throbber
Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 1 of 105 PageID: 1037
`
`Peter S. Pearlman
`Matthew F. Gately
`COHN LIFLAND PEARLMAN
`HERRMANN & KNOPF, LLP
`Park 80 West Plaza One
`250 Pehle Avenue, Suite 401
`Saddle Brook, New Jersey 07663
`(201) 845-9600
`psp@njlawfirm.com
`mfg@njlawfirm.com
`
`Liaison Counsel for Direct Purchaser Class
`
`[Additional Counsel on Signature Page]
`
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
`
`
`Case No. 3:20-cv-3426
`(BRM)(LHG)
`
`
`FIRST AMENDED CLASS
`ACTION COMPLAINT
`
`Demand for Jury Trial
`
`)))))))))
`
`
`
`
`
`
`IN RE: DIRECT PURCHASER
`INSULIN PRICING LITIGATION
`
`
`This Document Relates To:
`
`All Actions
`
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 2 of 105 PageID: 1038
`
`TABLE OF CONTENTS
`
`I.
`
`II.
`
`Summary of the Case ....................................................................................... 1
`
`Jurisdiction and Venue .................................................................................... 3
`
`III. The Parties ....................................................................................................... 5
`
`A.
`
`B.
`
`Plaintiffs ................................................................................................ 5
`
`Defendants ............................................................................................. 5
`
`IV. Factual Background .......................................................................................13
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`G.
`
`The Prevalence of Diabetes in the U.S. ...............................................13
`
`The Development and Importance of Analog Insulins. ......................13
`
`Analog Insulin Brands are Therapeutically Interchangeable. .............15
`
`The Participants in the Distribution and Sale of
`Pharmaceuticals. ..................................................................................16
`
`The Power of the PBMs. .....................................................................17
`
`PBMs Control Drug Formularies ........................................................20
`
`Federal and State Government Investigations of Insulin Pricing
`and “Rebates.” .....................................................................................26
`
`V. Defendants’ Kickback Scheme - PBMs Solicit and Receive Kickbacks
`for Formulary Placement From the Manufacturers That Were Not
`Payment for Services Actually Rendered. .....................................................29
`
`VI. Defendants’ Price-Fixing Scheme .................................................................43
`
`A. Manufacturer Defendants Increased the Insulin Drug Prices in
`Lockstep. .............................................................................................43
`
`B.
`
`C.
`
`In Person Meetings ..............................................................................47
`
`The Analog Insulin Markets are Highly Susceptible to
`Collusion. ............................................................................................50
`
`
`
`i
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`

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`VII.
`
`Interstate Trade and Commerce .....................................................................51
`
`VIII. Antitrust Injury ..............................................................................................52
`
`IX. Fraud, Fraudulent Concealment and Equitable Tolling ................................54
`
`X.
`
`Class Action Allegations ...............................................................................62
`
`XI. Claims for Relief ............................................................................................65
`
`Count One - Violation of the Robinson-Patman Act ....................................65
`
`Count Two - Violation of the Sherman Act ..................................................67
`
`Count Three - Conspiracy to Violate the Sherman Act .................................70
`
`Count Four - Violation of RICO, 18 U.S.C. § 1962(c) .................................72
`
`A.
`
`B.
`
`Conduct of the RICO Enterprises’ Affairs ..........................................83
`
`Defendants’ Pattern of Racketeering Activity ....................................85
`
`1.
`
`Unlawful Bribery Under the Anti-Kickback Act ......................86
`
`2. Mail and Wire Fraud .................................................................88
`
`C.
`
`Harm Caused by the Defendants’ Bribery, Kickback and Fraud
`Scheme ................................................................................................93
`
`Count Five - Violation of RICO, 18 U.S.C. § 1962(d) .................................96
`
`XII. Prayer for Relief ............................................................................................99
`
`XIII. Jury Demand ..................................................................................................99
`
`
`
`
`
`ii
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 4 of 105 PageID: 1040
`
`FWK Holdings, LLC (“FWK”) and Professional Drug Company, Inc.
`
`(“PDC”) (collectively, “Plaintiffs”), individually and on behalf of all others
`
`similarly situated, allege the following based upon personal knowledge as to
`
`Plaintiffs, the investigation of counsel, and information and belief. Plaintiffs
`
`believe that substantial evidentiary support exists for the allegations set forth
`
`herein.
`
`I.
`
`Summary of the Case
`
`1.
`
`Defendants herein are the drug companies Eli Lilly and Company
`
`(“Eli Lilly”), Novo Nordisk Inc. (“Novo”) and Sanofi-Aventis U.S. LLC
`
`(“Sanofi”) (together, the “Manufacturer Defendants”), and pharmacy benefit
`
`managers (“PBMs”) CVS Health Corporation, CaremarkPCS Health, LLC,
`
`Caremark LLC, Caremark Rx LLC, Express Scripts Holding Company, Express
`
`Scripts, Inc., Medco Health Solutions, Inc., UnitedHealth Group Inc., United
`
`Healthcare Services, Inc., Optum, Inc., OptumRx Holdings, LLC, and OptumRx,
`
`Inc. (together, the “PBM Defendants”).1
`
`2.
`
`Plaintiffs bring this class action to recover for the injuries caused by
`
`Defendants’ unlawful practices in connection with the marketing, pricing, sale and
`
`distribution of the long-acting analog insulins, Lantus® (“Lantus”) and Levemir®
`
`
`1 The PBM Defendants and Manufacturer Defendants are jointly referred to herein
`as “Defendants.”
`
`
`
`1
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 5 of 105 PageID: 1041
`
`(“Levemir”) and the rapid-acting analog insulins, NovoLog® (“NovoLog”) and
`
`Humalog® (“Humalog”) that began in 2009 and have continued thereafter.
`
`NovoLog, Humalog, Lantus and Levemir are collectively referred to herein as the
`
`“Insulin Drugs.”
`
`3.
`
`First, the PBM Defendants solicited and the Manufacturer Defendants
`
`paid bribes and kickbacks not for services rendered, but to induce the PBMs to
`
`include the Insulin Drugs on health benefit providers’ “formularies” controlled by
`
`the PBMs – formularies that determine whether and to what extent the nation’s
`
`health benefit providers pay for their insureds to receive life sustaining insulins –
`
`in violation of Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c).
`
`4.
`
`Second, in order to pay for these kickbacks, Defendants contracted,
`
`combined or conspired to fix, maintain and stabilize the price of the Insulin Drugs
`
`at supra-competitive levels in violation of Section 1 of the Sherman Act, 15 U.S.C.
`
`§ 1.
`
`5.
`
`Third, Defendants operated an enterprise that secured the sale of the
`
`Insulin Drugs at artificially inflated prices through a pattern of racketeering
`
`activity. Such unlawful conduct included, among other things: publishing
`
`artificially increased prices and systematically making false representations
`
`through the U.S. mail and interstate wires that the operation of the formulary
`
`system (controlled by the PBM Defendants) and the pricing mechanism for the
`
`
`
`2
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 6 of 105 PageID: 1042
`
`Insulin Drugs used by the Manufacturer Defendants operated to reduce the cost of
`
`analog insulin to purchasers. In reality, however, Defendants were systematically
`
`acting to increase prices of the Insulin Drugs by engaging in kickback and price-
`
`fixing schemes – in violation of the provisions of the Racketeer Influenced and
`
`Corrupt Organization Act (“RICO”), 18 U.S.C. §§ 1962(c) & (d).
`
`II.
`
`Jurisdiction and Venue
`
`6.
`
`This Court has jurisdiction over the subject matter of this action
`
`pursuant to 28 U.S.C. §§ 1331, 1337(a), Section 1 of the Sherman Act, 15 U.S.C. §
`
`1, and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26.
`
`7.
`
`This District Court is already adjudicating parallel class action
`
`litigation commenced by consumers who have sued certain defendants for
`
`perpetrating their unlawful scheme to inflate analog insulin prices. See In re
`
`Insulin Pricing Litig., No. 17-699 (D.N.J).
`
`8.
`
`From January 1, 2009 to the present (the “Class Period”), Defendants
`
`sold and shipped the Insulin Drugs in a continuous and uninterrupted flow of
`
`interstate commerce, which included sales of the Insulin Drugs in this District and
`
`throughout the United States. Defendants’ conduct had a direct, substantial, and
`
`reasonably foreseeable effect on interstate commerce in the U.S., including in this
`
`District.
`
`
`
`3
`
`

`

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`
`9.
`
`Throughout the Class Period, Defendants also perpetrated their pattern
`
`of racketeering activity through their use of the U.S. Mail, as well as interstate and
`
`international wires.
`
`10. This Court has personal jurisdiction over each Defendant because,
`
`inter alia: (a) Defendants maintain their principal places of business in this
`
`District; (b) Defendants transacted business throughout the U.S., including in this
`
`District; (c) Defendants participated in the selling and distribution of the Insulin
`
`Drugs throughout the U.S., including in this District; (d) Defendants had and
`
`maintained substantial contacts with the U.S., including in this District; (e)
`
`Defendants were engaged in an unlawful conspiracy and were members of
`
`unlawful enterprises designed to artificially inflate the prices for the Insulin Drugs;
`
`and/or (f) those conspiracies and enterprises were directed at and had the intended
`
`effect of causing injury to persons residing in, located in, or doing business
`
`throughout the U.S., including in this District.
`
`11. Venue is proper in this District pursuant to 18 U.S.C. § 1965, 15
`
`U.S.C. §§ 15 and 22 and 28 U.S.C. §§ 1391(b) and (c) because during the Class
`
`Period Defendants: (a) resided in this District; (b) transacted business in the U.S.,
`
`including in this District; (c) were found in this District; and/or (d) maintained
`
`agents in this District.
`
`
`
`4
`
`

`

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`
`III. The Parties
`
`A.
`
`Plaintiffs
`
`12. Plaintiff FWK is an Illinois limited liability company with its
`
`principal place of business located in Glen Ellyn, Illinois. FWK is the assignee of
`
`antitrust and other claims of Frank W. Kerr Co.
`
`13. Based on information currently available, during the Class Period,
`
`FWK purchased approximately: (i) $113,143,774.13 of Lantus directly from
`
`Defendant Sanofi, (ii) $25,455,136.10 of Levemir and $64,418,385.92 of Novolog
`
`directly from Defendant Novo, and (iii) $45,419,536.95 of Humalog directly from
`
`Defendant Eli Lilly.
`
`14. Professional Drug Company, Inc. is a Mississippi corporation with its
`
`principal place of business located at 186 Bohn Street, Biloxi, Mississippi.
`
`15. Based on information currently available, during the Class Period,
`
`PDC purchased Lantus directly from Defendant Sanofi and purchased Levemir
`
`directly from Defendant Novo.
`
`16. As a direct and proximate result of Defendants’ unlawful conduct,
`
`Plaintiffs paid artificially inflated prices for the Insulin Drugs that they purchased
`
`directly from the Manufacturer Defendants.
`
`B. Defendants
`
`17. Defendant Novo is a Delaware corporation with its principal place of
`
`business located at 800 Scudders Mill Road, Plainsboro, New Jersey. Novo is one
`5
`
`
`
`

`

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`
`of the largest producers of insulin drugs in the U.S. During the Class Period, Novo
`
`manufactured and sold NovoLog and Levemir, among other insulin drugs, to
`
`purchasers in this District and throughout the U.S.
`
`18. Defendant Eli Lilly is an Indiana corporation with its principal place
`
`of business located at Lilly Corporate Center, Indianapolis, Indiana. During the
`
`Class Period, Eli Lilly manufactured and sold Humalog to purchasers in this
`
`District and throughout the U.S.
`
`19. Defendant Sanofi is a Delaware limited liability corporation with its
`
`principal place of business located at 55 Corporate Drive, Bridgewater, New
`
`Jersey. During the Class Period, Sanofi manufactured and sold Lantus to
`
`purchasers in this District and throughout the U.S.
`
`20. Defendant CVS Health Corporation is a Delaware corporation with its
`
`principal place of business located at One CVS Drive, Woonsocket, Rhode Island.
`
`CVS Health is a PBM and, as such, contracts on behalf of health benefit providers
`
`with Novo, Eli Lilly, and Sanofi for purchase of the analog insulin medications
`
`these drug companies make.
`
`21.
`
` Defendant CaremarkPCS Health, LLC, a Delaware limited liability
`
`corporation, formerly known as Caremark PCS Health, L.P., was incorporated in
`
`2002 and is headquartered at 750 West John Carpenter Freeway, Irving, Texas.
`
`CaremarkPCS Health, LLC, d/b/a CVS Caremark, provides pharmacy benefit
`
`
`
`6
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 10 of 105 PageID: 1046
`
`management services to various health benefit providers. CaremarkPCS Health,
`
`LLC is a wholly owned subsidiary of CVS Health Corporation.
`
`22. Defendant Caremark, LLC is a California limited liability company,
`
`with its principal place of business located at 2211 Sanders Road, Northbrook,
`
`Illinois. Caremark, LLC offers pharmacy benefit management services to various
`
`health benefit providers. Caremark, LLC is a wholly owned subsidiary of CVS
`
`Health Corporation.
`
`23. Defendant Caremark Rx, LLC is a Delaware limited liability company
`
`with its principal place of business located at 211 Commerce Street, Nashville,
`
`Tennessee. Caremark Rx, LLC provides pharmacy benefit management services.
`
`Caremark Rx, LLC is a wholly owned subsidiary of CVS Health Corporation.
`
`Caremark Rx, LLC is the parent of Defendant CVS Health Corporation’s
`
`pharmacy services subsidiaries and is the immediate or indirect parent of many
`
`pharmacy benefit management subsidiaries, including Defendant CaremarkPCS
`
`Health, LLC.
`
`24. Defendants CaremarkPCS Health, LLC and Caremark LLC are agents
`
`and/or alter egos of Defendant Caremark Rx, LLC. Defendant Caremark Rx, LLC
`
`is an agent and/or alter ego of Defendant CVS Health Corporation. For example,
`
`Jonathan C. Roberts, CEO of Caremark Rx, LLC, is Executive Vice President and
`
`Chief Operating Officer of CVS Health Corporation. Thomas S. Moffatt, Secretary
`
`
`
`7
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 11 of 105 PageID: 1047
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`of Caremark Rx, LLC and Caremark, LLC, is a Vice President, Assistant
`
`Secretary, and Assistant General Counsel at CVS Health Corporation. Anne E.
`
`Klis, CEO of Caremark, LLC, is Vice President of Professional Practice and
`
`Training at CVS Health Corporation. Daniel P. Davison, CEO of CaremarkPCS
`
`Health, LLC, is Senior Vice President of Finance at CVS Health Corporation.
`
`Melanie K. Luker, Assistant Secretary of CaremarkPCS Health, LLC, is Manager of
`
`Corporate Services at CVS Health Corporation.
`
`25. For purposes of clarity, Plaintiffs herein collectively refer to CVS
`
`Health Corporation, CaremarkPCS Health, LLC, Caremark LLC, and Caremark Rx
`
`LLC as “CVS.”
`
`26. Defendant Express Scripts Holding Company is a Delaware
`
`corporation with its principal place of business located at 1 Express Way, St.
`
`Louis, Missouri.
`
`27. Defendant Express Scripts, Inc. is a Delaware corporation with its
`
`principal place of business located at 1 Express Way, St. Louis, Missouri. Express
`
`Scripts, Inc. is a PBM and, as such, contracts on behalf of health benefit providers
`
`with Novo, Eli Lilly, and Sanofi for purchase of the analog insulin mediations
`
`these drug companies make. Defendant Express Scripts, Inc. is a subsidiary of
`
`Defendant Express Scripts Holding Company.
`
`
`
`8
`
`

`

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`
`28. Defendant Medco Health Solutions, Inc. is a Delaware corporation with its
`
`principal place of business located at 100 Parsons Pond Road, Franklin Lakes, New
`
`Jersey. Medco Health Solutions, Inc. is a subsidiary of Express Scripts Holding
`
`Company. Medco Health Solutions, Inc. is a PBM and provides pharmacy benefit
`
`management services to various health benefit providers.
`
`29. Medco Health Solutions, Inc. and Express Scripts, Inc. are agents
`
`and/or alter egos of Express Scripts Holding Company. For example, David
`
`Queller, President of both Express Scripts, Inc. and Medco Health Solutions, Inc.,
`
`is also Senior Vice President of Sales & Account Management at Express Scripts
`
`Holding Company. Christine Houston, a Vice President at both Express Scripts,
`
`Inc. and Medco Health Solutions, Inc., is also Executive Vice President and Chief
`
`Operations Officer at Express Scripts Holding Company. John Mimlitz, a Vice
`
`President at both Express Scripts, Inc. and Medco Health Solutions, Inc., is also
`
`Vice President of Tax at Express Scripts Holding Company. Timothy Smith, a
`
`Vice President and Treasurer of both Express Scripts, Inc. and Medco Health
`
`Solutions, Inc., is also Corporate Treasurer and Vice President of Finance and
`
`Indirect Procurement at Express Scripts Holding Company. Rod Fahs, the
`
`Assistant Secretary of both Express Scripts, Inc. and Medco Health Solutions, Inc.,
`
`is also Assistant General Counsel at Express Scripts Holding Company.
`
`Christopher McGinnis was a Vice President at Express Scripts, Inc., and also a
`
`
`
`9
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 13 of 105 PageID: 1049
`
`Vice President and Chief Accounting Officer of Express Scripts Holding Company.
`
`Martin Akins, the only member of the Board of Directors of Express Scripts, Inc.
`
`and the only member of the Board of Directors of Medco Health Solutions, Inc.,
`
`and Secretary of both Express Scripts, Inc. and Medco Health Solutions, Inc., is
`
`also Senior Vice President, General Counsel, and Corporate Secretary of Express
`
`Scripts Holding Company. All of the officers of Medco Health Solutions, Inc. are
`
`also officers of Express Scripts, Inc.
`
`30. For purposes of clarity, Plaintiffs herein collectively refer to Express
`
`Scripts Holding Company, Express Scripts, Inc., and Medco Health Solutions, Inc.
`
`as “Express Scripts.”
`
`31. Defendant UnitedHealth Group, Inc. is a Delaware corporation with
`
`its principal place of business at 9900 Bren Road East, Minnetonka, Minnesota.
`
`UnitedHealth Group, Inc. is a diversified managed healthcare company.
`
`UnitedHealth Group, Inc. offers products and services including health insurance
`
`plans through its wholly owned subsidiaries and prescription drugs through its
`
`PBM, OptumRx.
`
`32. Defendant United Healthcare Services, Inc. is a Minnesota
`
`corporation with its principal place of business located at 9700 Health Care Lane,
`
`Minnetonka, Minnesota. UnitedHealthcare Services, Inc. is a subsidiary of
`
`UnitedHealth Group, Inc. and provides pharmacy benefit management services
`
`
`
`10
`
`

`

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`
`through its subsidiaries to various health benefit providers. According to Exhibit
`
`21.1 to UnitedHealth Group, Inc.’s 2016 Securities and Exchange Commission
`
`Form 10-K, UnitedHealthcare Services, Inc. also does business as Optum, Inc.
`
`33. Defendant Optum, Inc. is a Delaware corporation with its principal
`
`place of business located at 11000 Optum Circle, Eden Prairie, Minnesota. Optum,
`
`Inc. is a PBM and subsidiary of UnitedHealthcare Services, Inc., which provides
`
`pharmacy benefit management services through its subsidiaries to various health
`
`benefit providers on behalf of more than 65 million plan participants.
`
`34. Defendant OptumRx Holdings, LLC, is a Delaware limited liability
`
`corporation with its principal place of business located at 2300 Main Street, Irvine,
`
`California. OptumRx Holdings, LLC is a PBM and a subsidiary of Optum, Inc.
`
`OptumRx Holdings, LLC provides pharmacy benefit management services through
`
`its subsidiaries to various health benefit providers.
`
`35. Defendant OptumRx, Inc. is a California corporation with its principal
`
`place of business located at 2300 Main Street, Irvine, California. OptumRx is a
`
`PBM and, as such, contracts on behalf of health benefit providers with Novo, Eli
`
`Lilly, and Sanofi for purchases of the analog insulin medications these drug
`
`companies make.
`
`
`
`11
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`36. For purposes of clarity, Plaintiffs here collectively refer to
`
`UnitedHealth Group, Inc., United Healthcare Services, Inc., Optum, Inc., OptumRx
`
`Holdings, LLC, and OptumRx, Inc. as “Optum.”
`
`37. Defendants have engaged in the conduct alleged in this Complaint,
`
`and/or the Defendants’ officers, agents, employees or representatives have engaged
`
`in the alleged conduct while actively involved in the management of Defendants’
`
`business and affairs and acting within the scope of their employment.
`
`38. Upon information and belief, various other companies and
`
`individuals, not named as defendants in this Complaint, may have participated as
`
`co-conspirators in the violations alleged herein, and aided, abetted, performed acts,
`
`and made statements in furtherance of such conspiracy.
`
`39. The true names and capacities, whether individual, corporate,
`
`associate or representative is unknown to Plaintiffs at this time. Plaintiffs may
`
`amend this Complaint, as necessary, to allege the true names and capacities of
`
`additional co-conspirators as their identities become known through discovery.
`
`40. The acts alleged herein that were done by each of the co-conspirators
`
`were fully authorized by each of those co-conspirators, or were ordered, or
`
`committed by duly authorized officers, managers, agents, employees, or
`
`representatives of each co-conspirator while actively engaged in the management,
`
`direction, or control of its affairs.
`
`
`
`12
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`
`IV. Factual Background
`
`A. The Prevalence of Diabetes in the U.S.
`
`41. Diabetes is an increasingly common disease in the U.S. that occurs in
`
`patients who have a lack of insulin production or an inability to respond to insulin.
`
`42.
`
`Insulin, which regulates metabolic processes in the body, is created by
`
`the pancreas. Insulin enables cells in the body to absorb glucose from the blood.
`
`Glucose serves as energy for cells or is converted to fat for storage. Insulin also
`
`regulates the breakdown of fat and protein.
`
`43. The vast majority of individuals suffering from diabetes have either
`
`Type 1 or Type 2 diabetes. As of 2020, more than 34 million people in the U.S.
`
`had Type 1 or Type 2 diabetes.2
`
`B.
`
`The Development and Importance of Analog Insulins.
`
`44. The primary goal in the treatment of diabetes is the management of
`
`the patient’s heightened blood sugar level. A necessary treatment for Type 1
`
`diabetes and a common treatment for Type 2 diabetes is insulin therapy.
`
`45. Analog insulin is a sub-group of human insulin. It is laboratory grown,
`
`but genetically altered to create either a more rapid-acting or more uniformly acting
`
`
`2 See National Diabetes Statistics Report 2020, p. 2, www.cdc.gov.
`https://www.cdc.gov/diabetes/pdfs/data/statistics/national-diabetes-statistics-
`report.pdf
`
`
`
`13
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`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 17 of 105 PageID: 1053
`
`form of insulin. Analog insulin dominates the insulin markets for both long-acting
`
`analog insulins and rapid-acting analog insulins.
`
`46. Doctors and patients prefer analog insulins because they more closely
`
`mimic the way the human body naturally absorbs insulin released by the pancreas.
`
`As a result, analog insulins provide increased treatment options.
`
`47. The American Diabetes Association (the “ADA”) publishes standards
`
`of medical care in diabetes.3 The ADA recommends insulin analogs for both Type
`
`1 and Type 2 diabetes patients.
`
`48. Due to the advantages of analog insulin, sales of natural human
`
`insulin products, such as Novo’s Novolin and Eli Lilly’s Humulin, have dropped
`
`drastically.
`
`49.
`
`IMS data4 for 2016 shows that the top-selling insulins in the U.S. were
`
`analogs: Lantus ($8.87 billion); Levemir ($1.82 billion); NovoLog ($5.86 billion);
`
`and Humalog ($5.88 billion).
`
`
`3 See American Diabetes Association Standards of Medical Care in Diabetes –
`2017, THE JOURNAL OF CLINICAL AND APPLIED RESEARCH AND EDUCATION,
`DIABETES CARE®,
`http://care.diabetesjournals.org/content/diacare/suppl/2016/12/15/40.Supplement_1
`.DC1/DC_40_S1_final.pdf.
`4 IMS data is provided by IMS Health, Inc. (“IMS Health”) (n/k/a IQVIA). IMS
`Health collects pricing data from retail pharmacies, including independents, chains,
`and pharmacies within food stores or mass merchandisers,
`
`
`
`14
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 18 of 105 PageID: 1054
`
`C. Analog Insulin Brands are Therapeutically Interchangeable.
`
`50. The long-acting analog insulins Lantus and Levemir are very similar
`
`drugs with few differences that impact treatment. They are generally considered to
`
`be therapeutically interchangeable.
`
`51. Both Lantus and Levemir are available in vial and cartridge delivery
`
`forms and are suitable for once-daily administration.
`
`52. Likewise, the rapid-acting insulins NovoLog and Humalog appear to
`
`have identical effects in diabetes patients. Thus, NovoLog and Humalog also are
`
`considered therapeutically interchangeable.
`
`53. Studies show that there is no meaningful difference in the
`
`effectiveness of Levemir versus Lantus, or Humalog versus NovoLog. The FDA
`
`has stated that, in certain circumstances, one brand of rapid-acting insulin may be
`
`substituted for another brand of rapid-acting insulin and that one brand of long-
`
`acting insulin may be substituted for another brand of long-acting insulin.5
`
`54. Generally, diabetes patients can easily switch insulin brands. In most
`
`states, a physician does not need to write a new prescription for a patient to switch
`
`insulin brands.
`
`
`5 See “Information Regarding Insulin Storage and Switching Between Products in
`an Emergency,”
`https://www.fda.gov/drugs/emergencypreparedness/ucm085213.htm.
`
`
`
`15
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 19 of 105 PageID: 1055
`
`D. The Participants in the Distribution and Sale of Pharmaceuticals.
`
`55. The critical players in the prescription drug industry include drug
`
`companies (i.e., manufacturers), direct purchasers (usually wholesalers like
`
`Plaintiffs), pharmacies, health benefit providers (such as institutional insurers, self-
`
`insured employers, and health and welfare plans), PBMs, and patient-consumers.
`
`56. Drug Companies. Drug companies, as referred to as manufacturers,
`
`own the rights to manufacture and market drugs. Drug companies typically own or
`
`contract with facilities that manufacture drugs and then sell their products to
`
`distributors, (e.g., Plaintiffs) and other direct purchasers, such as certain large retail
`
`pharmacy chains.
`
`57. Direct Purchasers. After production, drug companies sell their drugs
`
`to direct purchasers such as FDA-registered drug distributors— like Plaintiffs—
`
`and certain retail pharmacy outlets. The price paid by the direct purchasers to
`
`purchase a drug is set by the drug company. Here, the ultimate price paid by
`
`Plaintiffs and Class members for the Insulin Drugs (“Direct Purchaser Prices”)
`
`was, and is, tied, or tethered, to what is referred to in the industry as the
`
`“Wholesale Acquisition Cost” or “WAC.”
`
`58. Here, Manufacturer Defendants typically send Plaintiffs and Class
`
`members notifications regarding new Direct Purchaser Prices via the U.S. mail,
`
`electronic mail or interstate wires.
`
`
`
`16
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 20 of 105 PageID: 1056
`
`59. Health benefit providers. Institutional insurers, self-insured
`
`employers, and/or health and welfare plans are collectively referred to herein as
`
`“Health benefit providers.” Health benefit providers submit payments on behalf of
`
`insured individuals to healthcare providers (doctors and medical facilities) for
`
`services rendered to the covered individuals. Health benefit providers also cover a
`
`portion of their beneficiaries’ drugs costs, submitting payments to pharmacies on
`
`behalf of their members.
`
`60. Pharmacy Benefit Managers. PBMs effectuate financial and
`
`contractual arrangements between and among drug companies, pharmacies, and
`
`health benefit providers. PBMs can perform a variety of services on behalf of their
`
`health benefit provider clients, including negotiating prices with drug companies,
`
`creating and managing formularies, managing prescription billing, constructing
`
`retail pharmacy networks for insurers, and providing mail-order services.
`
`E.
`
`The Power of the PBMs.
`
`61. PBMs have expanded from pharmacy claims processing to a business
`
`model that forces drug companies to engage in price negotiation in several drug
`
`categories. PBMs typically select one brand among several brand drugs in a
`
`therapeutic class as the “preferred” choice and then negotiate payments from that
`
`manufacturer called “rebates.” So long as those rebates are passed back to the
`
`
`
`17
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 21 of 105 PageID: 1057
`
`client, this rebate system could lower the net cost of that brand to health benefit
`
`providers.6
`
`62. PBMs generally are not a direct link in the physical supply chain for
`
`pharmaceutical products. In most instances, PBMs do not take possession or
`
`control of prescription drugs.
`
`63. PBMs bring in more than $200 billion a year in revenue. Because
`
`increased size gives an individual PBM increased negotiating leverage there has
`
`been dramatic consolidation in the PBM industry during the past decade. By 2014,
`
`the top three PBMs (the PBM Defendants) controlled over 80% of the PBM
`
`market, covering 180 million insured people.7
`
`64. According to a May 2019 industry article, at the end of 2018, the
`
`PBM Defendants continued to control over 75% of the covered lives. 8
`
`65.
`
`In contrast, the market for health plans and insurers is less
`
`concentrated, with the 25 largest companies accounting for less than two-thirds of
`
`the market in 2014.9 For brand name drug companies, 13 companies account for
`
`
`6 Health Affairs, “Prescription Drug Pricing: Pharmacy Benefit Managers,” Health
`Policy Brief Series (Sept. 2017) at p. 1.
`7 Id. at 2.
`8 “CVS, Express Scripts, and the Evolution of the PBM Business Model,” Drug
`Channels (May 29, 2019), https://www.drugchannels.net/2019/05/cvs-express-
`scripts-and-evolution-of.html.
`9 Evi Heilbrunn, “Top Health Insurance Companies,” U.S. NEWS & WORLD
`REPORT (Nov. 5, 2014), https://health.usnews.com/health-news/health-
`18
`
`
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 112 Filed 11/06/20 Page 22 of 105 PageID: 1058
`
`90% of the U.S. market.10 Thus, it is typical to have a large PBM negotiating with
`
`several drug companies on behalf of a large number of relatively small health
`
`benefit providers.
`
`66. One of the key functions that PBMs perform for their clients is to
`
`negotiate supposed “rebates’ with drug companies. However, rather than
`
`negotiating agreements with drug companies separately and individually for each
`
`of their health benefit provider clients, PBMs typically use their combined clout to
`
`negotiate a master agreement on behalf of all their clients. As

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