Wash. Cnty. Bd. of Educ. v. Mallinckrodt Ard, Inc., CIVIL NO. JKB-19-1854

• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)
• Citation: 431 F.Supp.3d 698
• Docket Number: CIVIL NO. JKB-19-1854
• Parties: WASHINGTON COUNTY BOARD OF EDUCATION, Plaintiff v. MALLINCKRODT ARD, INC. , et al., Defendants.
• Decision Date: 03 January 2020

431 F.Supp.3d 698

WASHINGTON COUNTY BOARD OF EDUCATION, Plaintiff v. MALLINCKRODT ARD, INC. , et al., Defendants.

CIVIL NO. JKB-19-1854

United States District Court, D. Maryland.

Signed January 3, 2020

Donald E. Haviland, Jr., Pro Hac Vice, Ambler, PA, John M. Martirano, Washington County Public Schools Hagerstown, MD, for Plaintiff.

Bryan J. Harrison, Bryan Cave Leighton Paisner LLP, Adam Michael Pergament, Pro Hac Vice, Laura S. Shores, Pro Hac Vice, Michael B. Bernstein, Pro Hac Vice, Ryan Zane Watts, Pro Hac Vice, Sonia Kuester Pfaffenroth, Pro Hac Vice, Arnold & Porter Kaye Scholer LLP, Matthew McManus Wolf, Arnold & Porter LLP, Philip D. Bartz, Bryan Cave LLP, Brian H Rowe, Pro Hac Vice, Eric C. Lyttle, Pro H, J. Kirk Goza, Meghan A. McCaffrey, Pro Hac Vice, Quinn Emanuel Urquhart and Sullivan, Washington, DC, George Patrick Watson, Pro Bryan Cave Leighton Paisner LLP, Atlanta, GA, Herbert R. Giorgio, Jr., Bryan Cave Leighton Paisner LLP, St. Louis, MO, Paul Francis Kemp, Ethridge Quinn Kemp McAuliffe Rowan and Hartinger, Rockville, MD, Scott Michael Hartinger, Ethridg, Skadden Arps Slate Meagher and Flom, New York, NY, Jeffrey Samuel Gavenman, Jeremy W Schulman, Schulman Bhattacharya, LLC, Bethesda, MD, for Defendants.

MEMORANDUM

James K. Bredar, Chief Judge This dispute arises out of the pricing of a drug, Acthar

. Over the course of fifteen years, Acthar's price rose from $40 per vial to $40,000 per vial. The plaintiff in this action, the Washington County Board of Education ("Plaintiff"), paid almost $3 million over a three-year period for two of its employees to receive Acthar. Plaintiff contends the entities involved in raising Acthar's price violated numerous Maryland state laws; it brings this action against Mallinckrodt¹ (Acthar's manufacturer), Express Scripts² (Acthar's distributor), and Gregg Lapointe (a former board member of Mallinckrodt's subsidiary, Questcor) (collectively, "Defendants").

Plaintiff alleges violations of the Maryland Consumer Protection Act ("MCPA") (Count I); negligent misrepresentation (Count II); fraud (Count III); unjust enrichment (Count IV); and conspiracy to defraud/concerted action (Count V). Plaintiff asserts all five claims against Mallinckrodt and Express Scripts, and all but the unjust enrichment claim against Lapointe.

Now pending before the Court is Plaintiff's motion to remand the case to state court (ECF No. 34) and Defendants' motions to dismiss the amended complaint (ECF Nos. 50, 51, 56).³ The motions are fully briefed. No hearing is required. See Local Rule 105.6 (D. Md. 2018). The Court will deny Plaintiff's motion to remand, dismiss Lapointe from the case, and grant Mallinckrodt and Express Scripts' motions to dismiss.

I. Factual Background

A. The Parties

Plaintiff employs 2,500 people in Washington County, Maryland. (Am. Compl. ¶¶ 34–35, ECF No. 36.) Plaintiff provides its employees healthcare benefits through a contract with Cigna Health and Life Insurance Co. ("Cigna"). (Id. ¶ 36.) In the world of prescription drugs, this makes Plaintiff a private third-party payor. (Id. ¶ 225.) Two of Plaintiff's employees were prescribed Acthar

in 2016 to treat their rheumatoid arthritis. (Id. ¶ 37.) Between 2016–2018, Plaintiff paid $2,841,747 for these employees to receive Acthar. (Id. ¶ 29.) At the time of the filing of this suit, Plaintiff continues to pay for Acthar on their behalf. (Id. )

Mallinckrodt is an Irish public limited company with corporate headquarters in the United Kingdom. (Id. ¶ 43.) It has manufactured Acthar

since 2014, when it acquired Questcor, Acthar's former manufacturer. (Id. ¶¶ 38–39.) At the time of the acquisition, Questcor became a wholly owned subsidiary of Mallinckrodt.⁴ (Id. ¶ 39.)

Express Scripts is a pharmacy benefits manager. (Id. ¶ 26.) Pharmacy benefits managers serve as intermediaries between drug manufacturers, like Mallinckrodt, and patients and third-party payors, like Plaintiff. (Id. ¶ 156.) Express Scripts and its various subsidiaries facilitate the distribution of Acthar

. (Id. ¶ 26.)

Gregg Lapointe was a former member of Questcor's board of directors. (Id. ¶ 13.) Lapointe is a resident of the state of Maryland. (Id. ¶ 31.) Lapointe was on Questcor's board in 2007 at the time Questcor launched a controversial "new strategy" to increase Acthar's

profitability. (Id. ¶¶ 13–14.)

B. Plaintiff's Allegations

Plaintiff alleges that Defendants were able to raise Acthar's

price to unconscionable levels through three complementary schemes that collectively reduced competition, increased profits, and deflected negative attention. These three schemes constitute the heart of Plaintiff's complaint, and the Court summarizes them below.

1. The Distribution Scheme

In 2001, Questcor acquired Acthar

for $100,000. (Id. ¶ 75.) At the time, Acthar was primarily used to treat Infantile Spasms ("IS"), a rare condition with a patient population of about 2,000 children per year. (Id. ¶¶ 77–78.) At the time of the acquisition, Questor was struggling financially. (Id. ¶ 79.) In an effort to get the company on a more profitable track, Questcor's largest shareholder, Sigma Tau Finanziaria, installed one its executives, Gregg Lapointe, on Questcor's board of directors. (Id. ¶¶ 79, 85, 86.) Lapointe would become the "mastermind" of a new strategy to increase Acthar's profitability. (Id. ¶ 13.)

Once Lapointe was on Questcor's board, the company decided to adopt an "orphan drug strategy" for Acthar

, which involved centralizing the drug's distribution channels and raising its price. (Id. ¶¶ 91, 110.) Because Acthar was the only drug available to treat IS, this strategy would allow Questcor to "leverage its monopoly power" against a "fragile, powerless patient population" in a narrow market. (Id. ¶ 111.).

To carry out this strategy's first step—centralizing the distribution channels—Questcor made Express Scripts Acthar's

exclusive distributor.⁵ (Id. ¶ 90.) The companies publicly announced the exclusive relationship in July 2007. (Id. ) Moving forward, Questcor explained at the time, patients and doctors would need to submit all Acthar prescriptions though the Acthar Support & Access Program ("ASAP"). (Id. ) Through the coordination of various Express Scripts subsidiaries, the ASAP would serve as a hub for the distribution and payment of Acthar. (Id. ¶ 166.) Patients and their doctors could initiate the distribution process by submitting the Acthar Start Form, which contained the requisite patient information and permissions. (Id. ¶¶ 166, 403.)

Initially, there was some pushback within Questcor about the new strategy; several board members and one executive departed shortly after the announcement of the exclusive relationship with Express Scripts. (Id. ¶¶ 101–02.) Lapointe also departed shortly after the announcement. (Id. ¶ 103.). But Questcor's COO made clear in an email to senior staff that Lapointe's departure was not due to his disagreement with the strategy; to the contrary, Lapointe was "a big supporter of the pricing strategy from the very beginning."⁶ (Id. ¶ 104.)

2. The Pricing Scheme

Once the exclusive distribution scheme was in place, Questcor began "aggressively" raising Acthar's

price. (Id. ¶¶ 100, 183.) When Questcor acquired Acthar in 2001, Acthar's average wholesale price ("AWP")—the price third-party payors like Plaintiff paid for the drug—was $40.00 per vial. (Id. ¶¶ 179, 213.) Over the next six years, Questcor gradually raised Acthar's AWP, but it was not until the launch of the new strategy in the summer of 2007 that Questcor made its most aggressive price hikes: it raised Acthar's AWP from $2,062.79 to $29,086.25. (Id. ¶¶ 181–83.) Questcor continued to raise Acthar's AWP in the ensuing years, and by December 2014, it had raised Acthar's AWP to $40,325.00. (Id. ¶ 208.)

Express Scripts reviewed and approved each of these price increases in writing. (Id. ¶ 187.) But when asked about the price increases, Express Scripts laid the blame with Questcor. (Id. ¶¶ 232–35.) For example, in a conference call with investors in May 2017, an Express Scripts senior vice president denied Express Scripts was involved in setting Acthar's

price. (Id. ¶ 228 ("I think everybody in our company would agree, that [Acthar ] is vastly overpriced for the value. We don't set the price.")) In a television interview, Express Scripts' CMO also criticized Acthar's high price without disclosing that Express Scripts had approved Acthar's price increases. (Id. ¶ 251.)

Questcor never disclosed the reasons for the price increases. (Id. ¶ 215.) But on June 29, 2018, in response to the filing of litigation relating to Acthar

, the company issued a press release stating the price of Acthar was not as high as was being reported because both public and private payors received discounts. (Id. ¶ 212.) Plaintiff and other private payors, however, did not receive any discounts. (Id. ¶ 213.)

3. The Marketing Scheme

In 2011, Questcor decided to move beyond the "captive" IS market, and it began marketing Acthar

as a treatment for other conditions, including rheumatoid arthritis. (Id. ¶ 298.) Although the FDA had approved Acthar to treat "acute exacerbations" of conditions like rheumatoid arthritis, the FDA had never approved it as a "long-term treatment" for the disease. (Id. ¶ 318.) In fact, Questcor did not have a clear understanding of how the drug treated diseases other than IS; Acthar's "mechanism of action" was unknown to Questcor. (Id. ¶ 122.)

To overcome the lack of clinical data demonstrating Acthar's

ability to effectively treat rheumatoid arthritis, Questcor hired Medical Science Liaisons ("MSLs") to encourage doctors to prescribe the drug for "unapproved uses and doses." (Id. ¶ 264.) Questcor also engaged doctors, known as Key Opinion Leaders ("KOLs"), to promote the use of Acthar. (Id. ¶¶ 270–71.) Questcor paid these KOLs "handsomely" to promote Acthar for "off-label" uses, such as the long-term treatment of rheumatoid arthritis. (Id. ¶¶ 114, 302.)...