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Shire US, Inc. v. Allergan, Inc.
Citation: 375 F. Supp. 3d 538Docket: Civil Action No. 17-7716 (JMV) (SCM)
Court: District Court, D. New Jersey; March 22, 2019; Federal District Court
John Michael Vazquez, U.S.D.J., addresses antitrust allegations in the Medicare Part D prescription drug market involving Shire US, Inc. ("Shire") and Allergan, Inc. and its affiliates ("Defendants"). Shire claims that Allergan is implementing a coordinated scheme to hinder Shire's competition in the market for dry eye disease treatments, in violation of the Sherman Act and state law. Shire's First Amended Complaint ("FAC") is challenged by Defendants through a motion to dismiss for failure to state a claim.
The case highlights that both companies are competitors in the pharmaceutical industry, with Shire's product, Xiidra®, and Allergan's Restasis being the only FDA-approved treatments for dry eye disease (DED). DED is characterized by inadequate tear production or poor tear quality, leading to inflammation and vision issues. Shire alleges Allergan uses anticompetitive practices, such as bundling and exclusive contracts, to exclude Xiidra from Part D drug plans, despite Xiidra’s FDA approval encompassing both symptoms and signs of DED, providing quicker relief compared to Restasis, which is limited to treating reduced tear volume and has a history of patient dissatisfaction. Xiidra gained a 35% share of the commercial DED market and 10% of the Part D market within two years of its launch, while Restasis retains about 90% of the Part D market. Following a review of submissions and oral arguments, the Court granted Defendants' motion to dismiss the case.
Plaintiff identifies the Part D DED market as the relevant product market for its antitrust claims. Medicare, established to assist the elderly, includes Part D, which offers discounted outpatient prescription drugs specifically for seniors. DED, a condition that worsens with age, significantly impacts this demographic, with Part D accounting for about 40% of all DED prescriptions. Participants in Part D select from various plans, each with a formulary that categorizes drugs into tiers based on copayment levels. Drugs not included in a formulary are deemed "not covered," forcing patients to pay full price or seek an exception through their physician, thereby creating a competitive disadvantage.
Plaintiff argues that commercial drug plans do not substitute for Part D since those eligible for Part D benefit from lower premiums and comprehensive drug lists, leading to the recognition of Part D as a distinct market by industry participants. The plaintiff alleges two forms of anticompetitive conduct by Defendants: 1) anticompetitive bundling through contracts with certain plans to offer Restasis below its average variable cost, and 2) exclusive dealing contracts prohibiting a plan from including other DED drugs on its formulary for an extended period. Understanding these claims necessitates examining the seller-side dynamics of the Part D market, where pharmaceutical companies negotiate annually with plans for drug placement on formularies. These negotiations occur from April to August, with some plans outsourcing negotiation responsibilities. Notably, Plan 3 negotiates for several plans, and pharmaceutical companies often employ third-party agents to manage their dealings with Part D separately from commercial business.
Pharmaceutical companies negotiate annually to secure advantageous placement for their drugs on Part D plans' formularies, primarily by reducing the costs associated with these drugs. Although they do not sell directly to Part D plans, they influence plan costs by providing rebates and discounts to patients through pharmacies. They also offer price protection, ensuring that any price increases during the contract term are offset by corresponding rebate increases, preventing additional costs to the plans.
The top three Part D plans—Plan 1, Plan 2, and Plan 3—account for approximately 70% of prescriptions for dry eye disease (DED) treatment. Despite claims that Xiidra is superior to Restasis, efforts to secure a preferred formulary position for Xiidra have been unsuccessful, allegedly due to Defendants' anticompetitive practices, including unlawful bundling with Plan 1 and Plan 2, and exclusionary contracting with Plan 3.
Shire, the Plaintiff, contends that Allergan's bundling of rebates across its products, which include Restasis, Lumigan, Combigan, and Alphagan P (all FDA-approved for treating glaucoma), constitutes anticompetitive conduct. With sales of these products totaling nearly $750 million in Part D plans, Shire argues that Allergan has sufficient resources to offer Restasis at a competitive price, potentially even for free.
In interactions with Plan 1, which holds nearly 25% of the DED market, Shire proposed significant rebates to include Xiidra on its formulary. However, Plan 1 indicated that doing so would lead to the loss of Allergan's rebates, stating that it would require Allergan's permission for Xiidra's inclusion. Xiidra was eventually placed on Plan 1's formulary in a "non-preferred" tier, resulting in significantly higher copayments compared to a "preferred" listing. Shire believes this arrangement prevents it from offering competitive discounts for Xiidra.
Similarly, for Plan 2, which captures over 11% of the DED market, Shire also offered substantial rebates but was informed that listing Xiidra would result in the loss of price protection and bundled rebates from Allergan.
Plan 2 indicated a need to obtain permission from Allergan before including Xiidra on its formulary. However, CMS mandated that Plan 2 must offer Xiidra based on formulary classifications. Plan 2 ultimately listed Xiidra as "non-preferred," requiring prior authorization and a "step through" protocol, where patients must first use Restasis and fail before gaining coverage for Xiidra. This results in copays for Xiidra being significantly higher—two to five times more—than those for preferred drugs. The plaintiff claims this pricing structure prevents Shire from offering competitive discounts on Xiidra, which is necessary to compete with Allergan's bundled rebates, leaving Xiidra priced above its cost.
Additionally, the plaintiff alleges an exclusionary agreement between Defendants and Plan 3, which controls 34% of the Part D DED market. Despite having met pricing requirements for inclusion on Plan 3's formulary, Plan 3 later retracted its confirmation, citing Allergan's contract that restricted offering both treatments. A Shire executive’s inquiry about future options was met with a definitive response that no alternatives were available. Consequently, Xiidra is not included in Plan 3’s formulary, imposing higher costs on patients and limiting their options.
The plaintiff references Allergan's CEO’s statement from mid-2017 indicating that Allergan has effectively blocked Shire from the Part D DED market. The financial terms Shire offered to the three Part D plans reportedly surpassed the discounts it successfully provided to commercial drug plans. The plaintiff contends that Allergan's actions constitute a coordinated scheme of anticompetitive tactics, hindering Shire's access to the market and limiting Part D beneficiaries' access to Xiidra, the sole approved treatment for DED.
The plaintiff asserts that Defendants' actions force Part D patients into higher copayments, less effective treatment options, and additional costs for unnecessary medications. The complaint, filed on October 2, 2017, includes seven causes of action related to monopolization and agreements in restraint of trade under both the Sherman Act and the New Jersey Antitrust Act, as well as tortious interference with business relationships.
Defendants filed a motion to dismiss on December 5, 2017, under Federal Rule of Civil Procedure 12(b)(6), claiming Plaintiff failed to state a claim upon which relief can be granted. Plaintiff opposed the motion, and subsequent communications included a letter of supplemental authority and a response from Defendants. On September 28, 2018, Plaintiff sought permission to amend its Complaint to include monetary damages, which did not change the substantive allegations. The parties agreed that the Defendants' motion would apply to the amended Complaint. Oral arguments were held on February 26, 2019.
Under Rule 12(b)(6), a plaintiff must present sufficient factual content to support a plausible claim, allowing the court to infer possible liability. The standard does not require proof of probability but requires more than mere possibility of unlawful action. The court must accept factual allegations as true and favor the plaintiff in drawing inferences, while disregarding unwarranted inferences and unsupported conclusions.
Defendants contend that the Plaintiff has not adequately alleged a relevant product market or anticompetitive conduct, asserting that if the antitrust claims fail, so too does the tortious interference claim. In contrast, Plaintiff argues it has sufficiently alleged both the relevant market and anticompetitive behavior, asserting that tortious interference can exist independently of anticompetitive claims.
The legal framework includes Section 1 of the Sherman Act, which prohibits contracts or conspiracies that restrain trade, requiring proof of a contract and an unreasonable restraint on trade. Section 2 prohibits monopolization or attempts to monopolize commerce.
Monopolization requires two elements: (1) possession of monopoly power in the relevant market, and (2) willful acquisition or maintenance of that power, as opposed to growth due to superior products or business practices. In contrast, attempted monopolization necessitates proving the defendant's specific intent to monopolize, anti-competitive conduct, and sufficient market power to nearly achieve that goal. The New Jersey Antitrust Act aligns with federal antitrust interpretations, prompting the court to analyze the antitrust claims under federal law.
Two markets must be defined in antitrust cases: the relevant product market and the relevant geographic market. The defendants argue that the plaintiff's definition of the Medicare Part D DED market is overly narrow and should include the commercial prescription insurance market. The plaintiff contends that the injury affects both itself and Part D DED patients, thus justifying a consumer-focused market definition. The court notes that the Third Circuit has not definitively addressed the relevant product market in supplier exclusion cases. However, it finds the plaintiff's proposed market too narrow as it fails to encompass non-government payers, which undermines its plausibility.
The overarching aim of antitrust law is to protect the public from market failures, not to shield businesses from competition. Antitrust laws are designed to foster competition rather than protect individual competitors, emphasizing that consumer harm is essential for antitrust claims. The plaintiff references the Brown Shoe case to support its position regarding market definitions in merger contexts.
The government challenged a merger under Section 7 of the Clayton Act, which prohibits mergers that significantly reduce competition or create a monopoly. The Supreme Court's analysis in Brown Shoe established that defining a relevant product market involves assessing the reasonable interchangeability of use and the cross-elasticity of demand between products and their substitutes. The Court acknowledged that well-defined submarkets may exist within broader markets, determined by "practical indicia" including industry recognition, product characteristics, customer bases, pricing sensitivity, and vendor specialization. The Court upheld the identification of distinct product markets for men's, women's, and children's shoes.
In the case of United States v. Aetna Inc., the court considered the proposed merger between two major health insurance companies, Aetna and Humana. The relevant product market was debated between general Medicare and the narrower Medicare Advantage. The court determined that Medicare Advantage constituted the relevant market, supported by industry recognition and the companies’ operational distinctions, such as separate financial reporting and employee divisions for Medicare Advantage. The court noted significant local competition among Medicare Advantage plans, reinforcing the market's distinctiveness.
The Third Circuit has not directly addressed this issue, but in Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., the Circuit analyzed the relevant product market. The case involved a small chain of pharmacies and a health maintenance organization (HMO) operated by U.S. Healthcare, which allowed subscribers to purchase medications from selected pharmacies at reduced costs through a network.
Participating pharmacies received a fixed monthly payment from the defendant's HMO based on the number of U.S. Healthcare subscribers they had. In 1991, all of Gary's stores became approved providers in this HMO network. That same year, Gary's chose to self-insure its employees' health benefits and required a Third Party Administrator (TPA). Instead of using the defendant's TPA, Gary's opted for the plaintiff's services, leading the defendant to retaliate by conducting audits, freezing one store for three months, and not processing a new store application. Consequently, Gary's switched back to the defendant's TPA. The plaintiff subsequently sued the defendant for, among other claims, violating Section 1 of the Sherman Act, asserting that the defendant abused its market power to compel Gary's to revert to its TPA.
To assess the plaintiff's Section 1 claim, Chief Judge Becker emphasized the need to define the relevant product and geographic markets. The court referenced that a product market's boundaries are determined by the interchangeability of products for similar purposes. Interchangeability is indicated by cross elasticity of demand, where an increase in the price of one product leads to increased demand for substitutes. The plaintiff argued for a "single brand market" limited to the defendant's HMO members with prescription drug benefits, but the court found this definition too narrow. It reasoned that the defendant's HMO members were interchangeable with members from other HMOs and uninsured individuals purchasing prescription drugs.
The court determined that the analysis should focus on Gary's perspective, identifying which products Gary's would view as substitutable for those purchased by the defendant's HMO members. The Circuit concluded that from Gary's viewpoint, the defendant's HMO members were interchangeable with uninsured purchasers and members of other HMOs. Additionally, while the Third Circuit had not ruled on this matter, the Eighth Circuit had addressed a related issue, where a plaintiff defined the relevant market as patients with private insurance, excluding uninsured patients and those covered by government programs.
The Eighth Circuit found the plaintiff's proposed product market too narrow, specifically limiting it to patients using private insurance. The court explained that while patients may view private insurance and government programs as non-interchangeable, the relevant analysis should focus on the cardiologists' perspective. The plaintiff's claims centered on the assertion that the defendant's actions reduced their access to patients. The court emphasized that cardiologists can serve patients with either government or private insurance, making all patients who can pay their bills reasonably interchangeable from the cardiologist's viewpoint. In cases involving shut-out suppliers, the primary question is to whom the supplier can sell its services. While some courts recognize the possibility of defining a special subgroup of customers under certain circumstances, no such justification was found in this case. The excerpt references a related case where special circumstances were identified when a supplier's exclusion from a sub-market could threaten its long-term viability, specifically in a healthcare context. In that case, the plaintiff hospital claimed the defendant used exclusive services to exert pressure on health insurers to exclude them from networks.
The plaintiff argued the necessity of commercial insurers to offset low payments from government insurers, which was acknowledged by the Methodist Health court during the motion to dismiss stage. The court allowed the complaint to proceed despite the plaintiff's narrow definition of the relevant product market as solely commercial payers, emphasizing that access to privately-insured patients is crucial for healthcare providers due to lower government payment rates, which can sometimes fall below cost. However, at the summary judgment stage, the court ruled in favor of the defendant, reiterating that commercial and government payers are not interchangeable for hospitals, as government payments do not cover costs.
The court concluded that the relevant product market should encompass all entities to whom the supplier can reasonably sell, unless special circumstances justify a narrower focus. The plaintiff's definition of the product market as Medicare Part D was deemed overly restrictive for excluding commercial payers, and no special circumstances were established to support this limitation. The ruling aligns with precedents from the Eighth and First Circuits, as well as the Third Circuit's Brokerage Concepts decision, which highlighted the importance of perspective in defining the market. The court noted that while the plaintiff attempted to distinguish between commercial and government payers, the context of the case was different from previous merger cases that focused on consumer impacts rather than supplier conditions.
The plaintiff also alleged two forms of anticompetitive conduct related to the defendants' agreements with various plans, but the defendants contended their actions constituted lawful competition, asserting they lacked monopoly power, that their agreements were short-term, and that their pricing was above cost.
Plaintiff argues that Defendants hold monopoly power over Restasis in the Part D market, independent of any monopoly over non-competing glaucoma drugs. Plaintiff claims there are no comparable glaucoma drugs to compete with Defendants' Part D bundle and asserts that Defendants' one-year contracts may still be deemed anticompetitive. The Third Circuit has examined various bundling agreements and exclusive dealing cases, such as Eisai Inc. v. Sanofi Aventis U.S. LLC, ZF Meritor LLC v. Eaton Corp., and LePage's Inc. v. 3M. A notable case is SmithKline Corp. v. Eli Lilly Co., where the defendant, holding a monopoly on cephalosporins, created a marketing strategy offering discounts on bundled products that stifled competition from the plaintiff's competing drug, Ancef. This led to a significant reduction in the plaintiff's market share despite aggressive discounting. The court concluded that the defendant's actions insulated its product from price competition, violating Section 2 of the Sherman Act by linking non-competitive products with a competitive one. Similarly, in LePage's, the defendant controlled over 90% of the transparent tape market and used bundled rebates to suppress competition from the plaintiff's private label products. The bundled rebates created conditions where failure to meet targets in one product line resulted in losing the entire rebate, further solidifying the defendant’s market position and leading to a lawsuit for violations of Section 2 of the Sherman Act.
In assessing the plaintiff's antitrust claims, the Third Circuit referenced its previous ruling in SmithKline, which highlighted that the defendant's Section 2 violation involved linking a competitive product to non-competitive products. The court noted that in LePage's, the defendant leveraged its monopoly over Scotch tape to undermine the plaintiff in the private label market by using bundled rebates. The court found the defendant’s rebate programs aimed to compel major retailers to exclusively sell the defendant's products, with targets that threatened loss of maximum rebates for non-compliance.
In the more recent ZF Meritor case, the focus was on the market for heavy-duty truck transmissions, dominated by four Original Equipment Manufacturers (OEMs). The defendant had maintained a monopolistic position since the 1950s, while the plaintiff entered the market in 1989 and later joined a joint venture. The defendant responded by establishing long-term agreements with OEMs that included a conditional rebate program requiring OEMs to purchase a significant majority of their needs from the defendant to qualify for rebates. These agreements also mandated that the defendant's products be listed as standard in OEM data books and, in some cases, necessitated the removal of competitors' products from these catalogs.
Further, the LTAs compelled OEMs to preferentially price the defendant’s products, often by increasing competitors' prices. The defendant additionally imposed penalties on customers opting for the plaintiff's products and encouraged OEMs to promote its products exclusively. Despite lower general prices, the defendant's prices never fell below costs. As a result of these practices, the plaintiff's market share dwindled from 8% in 2003 to 4% in 2005, leading to the plaintiff's business closure in 2007. Consequently, the plaintiff initiated legal action against the defendant under Section 1 and Section 2 of the Sherman Act, as well as Section 3 of the Clayton Act.
An exclusive dealing contract is defined as an agreement where a buyer commits to purchasing goods or services solely from a particular seller for a specified period. Such agreements can be procompetitive by ensuring supply and price stability, but they may also be anticompetitive if they unreasonably restrict other suppliers' market access, particularly when imposed by a monopolist. The legality of exclusive dealing is assessed under the rule of reason, which evaluates whether the arrangement significantly forecloses competition in a relevant market, as established in Tampa Electric Co. v. Nashville Coal Co. An exclusive dealing arrangement is deemed unlawful if its probable effect is to substantially lessen competition, rather than merely disadvantage competitors.
Relevant factors for this analysis include the relative market power of the parties, the extent of market foreclosure, duration of the contract, actual anticompetitive versus procompetitive outcomes, coercive behavior, and the customer's ability to terminate the agreement. In the ZF Meritor case, the plaintiff demonstrated the existence of exclusive dealing, as the market penetration targets in Long-Term Agreements (LTAs) effectively functioned as mandatory purchase requirements, akin to bundled rebates in LePage's, where exclusivity was not explicitly mandated but was nonetheless present.
The court acknowledged that while exclusive dealing often covers 100% of a buyer's needs, partial exclusive dealing can also be unlawful. The LTAs, which were considered partial exclusive dealing arrangements, could be illegal due to the dominance of the supplier in a concentrated market and the long-term agreements covering a significant portion of the customer base. The court concluded that the plaintiff had adequately alleged partial, de facto exclusive dealing. Additionally, exclusive dealing is typically unlawful in highly concentrated markets, where the defendant has considerable market power and some coercion exists. The court noted that the production of HD transmissions is costly and complex, necessitating modifications for different regions, which further complicates market dynamics.
The court found that, aside from the plaintiff, no significant external suppliers had entered the market in the past twenty years, which was dominated by the defendant. The ZF Meritor case revealed that the defendant had leveraged its supplier position to coerce Original Equipment Manufacturers (OEMs) into long-term agreements (LTAs) with unfavorable terms for the OEMs and their customers. The court acknowledged that a monopolist could undermine competition, noting that the case involved factors indicating a rare situation where exclusive dealing threatened competition. The analysis included the extent of market foreclosure, the duration of the LTAs, and the anticompetitive nature of the agreements. The defendant had secured LTAs with four OEMs, requiring them to purchase 80% to 97.5% of their needs from the defendant, leading to a significant drop in the plaintiff's market share from 8-14% in 2003 to 4% in 2005. The court emphasized that while long-term contracts are not inherently illegal, the defendant's five-year exclusivity arrangements were unprecedented. The LTAs contained several provisions that could be deemed anticompetitive, including restrictions that severely limited competitors' product visibility. The court concluded there was ample evidence for a jury to determine that the defendant's actions adversely affected competition.
In the Eisai case, the defendant sold Lovenox, a leading anticoagulant since 1993, while the plaintiff gained a license for the competing drug Fragmin in 2005. The relevant market included two other anticoagulants available from 2005 to 2010. Lovenox held a dominant market share of 81.5% to 92.3%, with Fragmin at 4.3% to 8.2%. The defendant incentivized group purchasing organizations (GPOs) by offering discounts based on the proportion of Lovenox purchased, with higher discounts (9% to 30%) for higher purchase percentages, and a formulary access clause that restricted competing drugs' priority status. The plaintiff alleged violations of the Sherman Act, Clayton Act, and New Jersey Antitrust Act, but the district court granted summary judgment in favor of the defendant.
The Eisai court acknowledged that exclusive dealing contracts can provide procompetitive advantages, such as maintaining consistent supply and price stability. However, under the rule of reason, these contracts are considered unlawful if their probable effect is to significantly reduce competition rather than merely harm competitors. The Third Circuit assessed prior rulings in LePage's and ZF Meritor, highlighting that in LePage's, a single-product manufacturer was excluded via a bundled rebate program from a multi-product producer. The Eisai court determined that LePage's was not applicable because there was no indication that an equally efficient competitor was unable to compete with the defendant.
Additionally, Eisai differentiated itself from ZF Meritor, where noncompliance with the dominant manufacturer's agreement could threaten customer supply. In Eisai, a Group Purchasing Organization (GPO) could still acquire Lovenox at wholesale prices even if it terminated its agreement, losing only a 1% discount. The court also concluded that contracting with a small number of hospitals (a few dozen out of nearly 6,000) was insufficient to demonstrate substantial market foreclosure, especially if hospitals were deterred from switching products due to pricing issues.
The court noted that the only alleged anticompetitive effect was a price increase for the defendant's drug, which was consistent with overall market trends. Consequently, the Eisai court upheld the district court’s summary judgment in favor of the defendant. The court emphasized that bundled rebates and exclusive dealing contracts are not inherently anticompetitive and that potential anticompetitive effects must be evaluated on a case-by-case basis. The plaintiff's claims did not support an anticompetitive stance as they failed to demonstrate that the defendants held a monopoly over the bundled glaucoma drugs or that they lacked alternative products for their rebate plans. Additionally, the ZF Meritor precedent was inapplicable due to the absence of similar market concentration and entry barriers in the pharmaceutical sector.
The market for ZF Meritor was characterized by high concentration and long-term dominance by the defendant, necessitating OEMs' access to the defendant's products. In contrast, the Plaintiff has not established a similar necessity for Restasis or other defendant products, as there is no assertion that government or commercial payers must have them. The contracts in ZF Meritor were for a minimum of five years, while the current contracts are only for one year and subject to annual competitive bidding, which the Third Circuit indicates poses minimal competition threat. The Plaintiff's reliance on an ambiguous statement from an unnamed individual at Plan 3, suggesting no competition with Defendants, is insufficient to meet the plausibility standard for anticompetitive conduct, lacking clarity on the speaker's authority and relevance to other plans.
Consequently, the Plaintiff has not adequately pled anticompetitive behavior, leading to the dismissal of their claims. Regarding the tortious interference count, which is contingent on the anticompetitive claim, the court agrees that tortious interference can extend beyond antitrust violations. However, since the Plaintiff's claim is solely based on the alleged anticompetitive conduct, it too is dismissed due to the failure of the associated antitrust allegations.
The Court grants the Defendants' motion to dismiss the First Amended Complaint without prejudice, allowing the Plaintiff 30 days to file a second amended complaint. If the Plaintiff does not comply, the dismissal will become with prejudice. An appropriate order will follow.
Plaintiff's opposition brief is designated as "Pl. Opp'n. D.E. 31," and Defendants' reply is labeled "Def. Reply. D.E. 32." A supplemental authority letter from the Plaintiff is referred to as "Pl. Ltr. D.E. 48," with Defendants' response termed "Def. Resp. D.E. 50." The facts are sourced from the Plaintiff's First Amended Complaint (FAC), D.E. 64. In evaluating a motion to dismiss, the Court accepts all well-pleaded facts as true, following Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The district court may also consider exhibits attached to the complaint, public records, and authentic documents presented by the defendant, as established in Pension Ben. Guar. Corp. v. White Consol. Indus. Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
For a successful appeal regarding pharmaceutical efficacy, a physician must demonstrate either the ineffectiveness of a formulary drug for treating the patient's condition or the patient's inability to tolerate the drug's side effects. The document discusses Plan 3, which encompasses four distinct top-ten plans negotiated under a single administrator. The FAC does not clarify whether Plans 1 and 2 negotiate through an administrator or their representatives. The Plaintiff does not provide contracts between Allergan and the Part D plans, citing confidentiality clauses that restrict public access to such agreements. Therefore, the Plaintiff relies on personal interactions with the Part D plans to substantiate its allegations but does not specify the positions of individuals from Plan 3 or a "Shire executive."
The excerpt references the Aetna court's examination of whether public exchanges under the Affordable Care Act could represent a separate market. It notes that the Aetna ruling emerged from a trial, allowing the district court to consider additional evidence, such as econometric data indicating that a merger could harm competition in the Medicare Advantage market. The Plaintiff's case involves allegations of unlawful tying, which the Third Circuit found to be ambiguous, falling between tying arrangements and reciprocal dealings. Additionally, the Third Circuit criticized the Little Rock court's geographic market analysis, which utilized the "Elzinga-Hogarty test" without explicit acknowledgment, explaining that this test assesses customer behavior in and out of a proposed market.
Subsequent empirical research indicated that a particular test led to overly broad market definitions concerning hospitals, prompting the Circuit to deem it "inconsistent" with the preferred hypothetical monopolist test for defining relevant geographic markets. In the context of a potential merger between the Plaintiff and Defendants, Medicare Part D could be considered the relevant product market, as the analysis would focus on the consumer perspective, consistent with prior cases like Brown Shoe and Aetna. The Circuit also examined the price-cost test for predatory pricing, which involves pricing below a relevant cost measure to eliminate competitors short-term and diminish competition long-term. The Supreme Court has shown skepticism towards predatory pricing claims, and the Circuit concluded that the price-cost test was inappropriate in this instance because the Plaintiff did not assert that pricing acted as an exclusionary tactic, opting instead for a rule of reason analysis. The Court determined that the Plaintiff failed to plausibly allege predatory pricing and therefore dismissed the need for a price-cost analysis, noting that the Plaintiff did not claim that the Defendants' glaucoma drugs lacked competition from comparable substitutes.