Fed. Trade Comm'n v. Vyera Pharm., LLC
| Decision Date | 18 August 2020 |
| Docket Number | 20cv706 (DLC) |
| Citation | 479 F.Supp.3d 31 |
| Parties | FEDERAL TRADE COMMISSION, State of New York, State of California, State of Ohio, Commonwealth of Pennsylvania, State of Illinois, State of North Carolina, and Commonwealth of Virginia, Plaintiffs, v. VYERA PHARMACEUTICALS, LLC, and Phoenixus AG, Martin Shkreli, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, and Kevin Mulleady, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, Defendants. |
| Court | U.S. District Court — Southern District of New York |
For plaintiff Federal Trade Commission: Markus H. Meier, Bradley S. Albert, Armine Black Daniel W. Butrymowicz, D. Patrick Huyett, Neal J. Perlman, J. Maren Schmidt, James H. Weingarten, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580, (202) 326-3748.
For plaintiff State of New York: Letitia James, Christopher D'Angelo, Elinor R. Hoffman, Saami Zain, Amy McFarlane, Jeremy Kasha, Bryan Bloom, Office of the New York Attorney General, Antitrust Bureau, 28 Liberty Street, 20th Floor, New York, NY 10005, (212) 416-8262.
For plaintiff State of California: Michael D. Battaglia, Office of the Attorney General of California, 455 Golden Gate Avenue, Suite 11000, San Francisco, CA 94102, (415) 510-3769.
For plaintiff State of Ohio: David Yost, Beth Finnerty, Elizebeth M. Maag, Office of the Ohio Attorney General, 150 E. Gay Street, 22nd Floor, Columbus, OH 43215, (614) 466-4328.
For plaintiff Commonwealth of Pennsylvania: Josh Shapiro, Tracy W. Wertz, Joseph Betsko, Stephen Scannell, Pennsylvania Office of Attorney General, Strawberry Square, 14th Floor, Harrisburg, PA 17120.
For plaintiff State of Illinois: Richard S. Schultz, Office of the Attorney General of Illinois, 100 W. Randolph Street, 11th Floor, Chicago, IL 60601, (312) 814-3000.
For plaintiff State of North Carolina: Joshua H. Stein, K.D. Sturgis, Jessica V. Sutton, North Carolina Dept. of Justice, Consumer Protection Division, 114 West Edenton Street, Raleigh, NC 27603, (919) 716-6000.
For plaintiff Commonwealth of Virginia: Mark R. Herring, Sarah Oxenham Allen, Tyler T. Henry, Office of the Attorney General of Virginia, 202 North Ninth Street, Richmond, VA 23219.
For defendants Vyera Pharmaceuticals, LLC and Phoenixus AG: Stacey Anne Mahoney, Sarah E. Hsu Wilbur, Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178, (212) 309-6000, Scott A. Stempel, Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Avenue, NW, Washington, D.C. 20004, Steven A. Reed, Francis A. DeSimone, Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, (215) 963-5000, Noah J. Kaufman, Morgan, Lewis & Bockius LLP, One Federal Street, Boston, MA 02210, (617) 341-7700.
For defendant Martin Shkreli: Christopher H. Casey, Esq., A.J. Rudowitz, Esq., Duane Morris LLP, 30 South 17th Street, Philadelphia, PA 19103-4196, (215) 979-1155, Edward T. Kang, Kandis L. Kovalsky, Kang, Haggerty & Fetbroyt LLC, 123 S. Broad St. #1670, Philadelphia, PA 19109, (215) 525-5852.
For defendant Kevin Mulleady: Kevin J. Arquit, Albert Shemmy Mishaan, Kenneth R. David, Kasowitz Benson Torres LLP, 1633 Broadway, New York, NY 10023, (212) 506-1700.
The Federal Trade Commission ("FTC") and seven states bring claims for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 ; § 5(a) of the FTC Act, 15 U.S.C. § 45(a) ; and various state statutes. They allege that Vyera Pharmaceuticals, LLC ("Vyera"), together with its parent company, Phoenixus, AG ("Phoenixus"), and two of the companies’ owners and executives, Martin Shkreli and Kevin Mulleady (together, the "Individual Defendants") designed and implemented a comprehensive scheme to block lower-cost generic drug competition to Daraprim
, a branded drug used to treat the potentially fatal infection toxoplasmosis. As alleged, this unlawful scheme enabled the defendants to raise the price of Daraprim from $17.50 per tablet to $750 per tablet overnight, even though Daraprim had long ago lost its patent protection.
On May 22, 2020, the defendants moved to dismiss all of the claims against them pursuant to Rule 12(b)(6), Fed. R. Civ. P. For the reasons stated below, the motions to dismiss are denied as to all claims except the claim brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL").
The following facts are taken from the Amended Complaint. They are assumed to be true for the purpose of deciding these motions.
Generic drugs are chemically identical versions of branded drugs. After the patent on a branded drug has expired, a generic drug may compete with its branded counterpart. Generic versions of branded drugs are usually sold at lower prices and that price competition is critical to lowering the price of prescription drugs in the United States.
To promote competition, governments have enacted drug substitution laws that encourage and facilitate the substitution of generic drugs for their branded equivalents.1 While a company seeking to market a branded drug must first file a New Drug Application ("NDA") with the Food and Drug Administration ("FDA") demonstrating the safety and efficacy of the pharmaceutical product, a company seeking to market a generic version of the branded drug may file an Abbreviated New Drug Application ("ANDA") with the FDA that affords an expedited process for gaining FDA approval. 21 U.S.C. § 355(j).
An ANDA applicant must demonstrate bioequivalence between the generic drug and its branded counterpart, i.e. that there is no significant difference in the rate and extent to which the drug's active ingredient becomes available to the body. Id. §§ 355(j)(2)(A)(iv), 355(j)(8)(B)(i). To conduct bioequivalence testing, an ANDA applicant must acquire substantial quantities of the branded drug to which it compares its generic product. An ANDA applicant normally can obtain sufficient samples of the branded drug to conduct bioequivalence testing by purchasing samples through established distribution channels such as drug wholesalers.
An ANDA applicant also must secure a supply of the branded drug's active pharmaceutical ingredient ("API"), which is the ingredient that provides the drug's pharmacological activity. The applicant must identify its API supplier to the FDA. The API supplier's product, manufacturing process, facility, and quality controls must receive FDA approval for an ANDA application to move forward. If an ANDA applicant purchases API from a supplier whose manufacturing of that API has already been approved by the FDA, the FDA's approval process of the ANDA application may be expedited by a period of months or years.
Martin Shkreli made his debut in the pharmaceutical industry in 2011 when he founded Retrophin, Inc. Retrophin acquired a drug named Thiola, raised its price by 2,000%, and restricted its distribution to prevent competition from generic drugs. In 2014, Shkreli was removed from Retrophin by the company's board of directors for misconduct.
In 2014, Shkreli launched Vyera with the help of Kevin Mulleady. Vyera is a wholly-owned subsidiary of Phoenixus. This Opinion refers to Vyera and Phoenixus collectively as "Vyera," unless otherwise specified.
In April 2015, Vyera made an unsolicited bid to Impax Laboratories, Inc. ("Impax") for the U.S. rights to the branded drug Daraprim
. Daraprim is used to treat toxoplasmosis, an infection that can be fatal for immunocompromised individuals, particularly those with cancer or HIV/AIDS. Daraprim was approved by the FDA in 1953. In 2010, Daraprim was sold for $1 per tablet. Between 2010 and 2015, its price increased to $13.50 per tablet. Daraprim's API is pyrimethamine.
Impax had acquired the rights to Daraprim
in March 2015, only one month before Impax received Vyera's bid. Impax assessed Daraprim, then priced at $13.50 per tablet, as an asset with declining annual revenues of $5 million or less. In June 2015, Impax developed a restricted distribution system for Daraprim and raised its price from $13.50 to $17.50.
On August 7, 2015, Vyera acquired the U.S. rights to Daraprim
for $55 million. This price was triple Impax's net-present-value assessment of Daraprim and more than 11 times Daraprim's annual net revenues.
The day after finalizing the deal, Vyera raised the price of Daraprim
from $17.50 to $750 per tablet -- an increase of more than 4,000%. At the time of Vyera's acquisition of Daraprim, Mulleady informed Vyera's employees that it was Vyera's "#1 priority" to establish a restricted distribution system similar to that employed for Thiola at Retrophin.
price increase quickly gained public attention. In November 2015, the Senate Special Committee on Aging (the "Committee") launched a bipartisan investigation into dramatic price increases of several off-patent drugs, including Daraprim. The Committee heard testimony from Vyera executives confirming that Vyera built a restricted distribution system for Daraprim to block generic drug competitors from gaining access to Daraprim and conducting bioequivalence testing. The Committee found that Vyera's restricted distribution of Daraprim was part of Vyera's plan to "defend its shocking price increase and subsequent increased revenue against potential competition."
The Amended Complaint describes a sophisticated scheme to depress competition by generic drug manufacturers with the branded drug Daraprim
. To effect this scheme, Vyera entered into three categories of contractual agreements: the restricted distribution agreements, exclusive supply contracts, and data-blocking agreements.
Through a restricted distribution system, the defendants sought to impede access to Daraprim
and thereby prevent generic drug manufacturers from...
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