City of Rockford v. Mallinckrodt ARD, Inc.
| Decision Date | 25 January 2019 |
| Docket Number | Case No: 17 C 50107 |
| Parties | CITY OF ROCKFORD, et al., Plaintiffs, v. MALLINCKRODT ARD, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
George Patrick Watson, Lindsay Sklar Johnson, Pro Hac Vice, Bryan Cave LLP, Atlanta, GA, Herbert R. Giorgio, Jr., Bryan Cave Leighton Paisner LLP, St. Louis, MO, Joel M. L. Huotari, Scott Collins Sullivan, WilliamsMcCarthy LLP, Rockford, IL, Philip Dean Bartz, Pro Hac Vice, Bryan Cave Leighton Paisner LLP, Washington, DC, Matthew M. Martino, Evan Ross Kreiner, Michael H. Menitove, Patrick G. Rideout, Robert A. Fumerton, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, Amy Lynn Van Gelder, Eric J. Gorman, Skadden Arps Slate Meagher & Flom, LLP CH, David M. Hundley, Pendley, Baudin & Coffin, L.L.P., Chicago, IL, Adam Michael Foster, Pedram Esfandiary, R. Brent Wisner, Pro Hac Vice, Baum Hedlund Aristei & Goldman, P.C., Jason D. Russell, Skadden Arps Slate Meagher and Flom LLP, Michael L. Baum, Baum Hedlund Aristei, et al., Los Angeles, CA, Christopher L. Dueringer, Sarah Burwick, Bryan Cave LLP, Santa Monica, CA, for Defendants.
Donald E. Haviland, Jr., Jay William Chamberlin, Pro Hac Vice, William H. Platt, II, Pro Hac Vice, Haviland Hughes, Ambler, PA, Ifeanyichukwu C. Mogbana, Kerry Franklin Partridge, City of Rockford Department of Law, Rockford, IL, James A. Keyte, Pro Hac Vice, Thomas Pak, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, New York, NY, Jonathan Peter Mincieli, Michael W. Lenert, Peter J. Flowers, Meyers & Flowers, LLC, St. Charles, IL, Matthew Robert Kipp, Skadden Arps Slate Meagher & Flom, LLP CH, Chicago, IL, Rebecca A. Nelson, Pro Hac Vice, Bryan Cave Leighton Paisner LLP, St. Louis, MO, for Plaintiffs and Defendants.
Plaintiffs, City of Rockford, Illinois, and Acument Global Technologies Inc., filed a second amended complaint (the "SAC") against two groups of defendants: (1) Mallinckrodt plc and Mallinckrodt ARD, Inc. (including its acquisition of "Questcor Pharmaceuticals, Inc.") (collectively, "Mallinckrodt"); and (2) Express Scripts Holding Company and its four wholly-owned subsidiaries, Express Scripts, Inc. ("ESI"), Curascript, Inc., Accredo Health Group, Inc., and United Biosource Corp. ("UBC") (collectively, "Express Scripts"), pursuant to federal and state antitrust and consumer protection laws, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), various state-law claims, and 28 U.S.C. §§ 2201 - 2202 for declaratory judgment. Before this court are defendants' motions to dismiss. For the reasons that follow, defendants' motions to dismiss are granted in part and denied in part.
The following facts are drawn from the allegations in the SAC. Because this case comes before the court pursuant to a motion to dismiss, the court accepts all non-conclusory allegations in the SAC as true.
and the Exclusive Dealing Arrangement
is an adrenocorticotropic hormone ("ACTH") drug, which causes the body to produce cortisone and other steroid hormones. SAC ¶ 41. In 1952, the Food and Drug Administration approved Acthar's application to over fifty conditions. Id. ¶ 40. One of those conditions is infantile spasms, a serious condition but one with an annual patient population of less than 2,000 children. Id. ¶ 45. In 2001, Questcor Pharmaceuticals, Inc. acquired the rights to Acthar. In 2014, Mallinckrodt plc, another pharmaceutical company, acquired Questcor and, with it, Acthar. Id. ¶ 44. As a result of the acquisition Questcor's name was changed to Mallinckrodt ARD, Inc. Id. ¶ 22.1
was distributed to any doctor, hospital, wholesaler, or specialty pharmacy who requested the drug to treat seriously ill patients. Id. ¶ 47. On August 27, 2007, Mallinckrodt embarked on a "new strategy" that sought to limit Acthar's distribution by designating Express Scripts2 as Mallinckrodt's sole distributor of Acthar
. Id. ¶¶ 48-49, 221.3 Plaintiffs allege that the "new strategy" is in fact a vertical price-fixing conspiracy, in which Mallinckrodt used Express Scripts as its exclusive distributor of Acthar through a program called the "Acthar Support & Access Program" (the "ASAP") to raise prices, restrict distribution, and stifle competition. According to plaintiffs, the structure of the ASAP allows defendants to restrict the distribution of Acthar to just one distributor, Express Scripts, thereby eliminating other distributors from negotiating for lower prices for Acthar. Id. ¶¶ 48, 90, 231.
Express Scripts' role is to provide "integrated specialty services" to facilitate every other facet of the distribution chain, where each Express Scripts entity plays different roles at different levels of this process. Id. ¶ 58. UBC, a pharmaceutical support services company,4 acts as the "hub" between these entities, coordinating Acthar's
sale, distribution, and reimbursement between Mallinckrodt, ESI, CuraScript, and Accredo. Id. ¶ 51. Specifically, after being contacted directly by patients or notified by Mallinckrodt that a patient wants to purchase Acthar, UBC confirms the medical necessity of the prescription through Accredo (a specialty pharmacy services company) and then arranges payment through ESI (the pharmacy benefit manager ("PBM") ) for shipment of Acthar to patients through CuraScript (the wholesale pharmacy/distributor).5
Id. ¶¶ 57-62, 67. This allows Mallinckrodt to simply ship Acthar directly to patients and receive payments directly from the patients' third-party payors, while Express Scripts handles the rest. Id. ¶ 50.
Plaintiffs further allege various anticompetitive acts that enabled defendants to use the ASAP to price-fix and maintain Mallinckrodt's monopoly. One example is the timing of Acthar's
first large price increase. As soon as defendants implemented the ASAP, Mallinckrodt increased the price of Acthar from approximately $ 1,980 to $ 27,922.80—a 1,310% increase in the span of a month, and a 69,707% increase from 2001. Id. ¶¶ 89-90. Arguing that this price increase was made possible by an unlawful conspiracy between defendants, plaintiffs allege that Express Scripts did not push back on this price increase despite acknowledging that Acthar was vastly overpriced, and still has not pushed back on even higher prices as of the filing of the SAC. Id. ¶¶ 94, 97-99. Express Scripts was in a unique position to negotiate the most competitive prices for specialty drugs in the United States as a result of its representation of the largest number of buyers in the pharmaceutical marketplace. Id. ¶¶ 56, 73, 96, 100-102, 239. Plaintiffs provide an example of a time where Express Scripts used its bargaining power to extract lower prices from a manufacturer, Daraprim, which had increased the price of another drug 5000% in one year. Id. ¶¶ 85-86. Specifically, in December 2015, Express Scripts partnered with a different manufacturer to offer its purchasers a low-cost alternative to the drug as a response to Daraprim's manufacturer's pricing decision. Id. ¶¶ 87-88. But in the case of Acthar, Express Scripts "had no interest in lowering the price for Acthar
because it was making money off all aspects of its exclusive arrangement with the manufacturer. In other words, by helping Mallinckrodt maintain and enhance its monopoly power in the ACTH market, Express Scripts along with Mallinckrodt realized greater profits at the expense of payors, like Plaintiffs." Id. ¶ 96. As a result, from the time Mallinckrodt acquired Acthar in 2001 to the commencement of this action, the cost of Acthar grew 109,046%. Id. ¶ 93.
Plaintiffs also contend that the purported conspiracy allowed Mallinckrodt to keep Acthar's
price high by eliminating potential competition to Acthar. By 2013, the only significant alternative to Acthar was Synacthen Depot ("Synacthen"), a synthetically derived ACTH medication manufactured by Novartis AG. Id. ¶ 106. Mallinckrodt was aware of Novartis as a competitive threat for years, including when defendants implemented the ASAP in 2007. Id. ¶¶ 127-129. Mallinckrodt unsuccessfully attempted to buy the rights to Synacthen in 2009. Id. ¶¶ 106, 132. In October of 2012, Mallinckrodt learned that at least one other company was attempting to buy the rights to Synacthen from Novartis to compete with Mallinckrodt in the ACTH drug market in the United States. Id. ¶ 141. Three firms proceeded through several rounds of negotiations with Novartis, submitted formal offers, and drafted near-final agreements. Id. ¶ 136. Each firm planned to commercialize Synacthen in the United States, having taken affirmative steps to do so by independently conducting due diligence, and crafting business plans and regulatory approval strategies. Id. ¶ 137.
In 2013, Novartis agreed to sell the rights of Synacthen to Retrophin, Inc., for $ 16 million. Id. ¶ 108. However, on June 11, 2013, the day Retrophin was to sign its contract with Novartis, Mallinckrodt "swept in at the eleventh hour" and agreed with Novartis to pay a minimum of $ 135 million for the exclusive rights to Synacthen (the "Synacthen Acquisition"). Id. ¶¶ 108, 144-145, 147. Unlike the three alternative bidders, Mallinckrodt had only incomplete plans for Synacthen and conducted limited due diligence when it submitted its initial offer to Novartis. Id. ¶ 143. Upon purchasing the rights to Synacthen, Mallinckrodt chose not to bring it to market. Id. ¶¶ 108, 145. Mallinckrodt never sought FDA approval for Synacthen. Id. ¶ 145. Acthar
was and continues to be the only viable product in the market for infantile spasms and certain other conditions. Id. ¶ 122. Because ACTH drugs require Food and Drug Administration approval to be sold to consumers, there are significant barriers to entry for ACTH drugs. Id. ¶ 124.
In January 2014, Retrophin sued Mallinckrodt for antitrust violations in the United States District Court for the Central District of...
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