On April 6, 2020, Pomerantz, as Co-Lead Counsel, succeeded in both defeating the Defendants’ motion to dismiss the third amended complaint against Mylan Pharmaceuticals and in getting the class certified by Judge Oetken in the Southern District of New York. This ruling now allows discovery in In re Mylan N.V. Securities Litigation, 16-cv-07926 (JPO) to proceed in full.
Defendant Mylan is a drug company that markets the EpiPen and a broad range of generic drugs. The amended complaint alleges that Mylan and its executives committed securities fraud in roughly three ways: (1) Mylan misclassified the EpiPen as a generic drug in order to obtain a higher rebate under a federal drug rebate program, and then made misrepresentations relating to that misclassification, (2) Mylan entered into anticompetitive agreements in marketing EpiPen, and then lied about them to the market, and (3) Mylan engaged in anticompetitive conduct to raise the price of generic drugs (including allocating the market for the drug DoxyDR, and entering into a price-fixing conspiracy to fix the price of other generic drugs with major manufacturers), and then lied about this activity to the market.
The third amended complaint in In re Mylan N.V. Securities Litigation, 16-cv-07926 (JPO) alleged three categories of underlying misconduct, and the Court sustained allegations relating to all three categories. First, the Court rejected Defendants’ argument that the Right Rebate Act, which eliminated ambiguity in the statute under which Mylan misclassified the EpiPen for economic benefits, showed that the statute was ambiguous and that Defendants could not have acted with scienter. Second, and importantly, the Court sustained our allegations that Mylan offered anticompetitive rebates to price its competitor Sanofi-Aventis out of the market for epinephrine autoinjectors. Third, the Court allowed our claims of price fixing and market allocation to proceed with respect to 21 generic drugs. Finally, the Court permitted our claim for scheme liability to proceed against Jim Nesta, a National Account Manager with Mylan. With little precedent for scheme liability, this opinion is important precedent for this type of liability.
Oetken allowed claims (1) and (3) to proceed, and dismissed claim (2). Oetken held with respect to claim (1) that Defendants had made numerous misstatements relating to the misclassification of the EpiPen, including statements regarding the rate at which Mylan rebated EpiPen, the existence of government investigations relating to the misclassification, and the Company’s knowledge about the misclassification. The Court found that Plaintiffs adequately had pleaded scienter for claim (1) because Defendants had access to information that their public statements regarding the EpiPen rebate rate, and their statements implying that no government investigation was afoot, were inaccurate. The Court even held that Plaintiffs adequately had pleaded scienter with respect to Defendants’ knowledge that the EpiPen was misclassified—a legal conclusion—in spite of a letter from the FDA assuring Mylan that the EpiPen was correctly classified. The Court found that other, subsequent communications from the government pleaded in the complaint made the inference of Defendants’ scienter at least as compelling as any opposing inference.
As for theory (3), the Court held that Defendants had made numerous actionable misstatements in describing the competition Mylan faced and its means of competing, while failing to disclose that it competed through anticompetitive price-fixing agreements. For example, the Court held that Mylan misled investors when it stated that “[t]he primary means of competition are innovation and development, timely FDA approval, manufacturing capabilities, product quality, marketing, reputation and price” without stating that the company also competed primarily through fixing the prices of drugs. The Court found that Plaintiffs adequately had pleaded scienter based in large part on the testimony of a CW who stated that Defendants actively participated in pricing decisions.
The merits of the case originally began building when on September 2, 2016, Inside Health Policy published an article stating that the Centers for Medicare & Medicaid Services (“CMS”), a federal agency whose responsibilities include, inter alia, working in partnership with state governments to administer Medicaid, had “informed Mylan that [the Company] incorrectly classified EpiPen as a generic under the Medicaid rebate program, which caused financial consequences for federal and state governments by reducing the amount of quarterly rebates Mylan owed for its product.” On this news, Mylan’s share price fell $1.95, or 4.65%, to close at $39.97 on September 2, 2016.
Subsequently, on October 5, 2016, Bloomberg reported that the CMS had issued a letter stating that Mylan had for years overcharged Medicaid to buy the Company’s EpiPen shot, despite being told that the Company needed to provide bigger discounts under the law. The CMS letter stated that from 2011 to 2015, the U.S. Medicaid health program spent approximately $797 million on EpiPens, including rebates of roughly 13%, rather than the discount of 23.1% that the U.S. should have received. The letter stated that the government had previously “expressly told Mylan that the [EpiPen] product is incorrectly classified.” This caused Mylan’s share price to fall a further $1.19, or 3.13%, to close at $36.84 on October 6, 2016.
On October 7, 2016, Mylan announced that it had reached a $465 million settlement with the U.S. Department of Justice and other agencies to resolve questions raised about the classification of EpiPen for Medicaid rebate purposes. The same day, Mylan also announced that the Company had “received a document request from the Division of Enforcement at the [SEC] seeking communications with the CMS and documents concerning Mylan products sold and related to the Medicaid Drug Rebate Program, and any related complaints.”