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Southeastern Pennsylvania Transportation Authority v. Gilead Sciences, Inc.

United States District Court, E.D. Pennsylvania

May 4, 2015

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, et al.
v.
GILEAD SCIENCES, INC

For SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, Plaintiff: JOSEPH B. KENNEY, NICHOLAS E. CHIMICLES, LEAD ATTORNEY, BENJAMIN F. JOHNS, CHIMICLES & TIKELLIS LLP, HAVERFORD, PA.

For JANE DOE, JOHN DOE, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiffs: NICHOLAS E. CHIMICLES, LEAD ATTORNEY, CHIMICLES & TIKELLIS LLP, HAVERFORD, PA; JOSEPH B. KENNEY, LEAD ATTORNEY, CHIMICLES & TIKELLIS LLP, HAVERFORD, PA.

For GILEAD SCIENCES, INC., Defendant: GEORGE S. CARY, LEAD ATTORNEY, PRO HAC VICE, CLEARY GOTTLIEB STEEN & HAMILTON, WASHINGTON, DC; KATHLEEN W. BRADISH, LEAH O. BRANNON, LEAD ATTORNEY, PRO HAC VICE, CLEARY GOTTLIEB STEEN & HAMILTON LLP, WASHINGTON, DC; MICHAEL LAZERWITZ, LEAD ATTORNEY, CLEARY GOTTLIEB STEEN & HAMILTON, NEW YORK, NY; ROBERT E. WELSH, JR., WELSH & RECKER, P.C., PHILADELPHIA, PA.

RONALD A. WILLIAMS, Movant, Pro se, LABELLE, PA.

MEMORANDUM

STEWART DALZELL, J.

I. Introduction

We consider here defendant Gilead Sciences, Inc.'s (" Gilead" ) motion to dismiss under Fed.R.Civ.P. 12(b)(6). Plaintiffs -- the Southeastern Pennsylvania Transportation Authority (" SEPTA" ), John Doe, and Jane Doe -- are suing Gilead on behalf of themselves and others similarly situated alleging that Gilead's pricing scheme for the sale of its patented Hepatitis C drugs violates Section 1557(a) of the Patient Protection and Affordable Care Act, constitutes unjust enrichment, breaches the implied duties of good faith and fair dealing, and violates California Business & Professions Code § 17200. Amend. Compl. at ¶ ¶ 124-61. Gilead moves to dismiss the entire Amended Complaint.

We have jurisdiction over plaintiffs' federal claim pursuant to 28 U.S.C. § 1331 and supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. § 1367.[1]

II. Standard of Review

A defendant moving to dismiss under Fed R. Civ. P. 12(b)(6) bears the burden of proving that the plaintiff has failed to state a claim for relief. See Fed.R.Civ.P. 12(b)(6); see also, e.g., Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). To survive a Rule 12(b)(6) motion, the complaint must contain sufficient factual matter, accepted as true, to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is plausible " when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678.

As the Supreme Court stresses, " the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action...do not suffice." Id. Courts " are not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555. In the wake of Twombly and Iqbal, our Court of Appeals laid out a two-part test to apply when considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6):

First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'

Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (internal citations omitted). In deciding a motion to dismiss, we may consider " the allegations contained in the complaint, exhibits attached to the complaint and matters of public record," and any " undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993); see also Pryor v. National Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir. 2002) (explaining that a court may consider a document not attached to the pleading if its contents are alleged in the complaint and no party questions its authenticity).

We recite the relevant facts as they appear in the Amended Complaint.

III. Factual Background

Defendant Gilead manufactures Sovaldi and Harvoni, two highly effective -- and profitable -- treatments for Hepatitis C. Amend. Compl. at ¶ ¶ 1-3, 29, 37. Twelve-week courses of Sovaldi and Harvoni cost $84,000 and $94,500, respectively. Id. at ¶ 6. Gilead has made billions of dollars from the sale of these drugs. Id. at ¶ 91.

Plaintiff SEPTA is the regional transportation authority for public transit serving Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties in the Commonwealth of Pennsylvania. Id. at ¶ 20. SEPTA maintains an employee health and welfare benefit plan pursuant to which it reimburses and pays for certain of its employees' prescription drug purchases. Id. In 2014, SEPTA paid more than $2.9 million for Sovaldi and $850,000 for Harvoni for its employees. Id.

Plaintiff Jane Doe is a resident of Souderton, Pennsylvania, whose insurance company denied her coverage for Sovaldi after she was diagnosed with Hepatitis C, and who Gilead said was ineligible for its Patient Assistance program because of her private insurance. Id. at ¶ 21. Plaintiff John Doe is a resident of Sun City West, Arizona, whose insurance company also denied him coverage for Sovaldi after his Hepatitis C diagnosis. Id. at ¶ 22.

Plaintiffs allege that Gilead sells sofosbuvir -- the active ingredient in Sovaldi and Harvoni -- at much lower prices abroad and has announced plans to license a generic version of its drugs in developing countries at deeply discounted prices. Id. at ¶ ¶ 7-8, 38-39. Some federal agencies and large prescription benefit managers also receive significant discounts on Sovaldi. Id. at ¶ ¶ 7, 41-42, 47. But, as a result of Gilead's domestic pricing scheme, many consumers -- such as Jane Doe and John Doe -- and government programs have been unable to obtain either Sovaldi or Harvoni. Id. at ¶ ¶ 10-11. Some health insurers and prescription benefit managers have been rationing, delaying, or limiting the availability of Sovaldi and Harvoni. Id. at ¶ ¶ 11, 62-63, 65. Plaintiffs allege that Gilead's pricing scheme " has had a disproportionately adverse impact on racial minorities and those in lower income brackets." Id. at ¶ 12. State Medicaid programs have also developed strict protocols to limit the provision of Sovaldi and Harvoni to only the sickest patients. Id. Some prescription benefit managers have responded to these high prices by entering into exclusive deals with Gilead or one of its competitors, AbbVie, Inc., in order to obtain Sovaldi and Harvoni at discounted prices. Id. at ¶ 13. Citing to several specific exclusivity contracts Gilead has with Express Scripts, CVS, Anthem, Inc., Prime Therapeutics LLC, and Aetna, plaintiffs argue that such deals demonstrate that Gilead overpriced Sovaldi and Harvoni in 2014. Id. at ¶ ¶ 49, 51, 53, 55, 58-59.

Plaintiffs also claim that these drugs are overpriced as evidenced by the fact that they are priced more like " orphan drugs" -- drugs for rare conditions (even though Hepatitis C is not a rare disease) -- thereby violating " an unwritten rule in the pharmaceutical industry that orphan drugs would be priced high because of the low number of treatments." Id. at ¶ ¶ 86-88. Plaintiffs allege that Gilead's prices preclude patients from gaining access to Sovaldi or Harvoni and force third party payers, like SEPTA, to pay " exorbitant prices." Id. at ¶ 16. Plaintiffs also allege that Gilead's Patient Assistance Program does not " provide meaningful access" to Sovaldi and Harvoni because of bureaucratic hurdles and paperwork requirements. Id. at ¶ ¶ 72, 74-76.

Gilead justifies its prices based partly on its prediction that the drugs allow patients to avoid future healthcare expenses -- such as liver transplants -- and cure " a horrible disease in a very rapid time frame." Id. at ¶ 95. Plaintiffs assert that Gilead's justifications for its high prices are " bogus." Id. at ¶ 96. Plaintiffs also allege that Gilead's patents might be vulnerable. Id. at ¶ 99. Plaintiffs, on behalf of themselves and those similarly situated, are suing Gilead " to stop this unconscionable and unfair conduct, and to secure appropriate relief for consumers and third party payers who have been victimized by Gilead's price gouging scheme." Id. at ¶ 17.

IV. Discussion

In Count I, plaintiffs allege unjust enrichment because of Gilead's " patently unconscionable" " price gouging" and because its prices are " unreasonable, excessive, arbitrary, discriminatory, inflated, exorbitant and inflated." Id. at ¶ ¶ 127-29. In Count II, plaintiffs Jane Doe and John Doe allege discrimination in violation of Section 1557 of the Patient Protection and Affordable Care Act. Id. at ¶ ¶ 130-39. In Count III, plaintiffs argue Gilead has breached the duty of good faith and fair dealing by " demanding the excessive prices it charged for Sovaldi and Harvoni." Id. at ¶ 143. In Counts IV and V plaintiffs argue that Gilead has violated California Business & Professions Code § 17200 which prohibits unfair competition. Id. at ¶ ¶ 140-54. Plaintiffs also seek class certification and to represent the class as a whole. Id. at ¶ ¶ 117-23.

Gilead moves to dismiss plaintiffs' entire Amended Complaint. MTD at 2.

We first consider plaintiffs' federal claim under the Affordable Care Act and then their state law claims.

A. Affordable Care Act Claim

In Count II, individual plaintiffs Jane Doe and John Doe allege that Gilead has discriminated against them, and similarly situated class members, in violation of Section 1557 of the Affordable Care Act. Amend. Compl. at ¶ ¶ 137-39. Section 1557 contains an anti- discrimination provision that " an individual shall not, on [the basis of any protected ground], be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance." 42 U.S.C. § 18116. Protected grounds include race, color, national origin, sex, age, and disability. Id. (citing to Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, the Age Discrimination Act of 1975, and Section 504 of the Rehabilitation Act of 1973).

Plaintiffs argue that Gilead's pricing violates Section 504 of the Rehabilitation Act and Title VI of the Civil Rights Act because it both discriminates against persons with disabilities and " Gilead's pricing -- while perhaps not intentionally discriminatory -- has had a disparate impact on minorities." Amend. Compl. at ¶ 133; Pl. Resp. at 17. Plaintiffs' theory of discrimination on the basis of disability is that the pricing scheme: (1) charges more to people with Hepatitis C in the United States as opposed to abroad, (2) charges more to those with Hepatitis C who are not part of health programs or plans that have entered into contracts for discounts with Gilead, (3) causes health plans and programs to refuse or limit access to the drugs, and (4) denies access because of the " excessive and discriminatory pricing practices, contracts and policies." Pl. Resp. at 19-20. Plaintiffs' theory of discrimination on the basis of race is that Gilead has intentionally discriminated against minorities by being deliberately indifferent to the fact that " Hepatitis C victims are disproportionately African Americans" and pricing its drugs " in a manner that would negatively impact racial minorities' access." Id. at 33.

Gilead contends that plaintiffs' claim fails because (1) they have not shown Gilead discriminates on the basis of who has Hepatitis C, (2) a neutral price is not discriminatory, and (3) simply having Hepatitis C is not a disability. MTD at 7. Gilead also argues that plaintiffs have failed to show that its " conduct ...


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