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A Local City Takes on Pharma

By Phebe Hong

A city northwest of Atlanta is taking on Big Pharma. On February 6th, the city of Marietta filed a lawsuit in federal court in Atlanta against Mallinckrodt, a global specialty pharmaceutical company. The class action complaint alleges that Mallinckrodt is “unjustly enriched” by its “exorbitant and unconscionable prices” for Acthar, a therapeutic adrenocorticotropic hormone (ACTH) approved in 1952 and indicated for various disease conditions, most notably infantile spasms and multiple sclerosis relapse. Marietta brings the class action suit on behalf of itself and “[a]ll third-party payors and their beneficiaries and people without insurance” that have paid for Acthar in the past four years.

Why exactly is a local city taking on big pharma on behalf of such an expansive class? Marietta pays for self-funded health plans that cover the prescription costs for Acthar. Marietta notes that it has already spent more than $2 million on Acthar covering just one patient from its self-funded plan. The city is therefore invested in challenging Mallinckrodt for its “outrageous price gouging,” specifically pointing to Acthar’s price increases from an average of $40 to over $39,000 per vial, amounting to a 97,500% increase in the past two decades.

Theory of Unjust Enrichment

Marietta brings a claim of “unjust enrichment.” Under Georgia law, “the theory of unjust enrichment applies when there is no legal contract and when there has been a benefit conferred which would result in an unjust enrichment unless compensated” (Smith Serv. Oil Co. v. Parker). The underlying principle behind unjust enrichment is that “a party cannot induce, accept, or encourage another to furnish or render something of value to such party and avoid payment for the value received” (Reidling v. Holcomb). The elements of unjust enrichment that must be proven are (1) a benefit has been conferred, (2) compensation has not been given for receipt of the benefit, and (3) failure to so compensate would be unjust. See Clark v. Aaron’s, Inc.

Main Allegations

In addition to dramatic price hikes, Marietta’s complaint alleges three other instances of unlawful conduct to support a finding of Mallinckrodt’s unjust enrichment:

  • Stifling Competition: The complaint alleges that Mallinckrodt maintained a price monopoly on Acthar by buying out market competitors. In 2013, Mallinckrodt made a last-minute bid of $135 million for Synacthen, a competitor to Acthar. Mallinckrodt never brought Synacthen to market. In 2014, Retrophin brought an antitrust violation suit alleging there was no procompetitive aspect of Mallinckrodt’s acquisition of Synacthen – the suit settled for $15.5 million. A similar FTC and state investigation was also eventually settled for $100 million.
  • Physician Kickbacks: Marietta also points to a recent suit brought by the U.S. Department of Justice accusing Mallinckrodt in engaging in kickback schemes in which sales reps provided illegal payments to physicians (“in the form of lavish meals and entertainment expenses”) in exchange for Acthar prescriptions. The suit eventually settled for $15 million.
  • Patient Copays: Finally, the complaint emphasizes another suit filed in June 2019, in which the U.S. government alleges that Mallinckrodt used a patient foundation as a cover to pay illegal kickbacks by subsidizing copays for Acthar, thus providing the drug for “free” to patients despite price increases.

Amid all the drug pricing reform debates on Capitol Hill, Marietta’s suit is another example of a local municipality tackling drug pricing on its own. Regardless if the suit proceeds to trial, is dismissed, or – more likely – is settled, the complaint at the very least illuminates another instance of pharma price gouging.

Phebe Hong

Phebe Hong is a 2L at Harvard Law School. She graduated from Harvard College with a degree in Human Developmental and Regenerative Biology. Prior to law school, she worked as a consultant advising pharmaceutical and biotechnology companies. She is a Research Assistant at the Program on Regulation, Therapeutics, and Law (PORTAL) and an Articles Editor for the Journal of Law and Technology. Her research interests include FDA regulation of biologics and pharmaceutical patent law.

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