United States District Court, D. New Jersey
MICHAEL VAZQUEZ, U.S.D.J.
matter concerns antitrust allegations in the Medicare Part D
("Part D") prescription drug market. D.E. 64.
Plaintiff, Shire US, Inc. ("Shire"), alleges that
Defendants are engaged in an "ongoing, overarching, and
interconnected scheme" to systematically block Plaintiff
from competing with Defendants in the Part D prescription
drug market for treatment of dry eye disease in violation of
Sections 1 and 2 of the Sherman Act and state law. D.E. 64
¶¶ 1, 25. Defendants consist of Allergan, Inc.;
Allergan Sales, LLC; and AllerganUSA, Inc. (collectively
"Defendants" or "Allergan"). The present
matter comes before the Court on Defendants' motion to
dismiss Plaintiffs First Amended Complaint ("FAC")
for failure to state a claim pursuant to Federal Rule of
Civil Procedure 12(b)(6). D.E. 14. The Court reviewed all
submissions and held oral argument on February 26,
2019. For the reasons that follow, Defendants' motion to
dismiss is granted.
Shire alleges that Allergan is coercing Part D prescription
drug plans to effectively exclude Shire's superior dry
eye disease ("DED") treatment drug from the market
through a combination of anticompetitive bundling and
exclusive dealing arrangements. FAC ¶ 1 • DED
occurs when the eye does not produce enough tears or when
tears are not of the correct consistency. Id. ¶
34. The disease is evidenced by inflammation and damage to
the ocular surface, resulting in blurry or fluctuating vision
and eye fatigue. Id. About one million Americans
currently receive prescription drug treatment for DED.
Id. ¶ 36.
Parties and Their Products
and Allergan are competitors in the pharmaceutical industry.
Id. Shire is a New Jersey pharmaceutical company
that develops, manufactures, markets, and distributes
pharmaceutical products worldwide. Id. ¶ 26.
Allergan is a Delaware pharmaceutical company that engages in
research, development, manufacturing, sales, distribution,
and marketing of specialty pharmaceutical products.
Id. ¶ 30.
companies offer a prescription drug for the treatment of DED.
Shire offers Xiidra® and Allergan offers Restasis®.
Id. ¶ 1. Xiidra and Restasis are the only
FDA-approved prescription drugs on the market for treatment
of DED. Id. ¶ 38. There are no reasonably
available substitutes to treat DED. Id. ¶ 116.
Over-the-counter treatments, such as artificial tears, are
insufficient to treat the underlying inflammation that causes
approvals for Xiidra and Restasis are different in scope.
Id. In July of 2016, the FDA approved Shire's
Xiidra for treatment of both the symptoms and signs of DED.
Id. ¶ 8. Clinical studies show that patients
taking Xiidra experienced relief from DED symptoms of within
as little as two weeks, and from underlying inflammatory
conditions within six to twelve weeks. Id. ¶ 8.
In contrast, the FDA has approved Restasis® only for
treatment of a specific symptom of DED - reduced tear fluid
volume - which affects only ten percent of those with DED.
Id. ¶ 38. Restasis has been on the market for
fifteen years, during which time patients have reported
ocular burning from using the drug. Id. ¶¶
1, 40. One study indicated that 23% of patients discontinued
use of Restasis within three months of first using it and 43%
of patients stopped use within six months. Id.
¶ 40. Clinical studies reflect that it typically takes
longer than six months for Restasis to become effective.
Id. ¶ 40.
Xiidra's potential advantages over Restasis, it has been
referred to by industry officials as a "big game
changer." Id. ¶ 47. In the two years
following its launch in 2016, Xiidra captured approximately
35% of the commercial DED market, and around 10% of the Part
D DED market. Id. ¶ 122. Restasis maintains
approximately 90% of the Part D DED market. Tic/. ¶ 131.
Part D DED Market
purposes of its antitrust claims, Plaintiff identifies the
Part D DED market as the relevant product market.
Id. ¶ 115. Congress passed Medicare to provide
affordable medical assistance to the elderly, and enacted
Part D specifically as an optional outpatient prescription
drug program for senior citizens to receive discounted and
subsidized prescription drugs. Id. ¶¶
50-53. Because DED is a condition that progresses with age,
it disproportionally affects the elderly. Id. ¶
37. Prescriptions for DED treatment under Part D account for
approximately 40% of all DED prescriptions.
in Part D can choose from a variety of plans. Id.
¶ 53. The list of drugs covered by a particular plan is
called the plan's "formulary." Id.
¶ 54. Formularies offer drugs in a number of tiers that
dictate the patient's copayment. Id. ¶ 61.
Drugs with the lowest copayment are listed in the
"preferred" tier, followed by the
"non-preferred" tier. Id. ¶ 61. If a
drug is not listed on a formulary, then it is considered
"not covered" and the patient must either pay for
the drug in full (at a price that is typically two to five
times higher than that listed on the formulary) or have his
or her physician file a successful appeal with the plan
seeking an exception. Id. Hence, drugs not covered on
formularies are faced with a competitive disadvantage in the
Part D marketplace. Id. ¶64.
alleges that commercial prescription drug plans are not
substitutes for Part D because individuals covered by Part D
(individuals aged 65 and older or with permanent
disabilities) receive lower premiums for a comprehensive list
of prescription drugs. Thus, Part D participants have no need
for traditional, commercial prescription drug plans.
Id. ¶ 117. In fact, Plaintiff alleges that it,
Defendants, and other industry participants recognize Part D
as its own independent market, often using different staff or
hiring third parties to engage with Part D administrators.
Id. ¶ 118. Plaintiff adds that the Part D
administrators also treat the Part D DED market differently
than any separate commercial business that they may engage
in. Id. ¶ 120.
Alleged Anticompetitive Conduct
essentially alleges two forms of anticompetitive conduct by
Defendants: anticompetitive bundling and exclusive dealing
contracts. Id. ¶¶ 126-27. First, Plaintiff
alleges that Defendants engaged in anticompetitive bundling
by contracting with "Plan 1" and "Plan 2"
to offer Restasis in a bundled portfolio of drugs at a price
below its average variable cost. Id. ¶¶
86, 91, 97. Second, Plaintiff alleges that Defendants engaged
in an exclusive dealing contract with "Plan 3"
whereby the plan is contractually barred from offering any
other DED drug on its formulary for the foreseeable future.
Id. ¶ 107.
review of the seller-side of the Part D market is required to
properly understand these claims. "Pharmaceutical
companies negotiate annually with Part D plans to gain
placement of their drugs on the plans' formularies for
the coming year." Id. ¶ 68. The
negotiations usually begin around April of "the
preceding plan year and culminate in August of the same year
when the plans finalize their formularies for the coming
year." Id. Certain Part D plans delegate their
negotiation and selection process to administrators.
Id. ¶ 72. For example, "several of the top
ten Part D plans and many smaller ones use another top ten
plan (Plan 3) to negotiate and administer their formulary
coverage." Id. As a result, Plan 3 negotiates
with pharmaceutical companies on behalf of numerous Part D
plans. Id. Similarly, "[p]harmaceutical
companies typically contract with third party agents to
oversee negotiations with plans for placement of their drugs
on the plans' formularies," often to "keep
[their] dealings with Part D plans separate from [their]
dealings for commercial business." Id. ¶
these annual negotiations, a pharmaceutical company seeks to
secure its drugs' preferential placement on the Part D
plan's formulary by minimizing the Part D plan's
costs in offering the drugs. Id. ¶ 69. Although
pharmaceutical companies do not sell their drugs directly to
Part D plans, Part D plans reimburse pharmacies for
dispensing covered drugs to participants. Id. ¶
60. Therefore, to lower the plan's reimbursement
expenses, pharmaceutical companies offer rebates and
discounts to patients who acquire a prescription drug through
a particular Part D plan. Id. ¶¶ 69-70.
Pharmaceutical companies also offer price protection, meaning
that if the price for their drug increases during the
contractual term, rebates will also proportionally increase,
ensuring that the plans do not incur any additional costs.
Id. ¶ 70.
three plans in Part D are Plan 1, Plan 2, and Plan
About 70% of the Part D prescriptions for DED treatment are
derived from the three plans. Id. ¶ 109.
Despite Plaintiffs view that Xiidra is superior to Restasis,
Plaintiff has been unable to secure a "preferred"
position for Xiidra on any of the formularies of these plans.
Id. ¶¶ 87-109. Plaintiff alleges that this
is because Defendants have unlawfully engaged in (1)
anticompetitive bundling with Plan 1 and Plan 2, and (2)
improper exclusionary contracting with Plan 3. Id.
¶¶ 86, 91, 97, 107.
alleges that Allergan's technique of "bundling"
rebates across its products, including Restasis, to secure
exclusivity on top plans' formularies constitutes
unlawful anticompetitive conduct. Id. ¶ 148.
Allergan offers a number of products in its Part D portfolio
aside from Restatsis. Id. ¶ 74. Among these
other products are Lumigan®, Combigan®, and Alphagan
P®. Id. The FDA approved Lumigan, Combigan, and
Alphagan P for treatment of high eye pressure in patients
with glaucoma or ocular tension. Id. ¶¶
75-77. The FDA has not approved a generic substitute for any
of these three drugs in the United States. Id. For
the four quarters spanning from the third quarter of 2016 to
the second quarter of 2017, the three glaucoma drugs
accounted for almost $750, 000, 000 of Allergan's sales
in Part D plans. Id. ¶ 78. Restasis accounted
for $719, 000, 000 of Allergan's sales in Part D plans
during this same period. Id. Thus, Plaintiff alleges
that Allergan has "more than enough financial
wherewithal" to offer Restasis to Part D plans "at
an effective price that is below Allergan's average
variable cost" and potentially even "for free"
given the commercially advantageous positioning of
Allergan's other offerings. Id.
Plan 1, which is responsible for nearly 25% of the Part D DED
market, Plaintiff offered "substantial rebates and
discounts" in attempts to have Xiidra placed on the
plan's formulary. Id. ¶ 89. In response,
Plan 1 informed Plaintiff that any placement of Xiidra on its
formulary would result in the loss of rebates from Allergan,
stating that "[y]ou could give [Xiidra] to us for free,
and the numbers still wouldn't work." Id.
¶ 89. Further, Plan 1 told Plaintiff that it would need
Allergan's "permission" for Xiidra to be listed
on the formulary. Id. ¶ 90. Plan 1 eventually
listed Xiidra on its formulary but only in its
"non-preferred" tier, resulting in copayments that
are two to five times higher than if Xiidra was listed in the
"preferred tier" with Restasis. Id.
Plaintiff believes that if the plan's formulary included
Xiidra in any capacity other than "non-preferred,"
Plan 1 would "lose the price protection, rebates, and
discounts on the entirety of Allergan's Part D
portfolio." Id. ¶ 91. Plaintiff alleges
that '[t]his makes it impossible for Shire to offer
discounts on Xiidra that compete with the bundled rebates
provided by Allergan and keep Xiidra's price above its
Plan 2, which is responsible for over 11% of the Part D DED
market, Plaintiff also offered "substantial rebates and
discounts" to list Xiidra on its formulary. Id.
¶¶ 92-93. Plan 2 stated that listing Xiidra on its
formulary would contractually cause Plan 2 to lose all of its
"price protection" and "bundled rebates"
from Allergan. Id. ¶ 93. Plan 2 added that it
would need to first "check with Allergan and get its
permission[.]" Id. ¶ 94. Nevertheless, the
Centers for Medicare & Medicaid Services
("CMS"), who contract with Part D administrators,
id. ¶ 53, later informed Plan 2 that it would
have to offer Xiidra given its formulary classifications.
Id. ¶ 94. Plan 2, however, only placed Xiidra
on its formulary as "non-preferred" with prior
authorization and "step through" requirements. This
means that Plan 2 patients must first try Restasis and
experience "failure" before Plan 2 will contribute
towards their prescriptions for Xiidra. Id. ¶
94. Additionally, the copay for Xiidra is still two to five
times higher than if it was listed in the
"preferred" tier. Id. ¶ 95. Plaintiff
alleges that "[t]his makes it impossible for Shire to
offer discounts on Xiidra that compete with the bundled
rebates provided by Allergan and keep Xiidra's price
above its cost." Id. ¶ 97.
alleges that Defendants had an exclusionary agreement with
Plan 3. Id. ¶ 107. Plan 3 is responsible for
34% of the Part D DED market. Id. ¶ 98.
Plaintiff alleges that it met the pricing requirements that
Plan 3 had indicated would secure Xiidra's listing on
Plan 3's formulary. Id. ¶ 100. Plan 3
confirmed that the offered pricing would "get it
done" and that Plaintiff need not improve its offer.
Id. ¶ 100. Plan 3 later retracted these
statements, explaining that Xiidra could not be added to the
formulary because it would create "too much
disruption" as Allergan's contract with Plan 3
prohibited offering another DED treatment on the formulary.
Id. ¶¶ 101-102. A "Shire
executive" then asked Plan 3 how it could "get
out" of this position in the future, to which Plan 3
responded, "you don't." Id. ¶ 102.
Therefore, Xiidra is "not covered" by Plan 3's
formulary, requiring Plan 3 patients to pay two to five times
more for Xiidra than if Xiidra was listed as a
"preferred" drug on the formulary like Restatsis.
Id. ¶ 104. Plaintiff alleges that
Defendants' agreement with Plan 3 prohibits the plan from
contracting with Defendants' competitors (such as
Plaintiff) beyond the one-year term, regardless of the offer
that the competitor may make. Id. ¶ 107.
also relies on a public statement by Allergan's CEO in
mid-2017, stating that Allergan has "blocked"
Plaintiff from the Part D DED market. Id. ¶ 14.
Plaintiff continues that the financial terms (including
discounts, rebates, and price protection) that Plaintiff
offered the three Part D plans "far exceeded" the
discount rates on Xiidra that Plaintiff successfully offered
to commercial prescription drug plans. Id. ¶
106. Thus, Plaintiff alleges that Allergan is engaged in an
"overarching and interconnected scheme of
anticompetitive tactics, which have successfully blocked
Shire's access to the Part D market[.]" Id.
alleges that Allergan's conduct will effectively deny or
severely limit Part D beneficiaries' access to Xiidra,
the only drug approved for the treatment of both the signs
and symptoms of DED. Id. ¶ 136. Plaintiff
asserts that Defendants' conduct forces Part D patients
(i) to make higher copayments for Xiidra; (ii) to accept less
value for their copayment because Restasis is inferior to
Xiidra; and (iii) to incur higher costs for DED treatment by
purchasing a topical steroid used in conjunction with
Restasis treatment, which is unnecessary when using Xiidra.
Id. ¶ 137. Plaintiff continues that it
"will continue to lose millions of dollars in sales and
profits from within the [Part D DED market]" as a result
of Defendants' actions. Id. ¶ 151.
filed its Complaint on October 2, 2017, alleging seven causes
of action: (I) monopolization under the Sherman Act, 15
U.S.C. § 2; (II) attempted monopolization under the
Sherman Act, 15 U.S.C. § 2; (III) agreements in
restraint of trade under the Sherman Act, 15 U.S.C. § 1;
(IV) monopolization under the New Jersey Antitrust Act,
N.J.S. § 56:9-4; (V) attempted monopolization under the
New Jersey Antitrust Act, N.J.S. § 56:9-4; (VI)
agreements in restraint of trade under the New Jersey
Antitrust Act, N.J.S. § 56:9-3; and (VII) tortious
interference with business relationships. Compl. ¶ 25.
Defendants filed a motion to dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(6) on December 5, 2017. D.E. 14.
Plaintiff filed opposition, D.E. 31, to which Defendants
replied, D.E. 32. Plaintiff filed a letter of supplemental
authority, D.E. 48, and Defendants responded, D.E. 50.
September 28, 2018, Plaintiff sought leave to amend its
Complaint for the sole purpose of including money damages in
the relief sought. D.E. 55. Because the proposed amendment
did not alter any of the substantive allegations set forth in
the original Complaint, the parties agreed that
Defendants' pending motion to dismiss would apply to the
FAC. See D.E. 58. On February 26, 2019, the Court
held oral argument on the motion. D.E. 70.
STANDARD OF REVIEW
12(b)(6) of the Federal Rules of Civil Procedure permits a
defendant to move to dismiss a count for "failure to
state a claim upon which relief can be granted[.]" To
withstand a motion to dismiss under Rule 12(b)(6), a
plaintiff must allege "enough facts to state a claim to
relief that is plausible on its face." Bell Atl.
Corp. v. Twombly,550 U.S. 544, 570 (2007). A complaint
is plausible on its face when there is enough factual content
"that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct
alleged." Ashcroft v. Iqbal,556 U.S. 662, 678
(2009). Although the plausibility standard "does not
impose a probability requirement, it does require a pleading
to show more than a sheer possibility that a defendant has
acted unlawfully." Connelly v. Lane Const.
Corp.,809 F.3d 780, 786 (3d Cir. 2016) (internal