In re Xyrem (Sodium Oxybate) Antitrust Litig.

• Decision Date: 13 August 2021
• Docket Number: Master File No. 20-MD-02966-LHK
• Citation: 555 F.Supp.3d 829
• Parties: IN RE: XYREM (SODIUM OXYBATE) ANTITRUST LITIGATION This Document Relates to: All Actions
• Court: U.S. District Court — Northern District of California

555 F.Supp.3d 829

IN RE: XYREM (SODIUM OXYBATE) ANTITRUST LITIGATION

This Document Relates to: All Actions

Master File No. 20-MD-02966-LHK

United States District Court, N.D. California, San Jose Division.

Signed August 13, 2021

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

Re: Dkt. No. 109

PUBLIC REDACTED VERSION

LUCY H. KOH, United States District Judge

In this multidistrict litigation, two sets of plaintiffs allege that certain manufacturers of the drug sodium oxybate (brand name Xyrem

) have violated federal and state antitrust laws. The first set of plaintiffs, the Class Plaintiffs, comprise the following coalition of putative class representatives: (1) A.F. of L. – A.G.C. Building Trades Welfare Plan; (2) Blue Cross Blue Shield Association; (3) City of Providence, Rhode Island; (4) Government Employees Health Association, Inc.; (5) New York State Teamsters Council Health and Hospital Fund; (6) Self-Insured Schools of California; (7) UFCW Local 1500 Welfare Fund; and (8) Xyrem patient Ruth Hollman.

The second set of plaintiffs comprises United HealthCare Services, Inc., which brings an individual action against the same Defendants as the Class Plaintiffs.

Defendants are (1) Jazz Pharmaceuticals Plc, Jazz Pharmaceuticals, Inc., and Jazz Pharmaceuticals Ireland Limited (collectively, "Jazz"); (2) Hikma Labs, Inc. (formerly known as Roxane Laboratories, Inc.), Hikma Pharmaceuticals USA Inc. (formerly known as West-Ward Pharmaceuticals Corp.), Eurohealth (USA), Inc., and Hikma Pharmaceuticals plc. (collectively, "Hikma"); and (3) Amneal Pharmaceuticals LLC, Par Pharmaceuticals, Inc., and Lupin Ltd., Lupin Pharmaceuticals Inc., and Lupin, Inc. (collectively, the "Later Generic Defendants").

Before the Court is Defendants’ Motion to Dismiss Counts 1, 5–12, and 17 of the Consolidated Class Action Complaint and Counts 1, 5-9, and 11 of United Healthcare Services’ Complaint. ECF No. 109 ("motion to dismiss" or "Mot."). Having considered the parties’ briefing, the relevant law, and the record in this case, the Court GRANTS IN PART and DENIES IN PART Defendants’ motion to dismiss.

I. BACKGROUND

A. Factual Background

At issue in this antitrust case is the drug sodium oxybate. Sodium oxybate is older than aspirin. United HealthCare Services’ Compl. ¶ 1, No. 21-CV-02710, ECF No. 1 ("UHS"). Since the 1960s, sodium oxybate has been a treatment for narcolepsy

. Id. ¶ 2. In 2002, a drug company named Orphan Medical obtained Food and Drug Administration ("FDA") approval to market sodium oxybate as a treatment for cataplexy—the sudden loss of muscle control while awake—associated with narcolepsy. Id. Orphan Medical named this treatment Xyrem. Id.

In 2005, Defendant Jazz Pharmaceuticals, Inc. ("Jazz")¹ acquired Orphan Medical. Id. ¶ 3. The acquisition was unprofitable at first. Id. By 2009, Jazz was on the verge of bankruptcy. Id. Jazz responded by replacing its management team and allegedly "embark[ing] on a multifaceted scheme to dramatically increase the price of Xyrem

." Id. As Jazz's co-founder and Chief Executive Officer ("CEO") Bruce Cozadd stated publicly, Jazz had "substantial pricing power" because "nothing else [ ] does what [Xyrem ] does. There is no substitute." Id. ¶ 111 (quoting Final Transcript, Jazz Pharmaceuticals Inc. at LCM Annual Healthcare Conference (Nov. 17, 2010), https://tinyurl.com/y4lchnrs ). As Jazz's CEO further stated, "there's really no competition" for Xyrem. Id. ¶ 4 (quoting Conference Call Transcript; Jazz Pharmaceuticals, Inc. at Piper Jaffray Health Care Conference, Jazz Pharmaceuticals (Nov. 30. 2011), https://investor.jazzpharma.com/node/12191/html ).

To reinforce Xyrem's

market power, Jazz filed for and obtained three families of patents. UHS ¶ 80. None of the patents claim the active pharmaceutical compound in Xyrem (sodium oxybate) because the sodium oxybate was discovered long ago. Id. ¶ 81. Jazz instead patented (1) certain formulations and methods of treatment; (2) a drug distribution system; and (3) certain methods of administrating sodium oxybate. Id. ¶¶ 81–93. These patents had or have expiration dates between December 2019 and March 2033. Id.

Xyrem's

lack of competition allowed Jazz to raise its price. Based largely on Xyrem price increases, Jazz's stock price grew about 5,000% from its 2009 low to November 2010 price of over $50 per share. Id. ¶ 111. Specifically, according to a Bloomberg report in May 2014, the price of Xyrem increased about 841% from 2007 through 2014. Consolidated Class Action Compl. ¶ 188, ECF No. 62 ("CAC"). These price increases boosted Jazz's profits because gross margins on Xyrem were over 90%. Id. ¶ 149.

The profitability of Xyrem

did not go unnoticed. Between July 2010 and November 2017, nine manufacturers of generic drugs sought to enter Xyrem's market before the expiration of Xyrem patents. CAC ¶¶ 148, 183 (listing generic manufacturers). Specifically, these generic drug manufacturers filed Abbreviated New Drug Applications ("ANDAs") seeking FDA approval to manufacture, market, and sell generic drugs that would be bioequivalent to Xyrem. Id. ¶¶ 148, 183. As a general matter, bioequivalent generic drugs are called "AB-rated" generics or commonly just "generics." UHS ¶ 47.

More than 11 years have passed since the first ANDA was filed on July 8, 2010. CAC ¶ 148. To date, however, no AB-rated generics for Xyrem

are on the market. CAC ¶ 3. Nor will any AB-rated generic be on the market until at least December 31, 2025 if Plaintiffs’ allegations prove true. CAC ¶ 453. Instead, the generic drug companies have allegedly agreed to sell only "authorized" generics from January 1, 2023 until at least December 31, 2025. Id. These authorized generics will merely comprise Xyrem

, manufactured by Jazz , that is relabeled and marketed by the generic drug companies. CAC ¶ 5 (citing FDA, FDA List of Authorized Generic Drugs (July 1, 2021), https://www.fda.gov/drugs/abbreviated-new-drug-application-anda/fda-list-authorizd-generic-drugs ).

The Court describes this alleged series of events below in three parts. First, the Court summarizes the general difference between AB-rated generics and authorized generics. Second, the Court recounts nine ANDAs to manufacture, market, and sell an AB-rated generic version of Xyrem

. Lastly, the Court outlines Jazz's allegedly anticompetitive scheme which successfully prevented generic entry into the market for sodium oxybate as a treatment for narcolepsy.

1. Structure of the generic market: "AB-rated" generics vs. "authorized" generics

As relevant here, a generic drug may be either an "AB-rated" generic or an "authorized" generic. An AB-rated generic is commonly called simply a "generic drug." See FDA List of Authorized Generic Drugs, supra (cited by CAC ¶ 5 & n.7). AB-rated generics are deemed by the FDA to be bioequivalent to the brand name drug. UHS ¶ 47; accord FDA, Orange Book Preface (41st ed. Jan. 1, 2021), https://www.fda.gov/drugs/development-approval-process-drugs/orange-book-preface (detailing AB rating). Even so, AB-rated generics differ from the brand name drug in two ways. First, despite their bioequivalence, AB-rated generics "may have certain minor differences from the brand-name product, such as different inactive ingredients." FDA List of Authorized Generic Drugs, supra.

Second and most important, AB-rated generics are "developed and made by a company other than the company that makes the brand-name drug." Id. When a company enters a market with an AB-rated generic, the generic typically captures about 90% of the branded drug's sales within one year—and sells for about 15% of the brand name drug's price. UHS ¶ 51; accord FTC, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions at 8 (Jan. 2010) (finding same). Under the Hatch-Waxman Act, the first company that applies to produce an AB-rated generic (the "first filer") receives a "180-day period of exclusivity" during which "no other [non-AB-rated] generic can compete with the brand-name drug." Federal Trade Commission ("FTC ") v. Actavis, Inc. , 570 U.S. 136, 143–44, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013).

An authorized generic ("AG"), by contrast, "is essentially a brand-name drug produced by a brand manufacturer but marketed under a generic label." In re Nexium (Esomeprazole) Antitrust Litig. , 968 F. Supp. 2d 367, 380 (D. Mass. 2013) (emphasis added). "Other than the fact that [an AG] does not have the brand name on its label, it is the exact same drug product as the branded product." FDA List of Authorized Generic Drugs, supra. Thus, unlike AB-rated generics, AGs are marketed and sold "either by the brand manufacturer itself" or "another company with the brand company's permission. " Id. (emphasis added); UHS ¶ 61 (same).

Importantly here, it is far more common that a third party markets an AG (with the brand manufacturer's permission) than the brand manufacturer doing so itself. For instance, the FTC has found that "out of 119 AG launches from 2001 to 2008, only one was distributed by a brand drug company without generic marketing." In re Intuniv Antitrust Litig. ("Intuniv "), 496 F. Supp. 3d 639, 671 (D. Mass. 2020) (emphasis added) (citing FTC, Authorized Generic Drugs: Short-Term Effects & Long-Term Impact (2011) ("FTC 2011 AG Study")); see also CAC ¶ 87 n.36 (same study). Moreover, at least one court has credited research that "out of the 529 AG launches since 2009 ... only two were distributed by a brand company without generic expertise." Intuniv , 496 F. Supp. 3d at 671. In short, it is rare for a brand manufacturer to market and sell its own AG. Brand manufacturers instead tend to license marketing/relabeling rights to a third party.

Regardless of who markets them, AGs and AB-rated generics compete. AGs in fact enjoy an opportunity for competition that other generics lack. That unique opportunity is an AG's ability to compete with an AB-rated generic that is protected by the Hatch-Waxman Act's 180-day period of exclusivity during which no other AB...