Impax Laboratories, Inc. v. Turing Pharmaceuticals AG
Filing
99
OPINION AND ORDER. For the foregoing reasons, Defendant's motion to dismiss with prejudice Plaintiff's unjust enrichment claim (Count V of the Amended Complaint) is GRANTED. Plaintiff's motion for oral argument is DENIED as moot. The C lerk of the Court is respectfully directed to terminate the motions, Doc. 60 & 65. It is SO ORDERED. re: 60 MOTION to Dismiss Plaintiff's Unjust Enrichment Claim. filed by Turing Pharmaceuticals AG, 65 LETTER MOTION for Oral Argument addressed to Judge Edgardo Ramos from Daniel Adams dated August 18, 2016. Document filed by Impax Laboratories, Inc. (Signed by Judge Edgardo Ramos on 11/16/2017) (rjm)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#
DATE FILED: 11/16/2016
IMPAX LABORATORIES, INC.,
Plaintiff,
-against-
OPINION AND ORDER
16 Civ. 3241 (ER)
TURING PHARMACEUTICALS AG,
Defendant.
Ramos, D.J.:
Impax Laboratories, Inc. (“Impax” or “Plaintiff”) brought this action against Turing
Pharmaceuticals AG (“Turing” or “Defendant”) on May 2, 2016, seeking to recover millions of
dollars of rebate liability related to sales of the drug Daraprim. Before the Court is Defendant’s
motion to dismiss with prejudice Plaintiff’s unjust enrichment claim (Count V of the Amended
Complaint). For the following reasons, Defendant’s motion is GRANTED.
I. BACKGROUND1
A. The Medicaid Drug Rebate Program
In order for pharmaceutical manufacturers to obtain Medicaid coverage for their
prescription drugs, they must participate in the Medicaid Drug Rebate Program, a program
designed to help lower Medicaid spending on outpatient prescription drugs. First Amended
Complaint (“Am. Compl.”) (Doc. 34) ¶¶ 16–17. The program requires each manufacturer to
execute a rebate agreement with the United States Department of Health and Human Services
(“HHS”) and to submit certain certified pricing data to the Centers for Medicare and Medicaid
1
The following facts are drawn from the Amended Complaint and are assumed true for the purposes of deciding
Defendant’s motion.
Services (“CMS”) on a periodic basis for each of its covered outpatient drugs. Id. Each drug is
linked to its manufacturer through its unique National Drug Code (“NDC”), part of which
represents the manufacturer’s unique labeler code. Id. ¶ 1.
The pricing data submitted to CMS includes the best price and average manufacturer
price (“AMP”) for each drug. Id. ¶ 17 & n.1. CMS uses the pricing data to calculate a unit
rebate amount (“URA”) for each drug and transmits that information to the states. Id. ¶ 17.
Each state then uses that data to calculate on a quarterly basis the rebate due from each
manufacturer for the purchase of its drugs with Medicaid funds. Id. If a manufacturer fails to
certify the relevant pricing data or pay the rebate liability due, it may be subject to, among other
things, exclusion from the program, meaning its drugs may no longer be eligible for Medicaid
coverage. Id. ¶ 21.
B. Impax Acquires Daraprim
In March 2015, Impax acquired Amedra Pharmaceuticals LLC (“Amedra”) and
CorePharma LLC (“CorePharma”) and, in so doing, acquired the United States marketing rights
for the drug Daraprim, an antiprotozoal medication mainly used to treat toxoplasmosis, a high
risk and often times life-threatening disease for those affected by HIV, AIDS, cancer, and other
diseases weakening the immune system. Id. ¶¶ 14, 16. By way of this transaction, Impax also
acquired certain inventory of the drug, labeled with Amedra’s labeler codes, and assumed
Amedra’s obligations under its Medicaid rebate agreement with HHS. Id. ¶ 16.
C. Turing Acquires Daraprim
Approximately five months after acquiring the rights to Daraprim, Impax sold those
rights to Turing, along with its inventory of the drug, pursuant to an Asset Purchase Agreement
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(“APA”) dated August 7, 2015 (the “Closing Date”).2 Id. ¶ 22. Rather than require Turing to
repackage all of the inventory with Turing’s own labeler codes right away, Impax authorized
Turing to retain and sell to third parties any inventory containing Amedra’s labeler codes. Id.;
see APA § 8.5(a).
Because Impax would remain liable for all rebate liability associated with Turing’s sales
of Amedra-labeled Daraprim, Turing agreed to reimburse Impax for all rebate liability “directly
arising out of or in connection with” Turing’s use, marketing, or sales of Daraprim under
Amedra’s labeler codes. APA § 2.4(a); see id. §§ 8.3, 9.2(d) & Ex. E. In addition, because
Impax would remain obligated to certify pricing data to CMS for Turing’s sales of Amedralabeled Daraprim, Turing agreed to provide and certify its pricing data to Impax. APA § 9.2(e) &
Ex. E.
Exhibit E to the APA sets forth in detail the parties’ respective roles and responsibilities
related to Turing’s sale of Amedra-labeled Daraprim after the Closing Date. APA § 9.2(d), (e).
On the 10th business day of each month, Impax was required to provide Turing with certain
monthly and quarterly data with respect to Amedra-labeled Daraprim. APA, Ex. E at 1. Turing
was then responsible for calculating certain data, including the best price and AMP for the drug.
Id. No later than the 25th of each month, Turing was required to provide Impax with that data, as
well as a communication that the calculations were reviewed, were accurate, and were approved
by Turing. Id. No later than 30 days following the end of each month, Impax was required to
submit all applicable information to CMS and to certify that information in accordance with
CMS guidelines. Id. Impax was then required to process and pay all state Medicaid rebates for
2
The APA is attached as Exhibit 1 to the Declaration of Kenneth M. Katz in Support of Defendant’s Motion to
Dismiss Plaintiff’s Unjust Enrichment Claim (“Katz Decl.”) (Doc. 61). Because this agreement is incorporated by
reference in the Amended Complaint, the Court may consider it in ruling on Turing’s motion to dismiss. Roth v.
Jennings, 489 F.3d 499, 509 (2d Cir. 2007).
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Amedra-labeled Daraprim and submit, on a monthly basis, documentation of those payments to
Turing. Id. at 1–2. Finally, Turing was required to reimburse Impax for all Medicaid rebates,
including interest, within 30 days from the date of each invoice. Id. at 2.
D. Turing Raises the Price of Daraprim
Shortly after acquiring the rights to Daraprim, Turing raised the price of the drug from
$17.63 per pill to $750 per pill. Am. Compl. ¶ 26. In addition to dramatically increasing the cost
of the drug for consumers, the price increase had two effects underlying the claims in this suit.
First, pursuant to a distribution agreement with Walgreen Company (“Walgreen”) that
Turing assumed as part of the APA, see APA §§ 2.1, 2.2(a)(vi) & sched. 2.2(a), Walgreen was
required, within 30 days of Turing raising the price of Daraprim, to pay Turing for the increased
value of the inventory it held on hand, including inventory Walgreen originally purchased from
Impax. Id. ¶ 28. Impax estimates that Walgreen was obligated to pay Turing approximately
$73,000 per 100-count bottle of Daraprim at the time of the price increase to account for this
shelf stock adjustment. Id.3
Second, the price increase generated a significant amount of rebate liability, as a result of
the increase in the drug’s AMP. On October 29, 2015, Turing provided Impax with its
certification of pricing data for the third quarter of 2015 (“Q3 2015”). Id. ¶ 29. This data
included, among other things, a quarterly AMP of $750.000000 and a best price of $17.628000.
Id. After Impax reported this data to CMS, state Medicaid agencies invoiced Impax for over $19
million in Medicaid rebate liability for that quarter. Id. ¶¶ 29–30.4 In January 2016, Impax
3
Turing has not demanded payment of this amount from Walgreen. See Pl.’s Opp’n Mem. (Doc. 63) at 6; Def.’s
Reply Mem. (Doc. 72) at 1.
4
According to Impax, had those units been invoiced to Impax based on Daraprim’s pre-APA pricing, the total rebate
liability for this period would have been just under $375,000. Am. Compl. ¶ 30.
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invoiced Turing for its share of the Q3 2015 rebate liability, which Impax calculated at
approximately $17.8 million. Id. ¶ 32.
On February 1, 2016, Turing provided Impax with its certification of pricing data for the
fourth quarter of 2015 (“Q4 2015”). Id. ¶ 38. This data included, among other things, a
quarterly AMP of $719.392134 and a best price of $719.392134. Id. Impax reported this data to
CMS, and estimates that state Medicaid agencies will, in total, invoice Impax for over $14
million in Medicaid rebate liability for that quarter. Id. ¶¶ 38–39. On March 1, 2016, Impax
invoiced Turing for an additional $2.4 million in rebate liability for Q3 2015 and Q4 2015. Id.
¶ 40.
On April 19, 2016, Impax sent a third invoice to Turing, requesting that it pay
approximately $10.2 million in rebate liability for Q4 2015. Id. ¶ 48 n.13. To date, the January,
March, and April 2016 invoices remain outstanding. Id. ¶¶ 48, 92.
E. Turing Does Not Reimburse Impax and This Action Ensues
On February 16, 2016, Impax sent Turing a letter demanding that Turing pay the January
2016 invoice. Id. ¶ 34. Instead of responding to the letter, on March 22, 2016, Turing forwarded
Impax a memorandum prepared by its attorneys at Reed Smith LLP. Id. ¶ 35. The memorandum
suggested that the rebate liability invoiced to Turing was potentially overstated because the URA
calculated by CMS, based on pricing data Turing certified to Impax, “may be incorrect.” Id. The
memorandum further suggested that Impax and Turing might explore a “revised URA
calculation.” Id.
On April 26, 2016, Impax’s CEO, G. Frederick Wilkinson, sent a letter to Turing’s CEO,
Ron Tilles, explaining that if Turing did not pay the rebate liability due, Impax would need to
take action to protect its rights. Id. ¶ 36. Wilkinson also demanded that Turing comply with its
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other reporting obligations under the APA. Id. In telephone calls that followed that day, Tilles
offered to make a $1 million payment toward the rebate liability, which Impax found insufficient.
Id. Turing also provided some pricing data for the first quarter of 2016 (“Q1 2016”), but Impax
found the data insufficient. Id. ¶ 56. The following evening, April 27, 2016, Turing provided
pricing data for Turing-labeled Daraprim and “recommended” that Impax report that data to
CMS in place of the pricing data for Amedra-labeled Daraprim for Q1 2016. Id. ¶ 57.
On May 2, 2016, Impax brought the instant suit against Turing, seeking a declaratory
judgment that Turing breached the APA, an order compelling specific performance of Turing’s
reporting obligations under the APA, and damages for Turing’s breach of the APA. Complaint
(“Compl.”) (Doc. 1) ¶¶ 65–76. Impax also sought a temporary restraining order and preliminary
injunction ordering Turing to, among other things, stop selling Amedra-labeled Daraprim. The
Court denied the requests, finding that although Impax had established a likelihood of success on
the merits, it failed to demonstrate irreparable harm. See Doc. 31 (May 10, 2016 Transcript);
Doc. 29 (May 18, 2016 Transcript). On May 24, 2016, Turing filed its answer to the complaint,
along with a counterclaim for Impax’s alleged breach of the duty of good faith and fair dealing
by refusing to engage with Turing to correct the errors in the pricing data submitted to CMS.
Answer with Counterclaim (“Answer to Compl.”) (Doc. 27) ¶¶ 77–97. The parties thereafter
began discovery.
On June 15, 2016, Turing provided Impax with documents purporting to certify a revised
quarterly AMP of $13.897496 for each of Q3 2015 and Q4 2015. Am. Compl. ¶ 42. According
to Impax, Turing provided no plausible explanation for why a restatement was proper, and its
revised certification provided insufficient data and information necessary to satisfy the regulatory
requirements for restating pricing data to CMS. Id. ¶¶ 43–44.
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Approximately one week later, on June 24, 2016, Impax amended its complaint to add
allegations regarding Turing’s restatement, as well as allegations regarding the Walgreen shelf
stock adjustment. Impax also asserted a new claim for unjust enrichment, alleging, in relevant
part, that Turing received “a substantial windfall in the form of [Walgreen’s] payment for the
increased value of the inventory Impax sold to Walgreen that Walgreen still held on hand at the
time of the price increase,” that “[a]t the same time, Impax has been severely damaged by the
price increase, through the dramatic resulting increase in [r]ebate [l]iability it has had to bear,”
and that “[i]f it is determined that the [APA] does not require Turing to reimburse Impax for that
[r]ebate [l]iability, it would nevertheless be inequitable and unjust to permit Turing to retain the
its [sic] windfall benefit at Impax’s expense.” Id. ¶ 103 (emphasis in original). Turing thereafter
added a counterclaim for Impax’s breach of the APA for failing to report the restated pricing data
Turing supplied on June 15. Answer to First Amended Complaint with Counterclaims (“Answer
to Am. Compl.”) (Doc. 43) ¶¶ 109–115.
Turing now moves to dismiss Impax’s claim for unjust enrichment under Rule 12(b)(6) of
the Federal Rules of Civil Procedure. Impax opposes the motion.5
II. LEGAL STANDARD
Under Rule 12(b)(6), a complaint may be dismissed for “failure to state a claim upon
which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When ruling on a motion to dismiss
pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true
and draw all reasonable inferences in the plaintiff’s favor. Koch v. Christie’s Int’l PLC, 699 F.3d
141, 145 (2d Cir. 2012). However, the Court is not required to credit “mere conclusory
5
The parties are also in the process of filing cross-motions for summary judgment, with briefing scheduled to be
complete on December 16, 2016.
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statements” or “[t]hreadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “To survive
a motion to dismiss, a complaint must contain sufficient factual matter . . . to ‘state a claim to
relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). A claim is facially
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.” Id. (citing Twombly, 550 U.S.
at 556). If the plaintiff has not “nudged [his] claims across the line from conceivable to
plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.
III. DISCUSSION
Turing seeks dismissal of Impax’s unjust enrichment claim primarily on the basis that the
subject matter of the claim is covered by the APA. Def.’s Mem. (Doc. 62) at 6–10.
In New York, it is “well settled” that “[w]here the parties executed a valid and
enforceable written contract governing a particular subject matter, recovery on a theory of unjust
enrichment for events arising out of that subject matter is ordinarily precluded.” Simkin v. Blank,
19 N.Y.3d 46, 55 (2012) (quoting IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d
132, 142 (2009)); see also Chiste v. Hotels.com L.P., Nos. 08 Civ. 10676 (CM), 08 Civ. 10744
(CM), 08 Civ. 10746 (CM), 10 Civ. 07522 (CM), 2011 WL 2150653, at *2 (S.D.N.Y. May 31,
2011) (same). For that reason, courts in this district routinely dismiss claims for unjust
enrichment that are predicated on disputes covered by an agreement between the parties. See,
e.g., Epstein v. N.Y.C. Dist. Council of Carpenters Benefit Funds, No. 15 Civ. 2866 (PAC), 2016
WL 1718262, at *3 (S.D.N.Y. Apr. 28, 2016); Bancorp Servs., LLC v. Am. Gen. Life Ins. Co., No.
14 Civ. 9687 (VEC), 2016 WL 4916969, at *8 (S.D.N.Y. Feb. 11, 2016).
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Although the parties agree that the APA constitutes a valid, enforceable agreement
between them, Impax maintains that it should be permitted to proceed on its unjust enrichment
claim for two separate reasons, both of which the Court rejects.
First, Impax argues that the APA does not clearly govern Turing’s receipt of the shelf
stock adjustment from Walgreen, on which the unjust enrichment claim is partially based. Pl.’s
Opp’n Mem. at 2 (“At a minimum, Turing was unjustly enriched by its apparent receipt of legal
entitlement to millions of dollars in value in the form of a shelf stock adjustment from
Walgreen . . . .”); see Am. Compl. ¶ 103. Pursuant to the APA, however, Turing acquired “all
right, title and interest . . . in, to and under” Impax’s distribution agreement with Walgreen. APA
§ 2.1; see also APA § 2.2(a)(vi) & sched. 2.2(a). The propriety of Turing’s entitlement to any
payments due pursuant to that agreement thus falls squarely under the APA.
Second, Impax argues that the Court has not yet determined whether the APA covers all
aspects of the Medicaid rebate liability Impax has paid or incurred as a result of Turing’s price
increase, including, specifically, the allocation of rebate liability assessed on inventory “put into
the stream of commerce” by Impax before the Closing Date, but “resulting entirely from Turing’s
use, marketing and sale” of the drug after the Closing Date. Pl.’s Opp’n Mem. at 2–3. Both
parties agree that the APA covers this issue, but Impax asserts that it should not be precluded
from pleading an alternative theory of recovery were the Court to find otherwise. Id. at 11;
Def.’s Reply Mem. at 3.
Having not been presented with the issue directly before, the Court now finds that the
APA clearly covers all aspects of the parties’ dispute as to Medicaid rebate liability assessed on
Daraprim. The APA describes in detail how the parties intended to handle the issue of Medicaid
rebate liability, specifically setting forth the parties’ respective roles and responsibilities in
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connection with Turing’s ability to sell Amedra-labeled Daraprim. See APA §§ 2.4(a), 8.3,
9.2(d), (e) & Ex. E. The APA also addresses how rebate liability is meant to be allocated
between the parties during a period in which both Impax and Turing may be responsible for a
portion of the rebates. Exhibit E to the APA states: “Upon Close [Turing] shall be responsible
for reimbursing [Impax] for all rebates on utilization that takes place after the Close. In the event
that the Close takes place in the middle of a Quarter then [Turing] shall be responsible for a
prorated amount of that Quarters [sic] rebate invoices.”6 APA, Ex. E at 5–6. As Impax itself
concedes, “[i]f the APA governs this issue, then Impax’s breach of contract claim will resolve the
dispute, and Impax will succeed or fail on the merits of that claim.” Pl.’s Opp’n Mem. at 13.
Having found that the APA does govern this issue, Impax’s unjust enrichment claim must be
dismissed.7
IV. CONCLUSION
For the foregoing reasons, Defendant’s motion to dismiss with prejudice Plaintiff’s unjust
enrichment claim (Count V of the Amended Complaint) is GRANTED. Plaintiff’s motion for
6
Section 9.2(d) of the APA also provides:
[O]n and after the Closing Date, (i) [Turing] shall have responsibility and shall assume all Liabilities
for, all Rebates . . . made after the Closing Date for Products sold on or after the Closing Date, and
(ii) [Impax] shall have responsibility to process, and assume all Liability for, all Rebates . . . made
after the Closing Date for Products sold prior to the Closing Date.
See also APA § 9.2(g) (“In the event there is a conflict between this Section 9.2 and Exhibit E, the provisions of
Exhibit E shall govern.”).
7
Because the Court finds that the APA covers the subject of Impax’s unjust enrichment claim, the Court need not
consider Turing’s alternative argument that Impax failed to adequately plead the claim. See Def.’s Mem. at 10–13.
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