In re Propranolol Antitrust Litig.

249 F.Supp.3d 712

IN RE: PROPRANOLOL ANTITRUST LITIGATION

16-CV-09901 (JSR).

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

Filed April 6, 2017

OPINION AND ORDER

JED S. RAKOFF, United States District Judge

Plaintiffs FKW Holdings and Cesar Castillo (the "Direct Purchasers") and Sergeants Benevolent Association Health & Welfare Fund and American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan (the "End–Payors") bring putative nationwide class actions alleging that defendants illegally conspired to fix the price of the generic drug, propranolol hydrochloride ("Propranolol"). By Bottom–Line Order dated February 27, 2017 (the "Bottom–Line Order"), the Court denied the motion by defendants Heritage Pharmaceuticals Inc. ("Heritage") and Upsher–Smith Laboratories, Inc. ("Upsher–Smith") to dismiss the Direct Purchasers' original complaints for lack of personal jurisdiction. See ECF No. 108. Defendants now jointly move to dismiss the Direct Purchasers' and End–Payors' consolidated amended complaints. For the reasons set forth below, this Opinion and Order denies defendants' instant motions, except for part of their motion to dismiss certain state law claims in the End–Payors' action. This Opinion and Order also explains the reasoning for the previous Bottom–Line Order.

On a motion to dismiss, the Court accepts all well-pleaded factual allegations as true and draws all reasonable inferences in favor of the non-moving party. See Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008). In the antitrust context, stating a claim under Section 1 of the Sherman Act "requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Propranolol is the generic version of Inderal and comes in two forms: capsules and tablets. Direct Purchasers' Consolidated Amended Complaint ("DPP") ¶¶ 81–83, ECF No. 109; End–Payors' Consolidated Amended Complaint ("EPP") ¶¶ 1–2, 46–51, Dkt. No. 17–cv–01039, ECF No. 60. The pleadings allege two conspiracies, with one overlapping defendant, to manipulate the price of both forms of the drug. DPP ¶¶ 8–9; EPP ¶¶ 1–2, 46–51. The defendants in the "Capsules Conspiracy" are Actavis Elizabeth, LLC ("Actavis"), Breckenridge Pharmaceuticals, Inc. ("Breckenridge"), and Upsher–Smith (collectively, the "Capsules Defendants"). DPP ¶¶ 46–62; EPP ¶¶ 19–31. The defendants in the "Tablets Conspiracy" are Mylan Inc., Mylan Pharmaceuticals Inc., and UDL Laboratories, Inc. (collectively, "Mylan"), Teva Pharmaceuticals USA, Inc., and Pliva, Inc. (collectively, "Teva"), Endo International PLC, Par Pharmaceuticals Holdings, Inc., and Qualitest Pharmaceuticals, Inc. (collectively, "Par"), Heritage, and Actavis (collectively, the "Tablets Defendants"). Id.

The well-pleaded allegations of the complaints here at issue show the following facts:

Prior to 2013, the price of Propranolol had steadily declined since it entered the market in 1967. DPP ¶ 82; EPP ¶ 40; see DPP ¶¶ 78–79; EPP ¶ 67. This was not unusual in the case of generic drugs. In particular, because federal law requires each generic to be "readily substitutable for another generic of the same brand drug, the products behave like commodities, with pricing being the main differentiating feature and the basis for competition among manufacturers." Id. As a result, prices in a "mature generic market, such as the market for [P]ropranolol" will fall until they stabilize at the generic manufacturers' marginal costs of production. DPP ¶ 82; EPP ¶ 40.

Accordingly to the complaints, the prices of various dosages of Propranolol capsules had either consistently declined or somewhat stabilized prior to the Capsules Conspiracy. DPP ¶¶ 154; EPP ¶¶ 48–52. In either March or November of 2013,¹ however, the Capsules Defendants abruptly began increasing their effective prices by significant amounts, DPP ¶¶ 114, 124, 126; EPP ¶¶ 2, 42, and continued to raise prices until approximately May 2014. EPP ¶¶ 153–173. Prices then remained relatively stable for a period of months until slightly falling to amounts still above pre-conspiracy levels. Id.

Several months later, a similar occurrence developed with regard to Propranolol tablets. After years of stable or declining prices, the Tablet Defendants abruptly raised the effective price of all dosages of Propranolol tablets in early 2015. Defendant Heritage increased effective prices by 102%–151% in January 2015, and, a few weeks later, defendants Teva and Actavis increased their own prices in March 2015 by 566%–898% and 395%–638%, respectively, DPP ¶ 186; EPP ¶¶ 49–52. Defendants Mylan and Par began increasing their prices soon after, in April and June, by amounts ranging from 55% to 607% and 52% to 216%, respectively. DPP ¶¶ 193–194, 199–201; EPP ¶¶ 49–52.² Defendants' prices continued to increase over the next year by as much as 1, 736%. DPP ¶¶ 136–213; EPP ¶¶ 49–52; see DPP ¶ 202 ("Between December 2014 and November 2015, Actavis raised the price of 80mg propranolol tablets by 1,736% (from $0.03 per tablet to $0.46 per tablet).").

Economic factors make the Propranolol market susceptible to collusion, including industry concentration, barriers to entry, lack of substitutes, demand inelasticity, and interchangeability. See DPP ¶¶ 225–245; EPP ¶¶ 53–68. In addition, during the period of these price increases, there was no significant increase in production costs, no significant decrease in supply, and no significant increase in demand. DPP ¶¶ 214, 254–255; EPP ¶43. Federal law further requires drug manufacturers to report potential drug shortages to the Food and Drug Administration ("FDA"), and no supply disruption was reported during the duration of the alleged conspiracies. DPP ¶¶ 222–224.³

Finally, state and federal agencies are conducting large-scale investigations of the generic drug industry for alleged price fixing. DPP ¶¶ 10–23, 38–45, 92–94, 241; EPP ¶¶ 5–6, 103, 108. Defendant Mylan disclosed in October 2016 that it had received a subpoena from the Department of Justice ("DOJ") seeking information relating to the "marketing, pricing and sale" of several generic drugs, "including Propranolol." DPP ¶ 43; EPP ¶ 103. Two months later, on December 14, 2016, the DOJ charged the former chief executive officer ("CEO") and former president of defendant Heritage for criminal violations of the Sherman Act in connection with the generic drugs Glyburide and Doxycycline Hyclate DR. DPP ¶¶ 15–16; EPP ¶ 5, 104. The two individuals, Jason Malek and Jeffrey Glazer, subsequently plead guilty and are cooperating. Id.

Plaintiff FWK Holdings LLC filed suit against defendants on December 23, 2016 on behalf of direct purchasers of Propranolol for violations of § 1 of the Sherman Act. Plaintiff Cesar Castillo Inc. filed a largely identical class action approximately two weeks later on January 5, 2017. The Court consolidated the two complaints by Order dated January 11, 2017, and defendants filed two motions to dismiss on January 27, 2017: the first, joined by all defendants, sought dismissal for failure to state a claim; the second, joined by defendants Heritage and Upsher–Smith, sought dismissal for failure to plead personal jurisdiction.

Before defendants' motions could be fully briefed, however, the Government moved to intervene on January 30, 2016, and, upon consent of the parties, the Court granted the Government leave on February 7, 2017. Three days later, on February 10, 2017, the End–Payors filed class action complaints on behalf of end purchasers of Propranolol seeking injunctive relief under § 1 of the Sherman Act, damages under the antitrust laws and consumer protection laws of numerous states, and restitution for common law unjust enrichment. The Court subsequently held a scheduling conference on February 21, 2017, during which the Government moved for a stay of discovery in both actions because of the "overlap" between the civil cases and "the Government's ongoing criminal investigation." See Transcript dated February 21, 2017 at 12, ECF No. 112. The Court denied the motion but granted leave for the Government to file an ex parte motion for reconsideration, id. at 14, and the Government timely filed its submission. See Memorandum of Law in Support of the United States' Motion for Reconsideration of Its Motion for a Limited Stay of Certain Discovery ("Government's Mot. for Recons."), ECF No. 102.⁴

The Court held oral argument on the motions to dismiss the Direct Purchasers' actions on February 24, 2017 and, at the conclusion of the hearing, issued a bench ruling denying the motion by defendants Heritage and Upsher–Smith to dismiss the Direct Purchasers' complaints for lack of personal jurisdiction. The Court subsequently issued its Bottom–Line Order on February 27, 2017, dismissing with prejudice the Direct Purchasers' capsules claim against defendant Mylan (on consent of the parties), confirming its bench ruling denying defendants' personal jurisdiction motion, and postponing ruling on the merits motion so as to allow the Direct Purchasers to file amended complaints. See ECF No. 108. The same day, the Court also issued an Order granting in part and denying in part the Government's motion for reconsideration of its request for a partial stay of discovery. See ECF No. 107.

The Direct Purchasers and End–Payors filed consolidated amended complaints on February 27, 2017 and March 3, 2017, and defendants timely filed supplemental briefing in the Direct Purchasers' action and moved to dismiss the End–Payors' action for lack of standing and failure to state a claim.⁵ On March 9, 2017, the Court issued an Order consolidating the actions of the End–Payors...