Minnesota v. Sanofi-Aventis U.S. LLC

STATE OF MINNESOTA, by its Attorney General Keith Ellison, Plaintiff, v. SANOFI-AVENTIS U.S. LLC, et al., Defendants.

Case No. 3:18-cv-14999 (BRM) (LHG)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

March 31, 2020

NOT FOR PUBLICATION

OPINION (Redacted)

MARTINOTTI, DISTRICT JUDGE

Before the Court is a Joint Motion to Dismiss filed by Defendants Sanofi-Aventis U.S. LCC ("Sanofi"), Novo Nordisk, Inc. ("Novo Nordisk"), and Eli Lilly and Company ("Eli Lilly") (collectively, "Defendants"), seeking to dismiss the First Amended Complaint ("First Amended Complaint") of Plaintiff The State of Minnesota ("Plaintiff" or "State"). (ECF No. 47.) Plaintiff filed an Opposition to Defendants' Motion to Dismiss (ECF No. 54), Defendants filed a Reply Brief to Plaintiff's Opposition (ECF No. 57), and Plaintiff filed a sur-reply (ECF No. 63). For the reasons set forth herein, Defendants' Motion to Dismiss is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

A. Factual Background¹

Defendants are pharmaceutical manufacturers and three of the largest insulin manufacturers in the world. (ECF No. 22 ¶ 1.) Plaintiffs allege Defendants have engaged in a pricing scheme whereby they "publish and disseminate deceptively and misleadingly inflated benchmark prices for their [insulin] products, which allow them to offer higher rebates to [pharmacy benefit managers ("PBMs")] while still earning approximately the same, secret net price that they previously received." (Id. ¶ 3.) As a result of Defendants' actions, Minnesota residents who have purchased insulin products have been harmed. (Id.)

1. The Impact of Diabetes

Approximately 445,000 Minnesota residents currently have diabetes and an additional 19,000 residents are diagnosed every year. (ECF No. 22 ¶ 12.) Individuals who have diabetes require insulin injections "to help process sugar and prevent long-term complications" from the disease. (Id. ¶ 14.) Plaintiff brings this action "to enforce [the State's] laws, to vindicate the State's sovereign and quasi-sovereign interests in the integrity of its marketplace and the health and economic well-being of its residents, and to remediate all harm arising out of—and provide full relief for—violations of Minnesota and federal law." (Id. ¶ 5.) Plaintiff alleges Defendants have harmed "Minnesota residents without insurance, Minnesota residents with high-deductible health plans, Minnesota residents who pay coinsurance, Minnesota Medicare beneficiaries, and the Minnesota Department of Corrections ("Minnesota DOC"), all of whom have paid more for a live-saving medication because of Defendants' conduct." (Id. ¶ 4.) Plaintiff requests this Court toll "[a]ll relevant statutes of limitations [because of] Defendants' fraudulent concealment and denial of facts alleged herein." (Id. ¶85.)

Defendants are pharmaceutical companies headquartered in the United States who manufacture rapid-acting and long-acting analog insulins. (Id. ¶¶ 2, 6-8, 17.) Defendant Sanofi makes the "rapid-acting" analog insulin Apidra and the "long-acting" insulins Lantus and Toujeo. (Id. ¶¶ 17-18.) Defendant Novo Nordisk makes the "rapid-acting" analog insulins NovoLog and Fiasp and the "long-acting" insulins Levemir and Tresiba. (Id.) Defendant Eli Lilly makes the "rapid-acting" analog insulin Humalog and also makes Basaglar, a "follow-on biologic of Lantus." (Id.)

Plaintiff alleges Defendants have published "deceptive, misleading, and misrepresentative benchmark prices" for their insulin products, resulting in patients paying exorbitant costs. (Id. ¶ 19.) Moreover, Defendants have increased the benchmark price for their long-acting insulins at least ten times since 2008. (Id.) The benchmark price of a 10-milliliter vial of Lantus has increased from $99.35 in 2010 to $269.54 today. (Id.) The benchmark price of Levemir has increased from $113.81 in 2008 to $293.75 today. (Id.) The benchmark prices of Defendants' rapid-acting insulins have also increased. (Id. ¶ 19.) NovoLog has increased in price from $132.74 in 2008 to $289.36 today, Humalog increased from $122.60 in 2011 to $274.70 today, and Apidra increased from $93.05 in 2010 to $269.91 today. (Id.) Plaintiff avers that these price increases "are not tied to any meaningful change or improvement to Defendants' products" and in fact there have been "no meaningful improvement[s] to [Defendants'] products since they introduced them to the market." (Id. ¶ 22.) These price increases have resulted in a substantial burden to diabetes patients, particularly "the uninsured, those with high-deductible health insurance [plans], and the elderlyoperating on limited budgets." (Id. ¶ 23.) The high costs have left some patients "unable to afford to keep up with their treatment." (Id. ¶ 24.) Patients taking less than the required dose of insulin "face increased risks of kidney dialysis, heart attacks, nerve damage, amputation, and ketoacidosis," which in turn increases their overall medical expenses. (Id. ¶ 26.)

2. Drug Reimbursement

The approximate price at which a drug manufacturer sells a drug to a wholesale drug distributor is known as the Wholesale Acquisition Cost ("WAC"). (Id. ¶ 31.) This price is generally set by the manufacturer, including Defendants. (Id.). The WAC does not take into account rebates or other discounts a manufacturer offers to pharmacy benefit managers ("PBMs"). (Id.) Therefore, the actual price a manufacturer receives for the sale of a drug is less than the WAC. (Id.) Wholesale drug distributors often markup the WAC price prior to selling the drugs to pharmacies. (Id.). "The manufacturer-set WAC is generally used to establish a product's Average Wholesale Price ("AWP")," although certain markups are often included. (Id. ¶ 32.) Because the AWP "is merely a mathematical function of WAC," a manufacturer effectively sets both prices. (Id.)² The AWP is used to calculate the price at which health plans and PBMs "reimburse pharmacies for prescriptions that they fill for plan members." (Id. ¶ 33.)

Drug manufacturers, like Defendants, publish the benchmark prices for their drugs through a variety of public reporting services. (Id. ¶ 34.) These reporting services "rely solely on Defendants' representations about the price they receive" and make "no independent effort to verify" the reported price. (Id.) Plaintiff claims Defendants are aware health plans, wholesalers, pharmacies, and PBMs rely on the benchmark prices published by these reporting services to settheir own prices or determine the "reimbursement rates that they pay to pharmacies." (Id. ¶¶ 34, 36.) If Defendants raise the benchmark price of one of their drugs, the price paid by most Minnesota patients also increases. (Id. ¶ 36.) Markups added to the benchmark price by pharmacies and wholesalers do not affect the price paid by Minnesota patients because "Defendants' benchmark prices are the lodestar for the price charged during all subsequent sales of insulin. (Id.)

PBMs are hired by health plans to manage the pharmaceutical benefits of their members. (Id. ¶ 37.) "PBMs create contractual networks of pharmacies" and "negotiate the rates at which the health plans reimburse pharmacies in the PBMs' networks for the prescriptions the pharmacies fill." (Id.) PBMs and health plans create and publish drug formularies. (Id. ¶ 39.) A formulary lists the prescription drugs a health plan will reimburse a pharmacy for on behalf of their members. (Id.) Placement on a health plan's drug formulary is highly sought after. A drug not present on a health plan's formulary will typically not be covered by the health plan. (Id.) Similarly, if a doctor prescribes a patient a non-covered medication, the patient "must generally pay the entire cost of the drug out-of-pocket." (Id.)

Although historically PBMs liberally included drugs on their formularies, more recently they have begun to [Redacted] (Id. ¶ 40.) In so doing, PBMs are able to [Redacted] (Id.) Drug manufacturers, including Defendants, will offer rebates in exchange for favorable placement on the PBM's formulary. (Id. ¶ 41.) Such rebates are generally calculated by "taking a percentage of the drug's benchmark price and multiplying it by the number of health plan members who utilized that drugin a given time period." (Id.) PBMs will retain all or a portion of the rebate as compensation for their services, but may also distribute a portion to the health plan. (Id.)

Drug manufacturers generally will offer larger rebates if their product is given "preferred" placement on a formulary, compared to a competing product. (Id. ¶ 42.) The more preferable the placement, the greater the rebate. (Id.) Patients are required to pay less out-of-pocket for a drug that receives "preferred" placement on a formulary. (Id.) This relationship creates a dynamic wherein PBMs will often make decisions about formulary placement "based on which manufacturer offers the most favorable rebate terms to the PBM." (Id.)

PBMs and drug manufacturers regard the "amount and nature of the rebates" to be "trade secrets" and do not disclose them, not even to wholesalers or pharmacies. (Id. ¶ 43.) Although health plans know the price at which a pharmacy is reimbursed for a given drug, "they often do not know the total rebate for the drug that the PBM is paid by a manufacturer" because PBMs generally do not disclose "the portion of the rebate that they retain." (Id.) Therefore, neither the health plan nor members of the public who purchase the drug know the "true prices that PBMs have negotiated with pharmacies." (Id. ¶ 44.) The net sales price a drug manufacturer receives, taking into account the rebates they pay, is similarly "concealed from and not known by wholesalers, pharmacies, health plans, or the public." (Id.)

3. The Pricing Scheme

Defendants have exploited this complex reimbursement system for their benefit. (Id. ¶ 45.) "Defendants' analog insulin products are largely interchangeable" and PBMs generally must only include one long-acting insulin and one...