Rochester Drug Co-Operative, Inc. v. Biogen Idec U.S. Corp.

• Citation: 130 F.Supp.3d 764
• Decision Date: 18 September 2015
• Docket Number: No. 6:15–CV–6388 EAW.,6:15–CV–6388 EAW.
• Parties: ROCHESTER DRUG CO–OPERATIVE, INC., Plaintiff, v. BIOGEN IDEC U.S. CORPORATION, Defendant.
• Court: U.S. District Court — Western District of New York

130 F.Supp.3d 764

ROCHESTER DRUG CO–OPERATIVE, INC., Plaintiff,

v.BIOGEN IDEC U.S. CORPORATION, Defendant.

No. 6:15–CV–6388 EAW.

United States District Court, W.D. New York.

Signed Sept. 18, 2015.

A. Paul Britton, Jeffrey A. Wadsworth, Harter Secrest & Emery LLP, Rochester, NY, David Calvello, Peter R. Kohn, Faruqi & Faruqi, LLP, Jenkintown, PA, for Plaintiff.

Brooke D. Leone, Sharon M. Porcellio, Bond, Schoeneck & King, PLLC, Buffalo, NY, Jane E. Willis, Ropes & Gray LLP, Boston, MA, Jerome C. Katz, Ropes & Gray LLP, New York, NY, for Defendant.

DECISION AND ORDER

ELIZABETH A. WOLFORD

, District Judge.

INTRODUCTION

Plaintiff Rochester Drug Co-operative, Inc. ("Plaintiff") has sued Defendant Biogen Idec U.S. Corporation ("Defendant")¹ in connection with Defendant's termination of a distribution contract with Plaintiff. Plaintiff alleges that Defendant's termination decision was the product of unlawful arrangements reached between Defendant and three prominent national wholesalers to restrain trade in the sale of Avonex, a pharmaceutical drug manufactured by Defendant.

Plaintiff's Complaint against Defendant asserts five causes of action arising out of Defendant's termination of its distribution contract with Plaintiff: (1) violation of the Donnelly Act, N.Y. Gen. Bus. Law § 340

; (2) injunctive relief under N.Y. CPLR 6301 ; (3) anticipatory breach of contract; (4) breach of the covenant of good faith and fair dealing; and (5) declaratory relief under N.Y. CPLR 3001. (Dkt. 1).

Defendant has moved to dismiss the entire Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure

. (Dkt. 6). Plaintiff has moved for a preliminary injunction, restraining Defendant from taking any steps in furtherance of the termination decision. (Dkt. 9, 15). The Court held oral argument on September 15, 2015, and reserved decision.

The Court is sensitive to the potential adverse impacts that Defendant's termination decision may have on Defendant's former regional wholesalers including Plaintiff, the local and independent pharmacies they service, and the pharmacies' patients, particularly those living in rural areas. The indisputable trend in the pharmaceutical industry, as reflected in Defendant's decision and similar decisions made by countless other pharmaceutical manufacturers, is to distribute drugs through mammoth-sized wholesalers. As a result, the local community drug store, where prescriptions are filled while folks visit with their pharmacist and neighbors, appears to be fading from our society, and their customers are increasingly being forced to obtain their pharmaceuticals through other means.

Nevertheless, the law permits corporations to make these types of distribution decisions without regard to societal impact, so long as they do not engage in an unlawful bilateral arrangement for anticompetitive purposes. Because Plaintiff's Complaint fails to plausibility allege that Defendant's termination decision was the product of an unlawful reciprocal arrangement, Defendant's motion to dismiss (Dkt. 6) is granted and Plaintiff's Complaint (Dkt. 1) is dismissed in its entirety. Plaintiffs motion for preliminary injunction (Dkt. 9) is denied.

BACKGROUND

I. The Parties

Plaintiff is a wholesale drug cooperative that buys and distributes a complete line of pharmaceuticals and home health supplies to community retail pharmacies, long-term care pharmacies, and home health care stores. (Dkt. 1, Compl.¶ 5). Plaintiff's customers are located primarily in New York, New Jersey, Pennsylvania, and Ohio, in both metropolitan and rural areas of those states. (Id. ¶ 6).

Defendant is a biotechnology corporation that develops, markets, and sells pharmaceutical products, including the drug Avonex. (Id. ¶ 7).

II. The Drug Avonex

Avonex treats "patients with relapsing forms of multiple sclerosis

(‘MS') to delay the progression of physical disability and reduce ‘flare ups' of MS symptoms." (Id. ¶ 10). Avonex is the only interferon beta on the market that is administered through intramuscular injection as opposed to a subcutaneous injection. (Id. ¶ 41). Avonex needs to be administered only once a week. (Id. ).

Avonex is sold in three formulations. The Avonex Pre–Filled Syringe is a conventional syringe. (Id. ¶ 10). The Avonex Powder Form is a lyophilized vial of powder that is manually mixed before injection. (Id. ). The Avonex Pen is a prefilled needle that can be administered with a single click and "was designed to improve a patient's ability to self-administer Avonex." (Id. ¶ 13). According to Plaintiff, "[f]or many patients, Avonex is administered by licensed pharmacists in pharmacies." (Id. ¶ 15).

III. The Big Three

Three wholesalers generate 85 to 90 percent of all revenues from drug distribution in the United States. (Id. ¶ 34). Those three wholesalers are Cardinal Health, McKesson Corporation, and AmerisourceBergen Corporation (commonly known as, and collectively referred to herein as, the "Big Three"). (Id. ). They are the largest drug wholesalers in the nation. (Id. ). The great majority of all pharmacies in the United States, including all of the large retail pharmacy chains, receive pharmaceuticals from the Big Three. (Id. ¶ 22).

The Big Three supply only to pharmacies that purchase a minimum volume amount of pharmaceuticals. (Id. ¶ 25). Many of the smaller pharmacy chains and independent pharmacies serviced by regional wholesalers like Plaintiff lack the volume requirements to purchase pharmaceuticals from the Big Three. (Id. ¶¶ 24–25).

IV. The Wholesaler Distribution Agreement

On or about January 1, 2009, Plaintiff and Defendant entered into a Wholesaler Distribution Agreement (the "Distribution Agreement"), which was supplemented by Defendant's letter dated March 14, 2012, whereby Plaintiff was appointed as an authorized wholesaler of Defendant's Avonex products. (Id. ¶¶ 17–21). Plaintiff has performed under the Distribution Agreement for over six years. (Id. ¶ 19).

V. Termination of the Distribution Agreement

By letter dated March 23, 2015, Defendant informed Plaintiff that it was terminating the Distribution Agreement, effective June 30, 2015 (the "Termination Letter"). (Id. ¶ 29). The Termination Letter stated that as of July 1, 2015, Avonex would be available for purchase only from the Big Three. (Id. ¶ 33). The Termination Letter also stated that Plaintiff could continue to sell Avonex out of its existing inventory for a period not to exceed 90 days from the date of termination. (Id. ¶ 54; Dkt. 6–4 at 2).

VI. Allegations of Unlawful Arrangement

Plaintiffs allegations of unlawful arrangement are located in paragraphs 52 through 56 of the Complaint. In paragraphs 52 and 53, Plaintiff alleges that Defendant's Termination Letter demonstrates that Defendant has entered into an agreement or arrangement with the Big Three to exclude all other wholesalers, including Plaintiff, from the relevant market, which is alleged to be "Avonex in all strengths and forms" in the United States. (Dkt. 1, Compl. ¶ ¶ 41, 52–53). In paragraph 54, Plaintiff alleges that Defendant's 90–day limit on the time by which Plaintiff must stop selling Avonex was instituted to protect the Big Three's sales and profits. (Id. ¶ 54).

In paragraph 55, Plaintiff alleges that Defendant's decision to terminate the regional wholesalers was against Defendant's economic interests, because pharmacies in mostly rural areas will no longer be able to obtain Avonex, which will cause Defendant to lose sales. (Id. ¶ 55). Elsewhere in the Complaint, Plaintiff asserts that these small pharmacies might not be able to obtain Avonex due to one or more of the following reasons: (1) the inability to meet the volume requirements of the Big Three; (2) the inability to pay the fees of the Big Three on a profitable basis; and/or (3) the inability to obtain needed services from the Big Three. (Id. ¶¶ 25–26).

In paragraph 56, Plaintiff alleges that the unlawful arrangement will restrict output and increase the cost of Avonex and, in some areas, access to Avonex will be eliminated. (Id. ¶ 56). Elsewhere in the Complaint, Plaintiff adds that the purpose of Defendant's actions in reducing the output of Avonex is to "increas[e] already supracompetitive margins for its Avonex monopoly." (Id. ¶ 68).

VII. Procedural History

Plaintiff commenced this action in state court on June 25, 2015. (Dkt. 1, Notice of Removal 1). Defendant timely removed the action to this Court on June 26, 2015, based upon diversity jurisdiction. (Id. ¶ 6). On July 17, 2015, Defendant filed a motion to dismiss the Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure

. (Dkt. 6). On August 7, 2015, Plaintiff filed its original motion for a preliminary injunction (Dkt. 9), and, on August 10, 2015, Plaintiff filed an amended motion for preliminary injunction (Dkt. 15). The parties filed their response papers (Dkt. 18, 20) and reply papers (Dkt. 21, 23), as well as supporting declarations and exhibits. Oral argument was held on September 15, 2015, and the Court reserved decision.

DISCUSSION

I. Legal Standard

Rule 8 of the Federal Rules of Civil Procedure

provides that a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The factual allegations in a complaint "must be enough to raise a right to relief above the speculative level...." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (internal quotation marks and brackets omitted).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556...