Martin Shkreli Accused of Drug Monopoly Scheme by Insurer

(Bloomberg Law) -- A Blue Cross Blue Shield affiliate sued “Pharma Bro” Martin Shkreli, the pharmaceutical industry's imprisoned enfant terrible, in a Manhattan federal court Thursday, alleging a scheme to monopolize the market for Daraprim, the “gold-standard treatment” for the parasitic infection toxoplasmosis.

Shkreli's companies raised the drug's price by more than 4,000% after acquiring the rights in 2015, then conspired to “thwart generic competition” through “deception and fraud” while claiming “their scheme was necessary to serve patients,” the complaint says. “None of their claims were truthful.”

The lawsuit, filed in the U.S. District Court for the Southern District of New York, echoes the claims from an ongoing case brought by the government, which Shkreli is fighting from the prison where he's been locked up since 2017 on an unrelated fraud conviction. Shkreli was sentenced to seven years in prison after being convicted of securities fraud and conspiracy for lying to hedge-fund investors and manipulating shares in a biotech company he founded, Retrophin Inc.

Toxoplasmosis—caused by a parasite found most often in cat feces—normally involves only mild symptoms, if any, but the disease can be life-threatening in immune-compromised people, such as pregnant women or those with HIV/AIDS.

In addition to Shkreli, the 128-page suit by Blue Cross Blue Shield of Minnesota targets Vyera Pharmaceuticals LLC, Phoenixus AG, and Phoenixus CEO Kevin Mulleady. Vyera is the former Turing Pharmaceuticals.

The proposed class action accuses them of preventing rivals from capitalizing on the “astronomical” Daraprim price hike—"from $17.50 to $750 per tablet"—through resale restrictions in the contracts between Vyera, Phoenixus, and the specialty manufacturers that made the drug's key ingredients.

Those agreements also allegedly included “data blocking” provisions that prohibited the specialty suppliers from providing Daraprim sales information to the companies that normally aggregate drug market data.

The contract terms effectively blocked competitors from obtaining necessary ingredients, accessing the samples they needed to test the “bioequivalence” of their proposed generics, or “accurately assessing, and thus pursuing, the market opportunity,” according to the complaint.

“Absent defendants' anti-competitive and deceptive conduct, multiple generic competitors would have entered the Daraprim market sooner and at lower prices, rendering defendants' price hike unsustainable—such that they would not have pursued it in the first place,” the suit says.

Instead, “determined” to “impose monopoly prices and reap significant profits,” Shkreli's companies allegedly set out to block generic entry “from the start.” Those profits came “at the expense of” insurers and other Daraprim purchasers, according to the complaint.

Cause of Action: Sections 1 and 2 of the Sherman Act; state antitrust laws; state consumer protection statutes; unjust enrichment.

Relief: Treble damages, an injunction, costs, and fees.

Potential Class Size: All third-party payers that have covered Daraprim since August 2015.

Response: Vyera and Phoenixus didn't immediately respond to requests for comment Thursday.

Attorneys: BCBS is represented by Robins Kaplan LLP.

The case is BCBSM Inc. v. Vyera Pharms. LLC, S.D.N.Y., No. 21-cv-1884, 3/4/21.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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