness

The defendants filed separate motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court accepted the complaint’s factual allegations as true for purposes of the motions and considered whether the claims were plausible.

The court declined to dismiss the RICO claims as untimely. Although the complaint alleged that the scheme began by 2012 or 2013, the court concluded that the allegations did not establish at the pleading stage when the plaintiffs reasonably could have discovered their injury. The court stated that discovery might show that the RICO claims were untimely, but dismissal at that point would be premature.

The court reached a different conclusion about the initial timing of the Sherman Act claim, observing that the complaint indicated that at least the first alleged antitrust injury occurred more than four years before the lawsuit. The court nevertheless declined to dismiss the antitrust claims in their entirety because the plaintiffs plausibly alleged a continuing violation, including later price increases and purchases within the limitations period. The court also noted that the plaintiffs had not adequately pleaded reasonable diligence for tolling based on fraudulent concealment, but that issue did not require dismissal of the entire antitrust claim.

RICO Claims

The court concluded that the plaintiffs plausibly alleged RICO enterprises consisting of Mylan and each of three pharmacy benefit manager groups: Mylan-CVS Caremark, Mylan-Express Scripts, and Mylan-OptumRx. The alleged enterprises had a common purpose because Mylan allegedly benefited from higher prices while the pharmacy benefit managers allegedly benefited from payments tied to those prices. The complaint also alleged enough legitimate business relationships and services to support an ascertainable structure separate from the alleged racketeering activity.

The court further found that the plaintiffs plausibly alleged that the defendants participated in operating the alleged enterprises. The alleged bribes and coordinated conduct went beyond ordinary commercial dealings, because the complaint alleged that Mylan paid to induce the pharmacy benefit managers to favor the EpiPen and stop policing Mylan’s price increases.

The court found plausible several categories of alleged RICO predicate acts, meaning the unlawful acts that form the basis of a RICO claim. These included alleged violations of state bribery laws, the federal Travel Act based on alleged violations of the federal Anti-Kickback Statute, mail fraud, wire fraud, and honest-services fraud. The court held that the Anti-Kickback Statute theory was sufficiently plausible at this stage, even though the Anti-Kickback Statute itself is not listed as a RICO predicate and does not provide a private right of action. The court treated statutory and regulatory safe harbors as affirmative defenses that generally should not be resolved on a motion to dismiss unless apparent from the complaint.

The court also found that the plaintiffs plausibly alleged that pharmacy benefit managers owed fiduciary duties to at least some clients under the Employee Retirement Income Security Act and that a fiduciary relationship with non-Employee Retirement Income Security Act clients was plausible under Minnesota law. The alleged duties were relevant to the state bribery and honest-services fraud theories.

The court rejected the defendants’ arguments that the plaintiffs lacked an injury or that their injury was too indirect. The plaintiffs alleged that they directly bought EpiPens at inflated prices. The court concluded that the alleged price increases were not entirely separate from the alleged RICO conduct because the complaint described the price increases as a way to fund and carry out the payment scheme.

Corporate Parent Defendants

The court granted the pharmacy benefit managers’ motion as to CVS Health Corporation, Express Scripts Holding Company, United Health Group Incorporated, United Healthcare Services Inc., Optum Inc., and OptumRx Holdings, LLC. The claims against those six corporate parent defendants were dismissed with prejudice. The court found that the parents’ general public statements about lowering costs and protecting clients’ interests did not sufficiently connect them to the alleged EpiPen pricing scheme or otherwise provide a plausible basis for RICO liability.

RICO Conspiracy

The defendants argued that the RICO conspiracy claim failed because the underlying RICO claim failed. Because the court found that the plaintiffs had stated an underlying RICO claim, it also found, for purposes of the motions, that they had stated a RICO conspiracy claim.

Sherman Act Claim

The court found that the plaintiffs plausibly alleged a relevant product market consisting of epinephrine auto-injectors. It also found plausible the allegation that the plaintiffs paid higher prices because Mylan’s conduct prevented competing products from gaining a fair opportunity to compete.

The court rejected Mylan’s argument that the complaint failed to allege anticompetitive conduct. The plaintiffs’ theory was not merely that Mylan offered ordinary rebates for formulary placement. They alleged that Mylan paid pharmacy benefit managers to abandon their role in restraining prices and to exclude competing products after new competitors entered the market. The court concluded that these allegations plausibly described bribery aimed at suppressing competition and maintaining monopoly power.

Disposition

The PBM Defendants’ motion to dismiss was granted in part and denied in part. It was granted as to the six corporate parent defendants listed above, and the claims against them were dismissed with prejudice. In all other respects, the PBM Defendants’ motion was denied. The Mylan Defendants’ motion to dismiss was denied.