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2 Feb, 2021
By Alan Zimmerman
A group of class-action plaintiffs suing Mallinckrodt PLC for alleged antitrust violations in connection with the company's drug H.P. Acthar Gel asked the bankruptcy court overseeing the company's Chapter 11 proceedings to appoint a trustee to oversee the case, court filings show.
The Bankruptcy Code provides for the appointment of a trustee for, among other reasons, "cause, including fraud, dishonesty, incompetence or gross mismanagement of the affairs of the debtor by current management." If appointed, the trustee would take control of the company's affairs.
The group said it has been "unfairly targeted" by the company for inequitable treatment as part of the company's effort to sidestep litigation in connection with Acthar Gel, adding that the company is continuing to act unlawfully with respect to its pricing and business practices related to the drug.
H.P. Acthar Gel is an orphan drug acquired by the company in 2014 when it acquired Questcor in a $5.8 billion transaction. It is used in the treatment of, among other things, infantile spasms, which affects about 2,500 infants each year in the U.S. A rare but serious health issue, infantile spasms can lead to death, intellectual disabilities and other lifelong developmental problems.
The drug costs about $100 per vial in 2000, but by the time Mallinckrodt acquired the company, Questcor had raised the price of the medication to nearly $32,000 per vial, according to a report from Kaiser Health News. Indeed, the drug and the cash flow it generated were the impetus behind Mallinckrodt's acquisition of Questcor, Kaiser Health News said.
Mallinckrodt has continued to raise the price, and Acthar Gel now costs almost $50,000 per vial, according to court filings. The drug had about $1 billion in sales in 2019, accounting for 40% of the company's specialty brands business and about one-third of its overall business, the filings state.
The group of class-action representatives, known as the Acthar Plaintiffs, comprising the city of Rockford, Ill., along with several union locals, sued the company and pharmaceutical benefit manager Express Scripts in respective class-action lawsuits in federal courts in Illinois, Pennsylvania and New Jersey, alleging antitrust violations. Among other things, the suits allege that the company has been acting illegally since 2007 by increasing prices more than 1,300% and by taking advantage "of the country's most vulnerable patient population — infant babies," while leveraging restrictions on the drug's output via an exclusive distribution agreement with Express Scripts.
However, Mallinckrodt's Chapter 11 filing put those cases on hold, at least insofar as Mallinckrodt was concerned. On Nov. 23, 2020, the bankruptcy court also put a temporary 270-day hold on the litigation against Express Scripts on the grounds that it had a common interest in the case with Mallinckrodt due to an agreement under which Mallinckrodt is obligated to indemnify Express Scripts for liability related to Acthar Gel.
The group said in its Jan. 31 motion seeking the appointment of a trustee that the company has refused to negotiate with the group despite its stated intention to obtain "buy-in" for its reorganization plan from its creditors. According to the group, the company has already settled, or engaged in talks or mediation with a number of other similarly situated creditors also involved in litigation with the company, including opioid plaintiffs.
The distinction, according to the motion, is that in the Acthar Gel case, the company is hoping to protect Express Scripts, in part so it can continue its pricing practices and arrangement with the PBM concerning the orphan drug.
According to the Acthar Plaintiffs, the company prefers to have the bankruptcy court adjudicate the claims as part of the bankruptcy proceeding rather than negotiate a settlement for itself and permit the class-action jury trials to proceed in federal court against Express Scripts.
"[The company's] goal is not justice," the group said in its motion. "Their goal is to save their co-conspirator from a jury trial."
Meanwhile, the group charged that the company's allegedly illegal actions are ongoing.
"Debtors plan to continue to violate the Sherman and Clayton Acts, federal RICO, and the consumer fraud laws of the fifty states," the Acthar Plaintiffs charge.
According to the motion, the company's tactics are evidence of bad faith and mismanagement that "are in and of themselves … cause for the appointment of a trustee." The motion also contends that the company's continuing violations of antitrust laws warrant the appointment of a trustee, as well.
A hearing on the motion seeking the trustee appointment is set for March 30.