August 10, 2010—The California Supreme Court has allowed 16 independent retail pharmacies to proceed with a suit charging 20 major drug manufacturers with conspiracy to artificially inflate brand-name drug prices.
The suit, Clayworth v. Pfizer, alleges that high-level company executives often met to maintain inflated prices in the United States, to keep their lower-priced foreign drugs from being re-imported, and to restrict price competition from generic drugs, all in violation of California anti-trust laws. The pharmacies are seeking restitution for all alleged overcharges, treble damages, and an injunction against the alleged price-inflation practices that their lawyer says would benefit “anybody who purchases brand-name prescription drugs in this country.” Pharmaceutical Research and Manufacturers of America (PhRMA), the industry trade group, was also named as a defendant.
This isn’t the first time that anti-trust charges have been brought against major drug makers in the California courts. A $171 million settlement in 1999 in Preciado v. Abbott, a class action by individual drug purchasers involving more than 20 manufacturers, led to the creation of MedPin, a pioneering nonprofit educational organization that distributed brand-name pharmaceuticals to indigent patients at California health clinics and county health systems.MedPin ceased operations in late 2007.
The Clayworth case is not to be confused with Santa Clara v. Astra, which also arose in California and is being watched closely by 340B stakeholders. That dispute centers on allegations that nine leading drug manufacturers and their subsidiaries overcharged two counties in the state for 340B drugs. The drug companies recently asked the U.S. Supreme Court to decide whether the 340B statute grants the counties a right to sue.
Suit Filed in State Court
Joseph Alioto Jr., who represents the pharmacies in the Clayworth dispute, said the suit was filed in state, rather than federal, court because in 1977 the U.S. Supreme Court ruled that only consumers and other “direct” purchasers of products could sue for price fixing under federal law, not “indirect” purchasers such as his clients.
The issue before the state high court was the pharmacies’ standing to sue the companies under state law. State trial and appellate courts had held that the pharmacies could not sue because they had passed the alleged overcharges along to their customers and thus suffered no harm.
But in its July 12 ruling in the case, the state Supreme Court ruled that the pharmaceutical companies could not use this so-called “pass-on” defense. It further held that under California law it was unnecessary for the pharmacies to suffer a monetary loss in order to seek injunctive relief.
The high court sent the case back to a trial court in Oakland for further proceedings.
Alioto says the limited discovery permitted in the case thus far reveals that “high-level executives of the defendant companies met together frequently and specifically to maintain prices in the United States at artificially high levels.”
“To agree to such a thing is a patent violation of the anti-trust laws,” he says.
William Fenrich, a lawyer for AstraZeneca PLC who argued the case for all the defendant companies before the state high court, could not be reached for comment. In an interview withThe Wall Street Journal, he said “there is no conspiracy here and we will be making those arguments as the case moves forward.”
In addition to AstraZeneca, the companies that were sued were: Abbott Laboratories; Novartis Pharmaceuticals Corp.; Allergan Inc.; Boehringer Ingelheim Pharmaceuticals Inc.; Eli Lilly & Company; Johnson & Johnson; Janssen Pharmaceutical Inc.; Ortho McNeil Pharmaceutical Inc.; Ortho Biotech Inc.; GlaxoSmithKline; Pfizer Inc.; Hoffman-LaRoche; Aventis Pharmaceuticals Inc.; Amgen Inc.; Purdue Pharma LP; Merck & Co. Inc.; Bristol-Myers-Squibb Co.; Wyeth; and Johnson & Johnson Health Care Systems Inc.