On March 22, 2019, Judge John Michael Vazquez of the United States District Court for the District of New Jersey granted Allergan’s motion to dismiss Shire’s antitrust complaint that Allergan monopolized the Medicare Part D dry eye disease (“DED”) treatment market through its contracting practices with insurers including rebates based on a bundled portfolio of drugs and an exclusive dealing contract whereby a Medicare Part D plan was contractually barred from offering any other DED drug on its formulary. Shire US, Inc. v. Allergan, Inc., No. 17-cv-7716 (D.N.J. Mar. 22, 2019).
On October 2, 2017, Shire sued Allergan for its bundling and exclusive dealing arrangements with Medicare Part D plans that deny patients access to Xiidra® – Shire’s best-in-class, breakthrough drug to treat DED.
DED occurs when the eye does not produce enough tears or when tears are not of the correct consistency. The disease is evidenced by inflammation and damage to the ocular surface, resulting in blurry or fluctuating vision and eye fatigue. About one million Americans receive prescription drug treatment for DED. Shire’s Xiidra® and Allergan’s Restasis® are the only FDA-approved prescription drugs on the market for treatment of DED. There are no reasonable over-the-counter substitutes for treating DED. The FDA approved Shire’s Xiidra for treatment of both the symptoms and signs of DED. Restasis® was approved only for treatment of a specific symptom of DED—reduced tear fluid volume—which affects only 10 percent of those with DED.
Shire alleged that Allergan economically coerced Medicare Part D prescription drug plans to exclude Xiidra and maintain Restasis on a preferred formulary tier through financial incentives including rebates bundled across several Allergan Glaucoma drugs including Lumigan, Combigan, and Alphagan P. These drugs have FDA approval for the treatment of high eye pressure in patients with glaucoma or ocular tension.
Medicare Part D is a prescription drug program for senior citizens. Participants in Part D can choose from a variety of health insurance plans. The list of drugs covered by a Medicare Part D plan is called the plan’s “formulary.” Formularies offer drugs in tiers that dictate the patient’s copayment. Drug manufacturers routinely provide rebates to obtain a preferred position on a plan’s formulary. If a drug is not listed on a formulary, then it is considered “not covered” under the Medicare Part D plan.
Xiidra is approved to treat more signs and symptoms of dry eye disease than Allergan’s Restasis and also does not need to be used in conjunction with a topical steroid, which Allergan’s Restasis often does. Shire also alleged that many patients using Restasis had adverse reactions or did not improve.
Despite the advantages of Xiidra, Shire alleged that payors did not have the economic incentive to switch to the new drug because they would lose rebates not just on Restasis, but on the rest of Allergan’s bundled drug portfolio that included glaucoma drugs. As one plan told Shire, “You could give [Xiidra] to us for free, and the numbers still wouldn’t work.”
Shire also alleged that Allergan engaged in an exclusive dealing contract with another plan which barred the plan from offering Shire’s DED drug on its formulary. These contracting practices allowed Allergan’s Restasis to maintain a roughly 90% market share despite the entry of a new and improved drug. In a nutshell, the conditional rebates gave Allergan’s Restasis protection from competition and allowed Allergan to maintain its monopoly.
District Court Dismisses Shire’s Lawsuit
The federal district court, however, dismissed Shire’s lawsuit for two reasons. First, the district court held that Shire failed to plead a proper relevant market because the Medicare Part D dry eye disease market is “unduly narrow because it excludes others, notably commercial payers, to whom Plaintiff can sell Xiidra”. Second, Shire’s allegations that Allergan had agreements where it bundled its DED medication with other drugs and entered into exclusive agreements were insufficient to make out a case of anticompetitive conduct. Shire failed to allege that Allergan has “monopoly power over the” glaucoma drugs it allegedly bundled with Restasis or that Shire “did not have other available products that it could offer … as part of a bundled rebate” to Medicare Part D plans. As a result, Shire’s Sherman Act claims were dismissed.
Rebates offered across multiple prescription drugs to obtain preferred or exclusive position on a drug formulary can create a barrier to competition known as a rebate wall or trap. Rebate walls block competition by coupling volume-based discounts across multiple products with punitive measures. Contracts between drug manufacturers and payors that include bundling can be extremely effective at blocking competition and limiting formulary access to newer and more innovative therapies. However, as the district court put it, a fact sensitive analysis is required because “neither bundled rebates nor exclusive dealing contracts are inherently anticompetitive. In fact, both can be procompetitive.” The judge is correct that the general rule is that bundled discounts are procompetitive, but the product in question relates to prescription drugs where patient choice is paramount. Any threat to withhold rebates on the condition that Part D plans exclude Xiidra entirely from formularies would appear to be unlawful exclusionary conduct. There is no procompetitive justification for the payment of rebates by a first-tier drug manufacturer for the complete exclusion of a competing drug from the formulary.
Prohibiting rebate walls is critical to providing seniors with access to more affordable medication that may be more efficacious. Ultimately, patients lose access to choices of superior and more effective prescription drugs and, in some cases, are being delayed or denied the opportunity to obtain the most effective treatments for their individualized needs. In addition, the district court judge was not impressed with the relevant product market. But certainly, the sale of DED drugs to Medicare Part D plans is an important market to protect. Competition in the Part D market is critically important as it serves a vulnerable population, our nation’s seniors, many of whom are on fixed incomes.