On March 28, 2018, Judge Oetken granted in part, but denied in greater part, Defendants’ motion to dismiss in In re Mylan N.V. Securities Litigation, 16-cv-07926 (JPO).
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.
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.
On January 9, 2017, Pomerantz LLP was appointed Co-Lead Counsel in a class action against Mylan N.V. and certain of its officers. The class action, filed in United States District Court, Southern District of New York, and docketed under 16-cv-08000, is on behalf of a class consisting of all persons or entities who purchased or otherwise acquired Mylan securities between February 21, 2012 and October 5, 2016 inclusive (the “Class Period”). This class action seeks to recover damages against Defendants for alleged violations of the federal securities laws under the Securities Exchange Act of 1934.
Mylan, together with its subsidiaries, develops, licenses, manufactures, markets, and distributes generic, branded generic, and specialty pharmaceuticals worldwide. The Company provides generic or branded generic pharmaceutical products in tablet, capsule, injectable, transdermal patch, gel, cream, or ointment forms, as well as active pharmaceutical ingredients. Among other products, Mylan manufactures and sells the EpiPen Auto-Injector (the “EpiPen”), a branded device for injecting a measured dose of epinephrine by means of auto-injector technology to treat severe allergic reactions. Mylan is based in Hertfordshire, the United Kingdom.
Medicaid is a U.S. government insurance program for persons whose income and resources are insufficient to pay for health care. Jointly funded by the state and federal governments, Medicaid is the largest source of funding for medical and health-related services for Americans with low income. Between 2011 and 2015, Medicaid spent approximately $797 million on purchases of EpiPens from Mylan.
The complaint alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Mylan paid Medicaid significantly lower EpiPen rebates than legally required; (ii) Medicaid had previously advised Mylan of the Company’s obligation to pay higher rebates; (iii) Mylan therefore knowingly and systemically overcharged Medicaid for EpiPens in violation of federal law; (iv) millions of dollars of Mylan’s revenue from EpiPen sales were the result of the foregoing illegal conduct by the Company; and (v) as a result of the foregoing, Mylan’s public statements were materially false and misleading at all relevant times.
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.
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.”
On this news, Mylan’s share price fell $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.
On October 7, 2016, 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.”