FTC And State Regulators Bring Enforcement Action In Southern District Of New York Against “Pharma Bro” Martin Shkreli
02/05/2020On Monday, January 27, 2020, the Federal Trade Commission (“FTC” or “the Commission”) and the New York Attorney General filed suit in federal court in the Southern District of New York against Martin Shkreli and Vyera Pharmaceuticals based on allegations of market monopolization. FTC v. Vyera Pharmaceuticals, LLC, No. 1:20-cv-00706 (S.D.N.Y. filed Jan. 27, 2020). The case has been assigned to U.S. District Judge Denise L. Cote. Shkreli, commonly referred to in the media as “pharma bro,” gained notoriety for behavior that led to his federal incarceration for securities fraud in 2017. The Complaint alleges that Shkreli and others engaged in an unlawful scheme to block low-cost generic competition and maintain a monopoly on Daraprim, an essential drug used to treat the potentially fatal parasitic infection toxoplasmosis, in violation of the Sherman Act and New York state law. The case is a notable example of close collaboration between federal antitrust enforcers and a state attorney general’s office.
As the Complaint alleges, prior to defendants’ purchase of Daraprim in 2015, the drug had been sold as an affordable, life-saving treatment for over 60 years. After Shkreli and the other defendants acquired the U.S. rights to Daraprim from the only existing supplier in 2015, however, they allegedly immediately raised the drug’s price by more than 4,000%, from $17.50 to $750 per tablet. To preserve these revenues, which otherwise would have been short-lived given the lack of patent or regulatory protection, Shkreli allegedly engineered “an elaborate, multi-part scheme to block generic entry.” As a consequence of this scheme, authorities allege, “toxoplasmosis patients who need Daraprim to survive have been denied the opportunity to purchase a lower-cost generic version, forcing them and other purchasers to pay tens of millions of dollars a year more for the life-saving medication.”
First, to prevent generic manufacturers from obtaining the quantities of Daraprim necessary to conduct the FDA-required bioequivalence testing, defendants allegedly “created a complex web of contractual restrictions” that prohibited distributors from reselling Daraprim to potential generic competitors. Second, the Complaint alleges that defendants cut off competitors’ access to pyrimethamine, the active pharmaceutical ingredient used to manufacture Daraprim (although many of the details of the allegations are redacted from the public version of the Complaint). Finally, to obscure sales data and prevent competitors from accurately assessing the opportunity, defendants allegedly signed “data-blocking” agreements with distributors to prevent them from selling their sales data to third-party data reporting companies.
By pursuing these strategies in tandem, defendants allegedly sought to thwart market entry by generic competitors and maintain the supra-competitive pricing of Daraprim. As the Complaint contends, defendants’ alleged scheme caused significant and ongoing harm to markets and consumers alike. In the absence of this anticompetitive conduct, consumers and other purchasers of Daraprim would have likely saved tens of millions of dollars by purchasing generic versions. As the result of defendants’ alleged misconduct, however, there is still no lower-cost generic alternative to Daraprim on the market today.
In addition to Shkreli, defendants include Kevin Mulleady, who was previously an unindicted co-conspirator in the criminal securities fraud case against Shkreli, as well as two companies, Vyera Pharmaceuticals, LLC, and Phoenixus AG, which Shkreli and Mulleady controlled as owners and executives.
Notwithstanding this Complaint, the long-standing principle that manufacturers can choose with whom to deal (or not deal) remains strong. However, where restrictions on distributions are coupled with a dominant market position and significant price increases, the risk of antitrust scrutiny is greater. This case is perhaps best viewed as an extreme example of the latter.