On May 10, 2007, the Sixth Circuit affirmed the dismissal of a class action and individual complaint filed against Wyeth-Ayerst Laboratories (Wyeth), JBDL Corp. et al. v. Wyeth-Ayerst Laboratories, Inc. The complaint, filed by pharmaceutical wholesalers and retailers, challenged a rebate program that Wyeth allegedly implemented in order to prevent a newly approved competitive product from gaining share. The circuit court affirmed the district court’s granting of summary judgment, finding that plaintiffs failed to present evidence that they had been injured by Wyeth’s actions. The class of direct purchasers (wholesalers and retail pharmacies) of Wyeth’s estrogen therapy product, Premarin, had alleged that Wyeth had violated Sections 1 (unreasonable restraints of trade) and 2 (abuse of monopoly position) of the Sherman Act by entering into restrictive rebate contracts that ultimately resulted in higher prices for direct purchasers. The JBDL case consolidated the class action with another lawsuit brought under Section 2 of the Sherman Act by CVS and Rite Aid Corporation, which had opted out of the JBDL class.
Wyeth is the manufacturer of a conjugated estrogen replacement medication, Premarin, which is a form of estrogen replacement therapy (ERT). Wyeth produces two other hormone therapy drugs that together with Premarin make up the “Premarin Family.” Until 1999, Premarin was the only conjugated ERT available, and from 1999 to 2003 prescriptions for Premarin consistently accounted for more than 70 percent of oral ERT prescriptions. The parties agreed that oral ERTs was the relevant market at issue and, for the purpose of the summary judgment motion, that Wyeth had market power.
After receiving Food and Drug Administration (FDA) approval in 1999, Duramed Pharmaceuticals introduced a competitive product, Cenestin. In response, Wyeth developed a “Premarin Preemptive Plan” (the Plan). The stated goal of the Plan was to hold Cenestin to 2 percent of ERT prescriptions, in part by limiting Cenestin’s distribution and Duramed’s contracting opportunities. To support its Plan, Wyeth allegedly entered a number of agreements with PBMs and MCOs, whose decisions regarding formulary inclusion can dictate prescription choices by members. Specifically, Wyeth offered rebates to certain PBMs and MCOs who agreed that Premarin would be the only conjugated estrogen drug on formulary. According to the court (but disputed by Wyeth), if Cenestin were included on formulary, the PBM/MCO was at risk of losing rebates on all Wyeth products.
The rebate amounts thus could overwhelm any perceived savings that would accrue from the lower-priced Cenestin. The agreements also conditioned rebates on the Premarin Family’s market share at the PBMs and MCOs.
The district court in JBDL had granted summary judgment for Wyeth on the Section 1 and Section 2 claims. The court found that the plaintiff retailers and wholesalers had failed to put forth sufficient evidence that Wyeth's conduct adversely affected overall competition in the relevant market or caused injury to plaintiffs. Although it was undisputed that Wyeth had raised its prices for Premarin after the FDA approved Cenestin, the court agreed with Wyeth that there was no demonstrated causal link. The district court also held that plaintiffs failed to establish that Wyeth’s conduct substantially foreclosed actual competition in the market for oral ERT products – while favorable PBM formulary placement is an effective method for sales of a drug, it was not the only route Duramed had to sell Cenestin. Also, the PBM contracts did not prevent PBMs from listing other oral ERT products (products that are not “conjugated estrogens”) on their formularies. With regard to the Section 2 claim, the court criticized and declined to follow the Third Circuit decision in LePage’s v. 3M (which had found multi-product bundled rebates and exclusive contracts to violate Section 2 even though the prices may have been “above cost”), and found that the “sole CE” contract clause did not turn Wyeth’s vigorous marketing campaign and PBM/MCO contracts into antitrust violations. On appeal, the Sixth Circuit focused on the issue of whether or not there was evidence that the challenged conduct caused the Premarin price increase. Plaintiffs had introduced expert testimony, Wyeth documents and testimony, and a government study that they contended suggested that increased competitor market share imposes pricing constraints in pharmaceuticals. The court concluded that none of this evidence was sufficient to demonstrate that the Plan prompted the price increase, as numerous alternative explanations for the increase existed. In finding that no genuine issue of material fact existed, the court upheld the summary judgment dismissal.
The Sixth Circuit did not consider the substance of the Section 1 and 2 claims, and significant uncertainty continues regarding the scope of permissible pricing strategies engaged in by a dominant firm. As discussed in Issue 6 (page 13), bundling and loyalty discounts continue to raise complicated antitrust issues, and the lack of analytical consistency among courts makes it even more difficult for companies to know what is permissible and what is not. These are difficult cases because the line between aggressive competition and exclusionary conduct is not always clear, and the antitrust analysis tends to be very fact-specific. Moreover, companies that do business in multiple countries need to be aware of varying approaches of antitrust authorities in other jurisdictions. Careful antitrust counseling in this area is often necessary to ensure that the company is well-placed to defend any allegations that its pricing strategies crossed the line from procompetitive price-cutting to anticompetitive exclusion.