Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 1 of 52 PageID: 1239
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
`
`
`
`IN RE: DIRECT PURCHASER
`INSULIN PRICING LITIGATION
`
`
`This Document Relates To:
`
`All Actions
`
`
`
`
`
`
`
`
`
`Civil Action No. 20-03426
`(BRM)(LHG) (Consolidated)
`
`ORAL ARGUMENT
`REQUESTED
`
`Motion return date: May 3, 2021
`
`
`
`MANUFACTURER DEFENDANTS’ BRIEF IN SUPPORT OF THEIR
`MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT
`
`
`
`
`
`(Counsel Listed on Next Page)
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 2 of 52 PageID: 1240
`
`REED SMITH LLP
`Melissa A. Geist
`506 Carnegie Center, Suite 300
`Princeton, NJ 08540
`Tel.: (609) 514-5978
`
`COVINGTON & BURLING LLP
`Shankar Duraiswamy
`Henry Liu (admitted pro hac vice)
`One CityCenter
`850 Tenth Street, N.W.
`Washington, DC 20001
`Tel.: (202) 662-6000
`
`
`
`Attorneys for Defendant Eli Lilly and Company
`
`WALSH PIZZAI O’REILLY
` FALANGA LLP
`Liza M. Walsh
`Katelyn O’Reilly
`William T. Walsh, Jr.
`Three Gateway Center
`100 Mulberry Street, 15th Floor
`Newark, NJ 07102
`Tel.: (973) 757-1100
`
`
`
`JONES DAY
`Michael R. Shumaker*
`William D. Coglianese*
`51 Louisiana Avenue, N.W.
`Washington, DC 20001
`Tel.: (202) 879-3939
`
`*pro hac vice pending
`
`
`Attorneys for Defendant Sanofi-Aventis U.S. LLC
`
`
`
`
`
`GIBBONS P.C.
`Michael R. Griffinger
`Michael R. McDonald
`Christopher Walsh
`One Gateway Center
`Newark, NJ 07102
`Tel.: (973) 596-4500
`
`
`DAVIS POLK & WARDWELL LLP
`James P. Rouhandeh†
`David B. Toscano†
`450 Lexington Avenue
`New York, NY 10017
`Tel.: (212) 450-4000
`
`Neal A. Potischman†
`Andrew Yaphe†
`1600 El Camino Real
`Menlo Park, CA 94025
`Tel.: (650) 752-2000
`
`†pro hac vice forthcoming
`
`Attorneys for Defendant Novo Nordisk Inc.
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 3 of 52 PageID: 1241
`
`TABLE OF CONTENTS
`
`Page
`
`INTRODUCTION .................................................................................................... 1
`
`BACKGROUND ...................................................................................................... 4
`
`A.
`
`The Parties ............................................................................................ 4
`
`B.
`
`Plaintiffs’ Claims .................................................................................. 7
`
`STANDARD OF REVIEW .................................................................................... 10
`
`ARGUMENT .......................................................................................................... 11
`
`I.
`
`Plaintiffs’ Robinson-Patman Act Claims Should Be Dismissed. ................. 11
`
`A.
`
`Plaintiffs Lack Antitrust Standing to Assert a Section 2(c)
`Claim. ................................................................................................. 11
`
`B.
`
`Plaintiffs Fail to Plead Basic Elements of a Section 2(c) Claim. ....... 13
`
`II.
`
`Plaintiffs’ Sherman Act Claims Should Be Dismissed. ............................... 17
`
`A.
`
`Plaintiffs’ Price-Fixing Claim Against the Manufacturer
`Defendants Should Be Dismissed. ..................................................... 19
`
`1.
`
`2.
`
`Plaintiffs Fail to Allege Parallel Conduct Suggestive of a
`Price-Fixing Agreement. .......................................................... 19
`
`Plaintiffs’ “Plus Factors” Do Not Raise a Plausible
`Inference of a Price-Fixing Agreement. .................................. 22
`
`B.
`
`Plaintiffs’ Pricing-Fixing Claim Against All Defendants Should
`Be Dismissed. ..................................................................................... 24
`
`III.
`
`Plaintiffs’ RICO Claims Should Be Dismissed. ........................................... 26
`
`A.
`
`Plaintiff FWK Lacks Standing to Assert RICO Claims. .................... 26
`
`B.
`
`Plaintiffs Cannot Predicate RICO Liability on Alleged
`Violations of the Anti-Kickback Statute. ........................................... 28
`
`
`
`i
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 4 of 52 PageID: 1242
`
`C.
`
`D.
`
`Plaintiffs Fail to Allege Any Mail or Wire Fraud Predicate. ............. 31
`
`Plaintiffs Do Not Allege that the Manufacturer Defendants
`Directed the Affairs of Any RICO Enterprise. ................................... 33
`
`E.
`
`Plaintiffs Do Not Allege a RICO Conspiracy. ................................... 34
`
`V.
`
`Plaintiffs’ Claims Are Partially Time-Barred............................................... 35
`
`A.
`
`Plaintiffs Do Not Allege that Defendants Prevented Them From
`Recognizing the Validity of Their Claims. ........................................ 36
`
`B.
`
`Plaintiffs Do Not Allege that They Exercised Due Diligence. .......... 38
`
`VI. Plaintiff PDC’s Claims Should Be Dismissed. ............................................ 39
`
`CONCLUSION ....................................................................................................... 40
`
`
`
`
`
`
`
`
`ii
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`

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`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 5 of 52 PageID: 1243
`
`TABLE OF AUTHORITIES
`
`CASES
`
`Page(s)
`
`2660 Woodley Rd. Joint Venture v. ITT Sheraton Corp.,
`369 F.3d 732 (3d Cir. 2004) ............................................................. 11, 12, 13, 15
`
`Agency Holding Corp. v. Malley-Duff & Assocs.,
`483 U.S. 143 (1987) ............................................................................................ 35
`
`Allen v. Verizon Commc’ns, Inc.,
`2019 WL 399922 (D.N.J. Jan. 31, 2019) ...................................................... 23, 24
`
`In re Allergan ERISA Litig.,
`975 F.3d 348 (3d Cir. 2020) ..................................................................... 2, 22, 24
`
`Animal Sci. Prods., Inc. v. China Minmaterials Corp.,
`34 F. Supp. 3d 465 (D.N.J. 2014) ....................................................................... 11
`
`Arthur v. Guerdon Indus.,
`827 F. Supp. 273 (D. Del. 1993) ......................................................................... 33
`
`In re Baby Food Antitrust Litig.,
`166 F.3d 112 (3d Cir. 1999) ......................................................................... 20, 21
`
`Baglio v. Baska,
`940 F. Supp. 819 (W.D. Pa. 1996) ................................................................ 28, 29
`
`Baraka v. McGreevey,
`481 F.3d 187 (3d Cir. 2007) ............................................................................... 10
`
`Bell Atlantic Corp. v. Twombly,
`550 U.S. 544 (2007) .....................................................................................passim
`
`Benak ex rel. Alliance Premier Growth Fund v. Alliance Capital
`Mgmt. L.P., 435 F.3d 396 (3d Cir. 2006) ........................................................... 37
`
`Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts
`Worldwide, Inc., 369 F.3d 212 (2d Cir. 2012) .................................................... 17
`
`Burtch v. Milberg Factors, Inc.,
`662 F.3d 212 (3d Cir. 2011) ............................................................................... 18
`
`
`
`iii
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 6 of 52 PageID: 1244
`
`Cardio-Med. Assocs. v. Crozer-Chester Med. Ctr.,
`721 F.2d 68 (3d Cir. 1983) ................................................................................. 35
`
`Cetel v. Kirwan Fin. Grp.,
`460 F.3d 494 (3d Cir. 2006) ......................................................................... 35, 36
`
`In re Chocolate Confectionary Antitrust Litig.,
`801 F.3d 383 (3d Cir. 2015) ......................................................................... 21, 24
`
`Daugherty v. Adams,
`2019 WL 7987859 (W.D. Pa. Nov. 15, 2019) .................................................... 39
`
`Devon Drive Lionville, LP v. Parke Bancorp, Inc.,
`791 F. App’x 301 (3d Cir. 2019) ........................................................................ 29
`
`In re Ductile Iron Pipe Fittings (DIPF) Direct Purchaser Antitrust
`Litig., 2013 WL 812143 (D.N.J. Mar. 5, 2013) .................................................. 20
`
`Edison Elec. Inst. v. Henwood,
`832 F. Supp. 413 (D.D.C. 1993) ......................................................................... 15
`
`E.I. du Pont de Nemours & Co. v. FTC,
`729 F.2d 128 (2d Cir. 1984) ............................................................................... 22
`
`In re Elevator Antitrust Litig.,
`502 F.3d 47 (2d Cir. 2007) ................................................................................. 20
`
`Eller v. EquiTrust Life Ins. Co.,
`778 F.3d 1089 (9th Cir. 2015) ............................................................................ 32
`
`In re EpiPen ERISA Litig.,
`2020 WL 4501925 (D. Minn. Aug. 5, 2020) ...................................................... 16
`
`In re Express Scripts, Inc., PBM Litig.,
`2008 WL 2952787 (E.D. Mo. July 30, 2008) ..................................................... 15
`
`Fogarty v. USA Truck, Inc.,
`2008 WL 2872275 (W.D. Pa. July 24, 2008) ..................................................... 40
`
`Forbes v. Eagleson,
`228 F.3d 471 (3d Cir. 2000) ............................................................................... 36
`
`
`
`
`
`iv
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 7 of 52 PageID: 1245
`
`Green v. Green Mountain Coffee Roasters, Inc.,
`279 F.R.D. 275 (D.N.J. 2011) ............................................................................. 39
`
`In re Hawaiian & Guamanian Cobatage Antitrust Litig.,
`647 F. Supp. 2d 1250 (W.D. Wash. 2009) ......................................................... 22
`
`In re Ins. Brokerage Antitrust Litig.,
`618 F.3d 300 (3d Cir. 2010) ........................................................................passim
`
`In re Insulin Pricing Litig.,
`2019 WL 643709 (D.N.J. Feb. 15, 2019) ....................................................passim
`
`In re Intuniv Antitrust Litig.,
`2019 WL 4645502 (D. Mass. Sept. 24, 2019) ...................................................... 5
`
`In re K-Dur Antitrust Litig.,
`2016 WL 755623 (D.N.J. Feb. 25, 2016) ........................................................... 25
`
`Klehr v. A.O. Smith Corp.,
`521 U.S. 179 (1997) ............................................................................................ 35
`
`Langford v. Rite Aid of Ala., Inc.,
`231 F.3d 1308 (11th Cir. 2000) .......................................................................... 32
`
`In re LTL Shipping Servs. Antitrust Litig.,
`2009 WL 323219 (N.D. Ga. Jan. 28, 2009) ........................................................ 22
`
`McCullough v. Zimmer, Inc.,
`382 F. App’x 225 (3d Cir. 2010) ........................................................................ 13
`
`Minnesota v. Sanofi-Aventis U.S. LLC, et al.,
`2020 WL 2394155 (D.N.J. Mar. 31, 2020) .................................................... 7, 31
`
`MSP Recovery Claims, Series, LLC v. Sanofi Aventis U.S. LLC,
`2019 WL 1418129 (D.N.J. Mar. 29, 2019) ............................................ 26, 27, 31
`
`Muhammad v. Oliver,
`547 F.3d 874 (7th Cir. 2008) .............................................................................. 40
`
`N.V.E., Inc. v. Palmeroni,
`2015 WL 13649814 (D.N.J. Feb. 23, 2015) ....................................................... 34
`
`
`
`
`
`v
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 8 of 52 PageID: 1246
`
`Pa. ex rel. Zimmerman v. PepsiCo, Inc.,
`836 F.2d 173 (3d Cir. 1988) ............................................................................... 18
`
`Perry v. NYSARC, Inc.,
`424 F. App’x 23 (2d Cir. 2011) .......................................................................... 33
`
`Phila. Taxi Ass’n v. Uber Techs., Inc.,
`886 F.3d 332 (3d Cir. 2018) ............................................................................... 11
`
`Poling v. K. Hovnanian Enters.,
`99 F. Supp. 2d 502 (D.N.J. 2000) ....................................................................... 38
`
`Prudential Ins. Co. of Am. v. U.S. Gypsum Co.,
`359 F.3d 226 (3d Cir. 2004) ............................................................................... 38
`
`Rehkop v. Berwick Healthcare Corp.,
`95 F.3d 285 (3d Cir. 1996) ........................................................................... 28, 29
`
`Reves v. Ernst & Young,
`507 U.S. 170 (1993) ............................................................................................ 34
`
`Robinson v. Jackson Hewitt, Inc.,
`2019 WL 5617512 (D.N.J. Oct. 31, 2019) ................................................... 36, 38
`
`Sands v. McCormick,
`502 F.3d 263 (3d Cir. 2007) ............................................................................... 27
`
`Seaboard Supply Co. v. Congoleum Corp.,
`770 F.2d 367 (3d Cir. 1985) ............................................................................... 14
`
`Stephen Jay Photography, Ltd. v. Olan Mills, Inc.,
`903 F.2d 988 (4th Cir. 1990) .............................................................................. 12
`
`Superior Offshore Int’l, Inc. v. Bristow Grp. Inc.,
`738 F. Supp. 2d 505 (D. Del. 2010).............................................................. 22, 24
`
`Texaco Inc. v. Dagher,
`547 U.S. 1 (2006) ................................................................................................ 25
`
`Travelers Indem. Co. v. Cephalon, Inc.,
`620 F. App’x 82 (3d Cir. 2015) .......................................................................... 10
`
`
`
`vi
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 9 of 52 PageID: 1247
`
`United States v. Bryant,
`655 F.3d 232 (3d Cir. 2011) ............................................................................... 17
`
`United States v. Ciavarella,
`716 F.3d 705 (3d Cir. 2013) ............................................................................... 32
`
`United States v. Turkette,
`452 U.S. 576 (1981) ............................................................................................ 33
`
`Wilson v. Bernstock,
`195 F. Supp. 2d 619 (D.N.J. 2002) ....................................................................... 4
`
`In re Wilton Armetale, Inc.,
`968 F.3d 273 (3d Cir. 2020) ............................................................................... 27
`
`Zenith Radio Corp. v. Hazeltine Research, Inc.,
`401 U.S. 321 (1971) ............................................................................................ 35
`
`STATUTES
`
`11 U.S.C. § 105(a) ................................................................................................... 27
`
`11 U.S.C. § 363(b)(1)............................................................................................... 27
`
`11 U.S.C. § 1123(a)(5) ............................................................................................. 27
`
`15 U.S.C. § 13(c) ..................................................................................................... 14
`
`15 U.S.C. § 15b ........................................................................................................ 35
`
`18 U.S.C. § 1952 ........................................................................................................ 9
`
`18 U.S.C. § 1962(c) ................................................................................................. 33
`
`42 U.S.C. § 1320a-7b(b) ................................................................................ 9, 28, 29
`
`REGULATIONS
`
`84 Fed. Reg. 2340, 2343 (Feb. 6, 2019) .................................................................. 30
`
`85 Fed. Reg. 76,666 (Nov. 30, 2020)................................................................. 29, 31
`
`Exec. Order No. 13,939, 85 Fed. Reg. 45,759 (July 24, 2020) ......................... 16, 30
`
`
`
`vii
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`

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`
`OIG Compliance Program Guidance for Pharmaceutical
`Manufacturers, 68 Fed. Reg. 23,731 (May 5, 2003) .......................................... 30
`
`OTHER SOURCES
`
`OIRA Conclusion of EO 12866 Regulatory Review,
`available at www.reginfo.gov/public/do/eoDetails?rrid=129208 ...................... 30
`
`Order, In re Frank W. Kerr Co.,
`Case No. 16-51724 (Bankr. E.D. Mich. Dec. 9, 2016), ECF No. 196 ............... 26
`
`
`
`
`
`
`
`
`
`
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`viii
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`INTRODUCTION
`
`This case is unlike the other insulin-pricing actions before this Court. It does
`
`not involve consumers or claims under state consumer-protection laws, and it does
`
`not rely on the theory of fraud advanced in the other cases. Instead, Plaintiffs are a
`
`corporate wholesaler and a wholesaler’s assignee that claim they were somehow
`
`injured by the rebates that pharmacy benefit managers (“PBMs”) negotiate from
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`insulin manufacturers on behalf of the PBMs’ health insurer and other clients.
`
`Plaintiffs claim these rebates are “commercial bribes” that somehow violate federal
`
`law, even though federal law endorses them. And they accuse three manufacturers
`
`and the PBMs of an anticompetitive conspiracy to fix the price of insulin, even
`
`though the Complaint alleges the manufacturers compete intensely with each other.
`
`Plaintiffs’ claims run head first into black-letter law and controlling authority
`
`from the Supreme Court and Third Circuit. Plaintiffs cannot assert any Robinson-
`
`Patman Act claim because they have not alleged an “antitrust injury” under Third
`
`Circuit law or bothered to plead the basic elements of a commercial bribery claim.
`
`Their Sherman Act claims fail because the Supreme Court and Third Circuit long
`
`ago settled that parallel pricing of the sort Plaintiffs allege does not plausibly plead
`
`a conspiracy. And Plaintiffs neither have standing to bring a RICO claim nor
`
`manage to plead any cognizable predicate acts (or several other RICO elements). As
`
`further explained below, Plaintiffs’ claims should be dismissed in their entirety.
`
`
`
`1
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`

`

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`Robinson-Patman Act. Plaintiffs first allege that rebates paid to PBMs are
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`“bribes” prohibited by the Robinson-Patman Act because they breach fiduciary
`
`duties that PBMs owe to their health insurer and other clients. Under Third Circuit
`
`law, Plaintiffs lack standing to bring such a claim because they neither compete with
`
`the manufacturers that pay rebates nor hire the PBMs allegedly corrupted by these
`
`“bribes.” Even if Plaintiffs had standing, they do not allege that these rebates pass
`
`from a “seller” to a “buyer” of goods; that PBMs breached any fiduciary duty owed
`
`to their clients; or that the Manufacturer Defendants intended for them to do so—all
`
`of which are requirements under the statute.
`
`Sherman Act. Although Plaintiffs allege that PBMs “pit” manufacturers
`
`against each other in competitive pricing negotiations, Plaintiffs paradoxically claim
`
`that all of the Defendants entered into an anticompetitive conspiracy to fix the price
`
`of analog insulin. But Plaintiffs allege little more than that the prices for insulin
`
`have supposedly risen in parallel over time. The Supreme Court held in Bell Atlantic
`
`Corp. v. Twombly, 550 U.S. 544, 556 (2007), that parallel pricing is not enough to
`
`allege a price-fixing conspiracy, and the Third Circuit recently applied Twombly to
`
`affirm the dismissal of claims that relied on “parallel price increases among generic-
`
`drug manufacturers.” In re Allergan ERISA Litig., 975 F.3d 348, 354 (3d Cir. 2020).
`
`RICO. Neither Plaintiff has standing to bring a RICO claim. One purports
`
`to bring a RICO claim as an assignee of a bankrupt wholesaler, but under the terms
`
`
`
`2
`
`

`

`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 13 of 52 PageID: 1251
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`of the bankruptcy court’s order, its assignment only gives it the right to pursue
`
`antitrust claims. The other fails to allege that it ever bought any insulin from any
`
`Defendant within any statute of limitations.
`
`Plaintiffs also fail to allege the elements of a RICO claim. They seek to use
`
`the Anti-Kickback Statute (“AKS”) as a RICO predicate act, but under Third Circuit
`
`law, only federal health care programs or individuals who use such a program can
`
`assert violations of that statute. Plaintiffs also try to assert mail- and wire-fraud
`
`predicates, but this theory likewise fails. Unlike the plaintiffs in the other insulin-
`
`pricing cases, Plaintiffs rely on a nondisclosure theory of fraud, alleging that insulin
`
`manufacturers failed to disclose the reasons for their price increases. But the insulin
`
`manufacturers did not have a legal duty to disclose to sophisticated corporate entities
`
`like Plaintiffs the various business considerations underlying their price increases—
`
`and in any event, the Complaint makes clear that the manufacturers did repeatedly
`
`disclose those considerations.
`
`
`
`Statute of Limitations. Plaintiffs are time-barred from bringing any claim
`
`based on insulin purchases that occurred more than four years before they filed this
`
`suit—i.e., before March 31, 2016. Plaintiffs seek to toll this statute of limitations by
`
`invoking the doctrine of fraudulent concealment. But it is clear from the face of the
`
`Complaint that the facts underlying Plaintiffs’ claims were public for years, and yet
`
`Plaintiffs failed to exercise reasonable diligence in investigating their claims.
`
`
`
`3
`
`

`

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`
`
`Failure to Allege Actionable Purchases. Finally, Plaintiff Professional Drug
`
`Company, Inc. (“PDC”) has not alleged any actionable purchase of insulin from any
`
`manufacturer, and therefore fails to state any claim against any Defendant.
`
`BACKGROUND
`
`A. The Parties
`
`Plaintiffs. “The distribution of a branded prescription drug, such as the
`
`analog insulin at issue in this litigation, involves three transactions.” In re Insulin
`
`Pricing Litig., 2019 WL 643709, at *2 (D.N.J. Feb. 15, 2019). First, manufacturers
`
`sell analog insulin to wholesalers. Id. Second, wholesalers “take[] possession of the
`
`medication and sell[] it to a pharmacy” at a percentage markup. Id. Third,
`
`pharmacies dispense analog insulin to patients. Id.; see also FAC ¶¶ 55–57.1
`
`Plaintiff PDC is a pharmaceutical wholesaler that purchases drugs from
`
`manufacturers and resells them to pharmacies. FAC ¶¶ 15–16. PDC does not allege,
`
`however, that it ever bought analog insulin from Defendant Eli Lilly and Company
`
`(“Lilly”). See id. ¶ 15. And while PDC vaguely alleges that it bought insulin from
`
`Defendants Sanofi-Aventis U.S. LLC (“Sanofi”) and Novo Nordisk Inc. (“Novo
`
`Nordisk”), it does not specify when it did so or how much it paid. Id. In a prior
`
`
`1 This section draws on the allegations in the Complaint, materials that the Complaint
`references and relies upon, and matters of public record—all of which the Court may
`consider on a motion to dismiss. Twombly, 550 U.S. at 568 n.13; Wilson v.
`Bernstock, 195 F. Supp. 2d 619, 623 (D.N.J. 2002).
`
`
`
`4
`
`

`

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`complaint it voluntarily dismissed, PDC recounted only three purchases from Sanofi
`
`and Novo Nordisk, the last in 2010. PDC Compl. ¶¶ 2, 51, 364, Pro. Drug Co. v.
`
`Sanofi-Aventis U.S. LLC, No. 3:19-cv-18326 (D.N.J. Sept. 25, 2019), ECF No. 1.
`
`Plaintiff FWK Holdings, LLC (“FWK”) is not a pharmaceutical wholesaler,
`
`and has never purchased analog insulin from anyone. Rather, FWK is a shell
`
`company that “was formed in late 2016 to purchase antitrust claims from the
`
`bankruptcy estates of pharmaceutical wholesaler Frank W. Kerr Co.” In re Intuniv
`
`Antitrust Litig., 2019 WL 4645502, at *7 (D. Mass. Sept. 24, 2019). FWK alleges
`
`that Kerr bought analog insulin from each Defendant at some point before its 2016
`
`bankruptcy, but when and at what price the Complaint does not say. FAC ¶¶ 12–13.
`
`The Manufacturer Defendants. Defendants Lilly, Novo Nordisk, and
`
`Sanofi (the “Manufacturer Defendants”) each manufacture and sell analog insulin.
`
`Id. ¶¶ 17–19. Analog insulins are engineered to last longer or act faster than other
`
`insulins, while better mimicking the way that the body naturally absorbs insulin
`
`created by the pancreas. Id. ¶¶ 45–46. The four insulins at issue include both long-
`
`acting (Sanofi’s Lantus and Novo Nordisk’s Levemir) and fast-acting analog
`
`insulins (Lilly’s Humalog and Novo Nordisk’s NovoLog). Id. ¶¶ 17–19, 50–52.
`
`
`
`5
`
`

`

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`The PBM Defendants. The PBM Defendants—ESI, CVS Caremark, and
`
`OptumRx—are three of the nation’s largest PBMs. FAC ¶¶ 20–36.2 PBMs “are not
`
`directly involved in [the] distribution chain” for prescription drugs, Insulin Pricing,
`
`2019 WL 643709, at *2, and “do not take possession or control of prescription
`
`drugs,” FAC ¶ 62. Rather, health insurers hire PBMs to administer their prescription
`
`drug plans. Id. ¶ 60. “One of the key functions that PBMs perform” is to lower the
`
`cost of prescription drugs for their health insurer clients by “negotiat[ing]” discounts
`
`from drug manufacturers in the form of “rebates.” Id. ¶ 66. Plaintiffs assert that
`
`PBMs have “more negotiating leverage than any individual drug manufacturer,” and
`
`that they use that leverage to “pit[]” manufacturers “against each other” in pursuit of
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`the “best price” for their health plan clients. Id. ¶¶ 66, 78.
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`Plaintiffs allege that PBMs pass through to their health insurer clients a share
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`of the rebates that they secure from drug manufacturers, while retaining the
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`remainder. Id. ¶¶ 77, 88, 92, 99. They also allege that the share of rebates that PBMs
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`pass on to their clients can “lower the net cost” of prescription drugs for “health
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`benefit providers.” Id. ¶ 61. The Manufacturer Defendants, however, are not privy
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`to the rebate-sharing arrangements between PBMs and their clients. Instead, the
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`terms of those agreements are “secret.” Id. ¶ 115; see also id. ¶ 174.
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`2 The Complaint names several entities in the corporate structure of each PBM. See
`FAC ¶¶ 20–36. “PBM Defendants” encompasses all 14 PBM-affiliated Defendants.
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`6
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`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 17 of 52 PageID: 1255
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`B.
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`Plaintiffs’ Claims
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`Plaintiffs filed this case several years after other insulin-pricing cases brought
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`by consumers. Unlike those cases, Plaintiffs do not allege that insulin manufacturers
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`published misleading “benchmark prices” for insulin. See Insulin Pricing, 2019 WL
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`643709, at *3, *5; Minnesota v. Sanofi-Aventis U.S. LLC, et al., 2020 WL 2394155,
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`at *4, *14 (D.N.J. Mar. 31, 2020). Instead, Plaintiffs claim that the Manufacturer
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`Defendants’ rebate payments to PBMs are “commercial bribes” and part of a
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`coordinated, industry-wide scheme to fix the price of analog insulin.
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`Commercial Bribery. Plaintiffs first claim that the insulin manufacturers’
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`rebates to PBMs constitute “commercial bribery” under a little-used law: the
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`Robinson-Patman Act of 1936. FAC ¶¶ 190–99. Plaintiffs’ theory is that the share
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`of rebates and fees that the PBM Defendants retain (instead of passing through to
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`health plans) are not legitimate discounts, but rather “kickbacks” paid “to induce
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`PBMs to include the Insulin Drugs on health benefit providers’ ‘formularies.’” Id.
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`¶ 3. Formularies are ranked lists of drugs that PBMs develop and health insurers use
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`to determine which drugs insurance should cover. See, e.g., id. ¶ 68. Plaintiffs
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`contend that rebate payments in connection with formulary negotiations “constitute
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`a breach of the fiduciary duty owed by the PBM Defendants to their clients,” and
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`therefore amount to bribery. Id. ¶ 100.
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`7
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`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 18 of 52 PageID: 1256
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`The Complaint, however, omits critical allegations about this supposed
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`bribery scheme. Plaintiffs do not allege that they were competitors of a manufacturer
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`who paid rebates to a PBM or clients of a PBM who accepted them. Nor do they
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`explain how a PBM breaches a “fiduciary duty” by retaining a portion of the rebates
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`and fees it negotiates—a “common arrangement” in PBM-client contracts.3 And
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`although Plaintiffs’ claims focus on analog insulin, the Complaint does not describe
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`a single rebate arrangement for analog insulin. FAC ¶ 98. Rather than plead these
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`basic facts, Plaintiffs rely on generalized assertions about PBM rebates throughout
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`the entire pharmaceutical industry. See, e.g., id. ¶ 88 (referring to all “drug
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`companies” and “drug makers”).
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`Price-Fixing. Plaintiffs also allege that “in order to pay for these kickbacks,”
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`the Manufacturer Defendants conspired to fix the price of analog insulin. Id. ¶¶ 4,
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`201–10. They also separately allege that the Manufacturer Defendants and PBM
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`Defendants all conspired to do the same. Id. ¶¶ 212–22. Notably, none of the other
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`insulin-pricing cases pending in this Court asserts a price-fixing claim.
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`Plaintiffs allege that analog-insulin prices have risen in parallel since 2012
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`and, on that basis, speculate that seventeen corporations must have engaged in a
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`3 Certification of Melissa Geist, Ex. A (C. Roehrig, “The Impact of Prescription Drug
`Rebates on Health Plans and Consumers,” Altarum (Apr. 2018) at 14 (incorporated
`at FAC ¶ 93 n.41)).
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`8
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`Case 3:20-cv-03426-BRM-LHG Document 130-1 Filed 01/13/21 Page 19 of 52 PageID: 1257
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`sprawling conspiracy to fix prices over eleven years. Id. ¶¶ 120, 126–28. But
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`sources quoted in the Complaint confirm that “shadow pricing”—where prices rise
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`in parallel—is rational and lawful in markets with only “a small number of entities.”
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`Congressional Diabetes Caucus Report at 11 (incorporated at FAC ¶ 82 & n.26); see
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`also FAC ¶ 138. Beyond this, the Complaint offers no allegations explaining how
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`three manufacturers and three PBM families entered into a single, decade-long price-
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`fixing conspiracy—pointing, instead, to little more than that some Defendants attend
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`some of the same industry conferences.
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`RICO. Plaintiffs also assert RICO claims against all Defendants. FAC ¶¶
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`224–86. Unlike the other insulin-pricing cases, however, Plaintiffs’ RICO claims
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`are not based on allegations that manufacturers published misleading “benchmark
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`prices” for analog insulin. See Insulin Pricing, 2019 WL 643709, at *5. Instead,
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`Plaintiffs allege that Defendants violated RICO because the PBM rebates were
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`bribes that violated both the “Anti-Kickback Act,” and, in turn, the Travel Act, 18
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`U.S.C. § 1952. See FAC ¶¶ 255–60.4 Plaintiffs also allege that Defendants
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`committed predicate acts of mail and wire fraud by failing to disclose to drug
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`wholesalers why their insulin prices have increased over time. Id. ¶¶ 261–69.
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`4 Plaintiffs refer to the “Anti-Kickback Act,” but their claim relies on the Anti-
`Kickback Statute. FAC ¶ 255 (citing 42 U.S.C. § 1320a-7b(b)). The Anti-Kickback
`Statute is not a RICO predicate act, however, so Plaintiffs seek to improperly
`bootstrap it into RICO through the Travel Act. See id. ¶¶ 255, 284.
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`9
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`STANDARD OF REVIEW
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`A court should dismiss a complaint on a Rule 12(b)(6) motion if the well-
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`pleaded factual allegations fail to show that the plaintiff is plausibly entitled to relief.
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`Twombly, 550 U.S. at 570. In addition, a court should dismiss any claim sounding
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`in fraud that is not pleaded with the particularity that Rule 9(b) requires. Travelers
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`Indem. Co. v. Cephalon, Inc., 620 F. App’x 82, 85–86 (3d Cir. 2015). When
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`reviewing a Rule 12(b)(6) motion, a court should not accept as true any conclusory
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`allegations, unwarranted inferences, or legal conclusions masquerading as facts.
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`Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007).
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`In antitrust and RICO cases, courts must be particularly rigorous in assessing
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`a complaint’s allegations. “[A]ntitrust discovery can be expensive,” so “a district
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`court must retain the power to insist upon some specificity in pleading before
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`all