Merck Faces Class Action Alleging Bundled Vaccines Raised Prices

Stay current on the latest developments from agencies including the CFPB, Federal Reserve, FDIC, and OCC to advise clients on real-life regulatory situations.

By Eleanor Tyler

Merck & Co. Inc. faces a class action by pediatricians alleging the pharma company used its monopoly in certain essential vaccines to unlawfully drive up prices on the rotavirus vaccine, which most children aren’t required to get.

The suit is the latest in a string of complaints about drugmakers that sell their medications through bundled discounts and penalize buyers who don’t take the entire bundle.

Sugartown Pediatrics LLC, a Pennsylvania pediatric practice, bought vaccines directly from Merck. It sued in the U.S. District Court for the Eastern District of Pennsylvania on behalf of a putative class of buyers that, it alleges, overpaid for the rotavirus vaccine. The complaint said Merck leveraged “monopoly power in multiple pediatric vaccine markets to maintain its monopoly power in the Rotavirus Vaccine Market.”

The bundling thwarted a competing vaccine entering, which should have driven down costs, Sugartown said.

When GlaxoSmithKline (GSK) introduced a competing rotavirus vaccine in 2008, Merck added a condition to its contracts that required customers to buy all or nearly all of their pediatric rotavirus vaccines from Merck or face substantial price penalties on all other Merck vaccines, Sugartown’s April 25 complaint said. Any clinic that wanted to buy rotavirus vaccine from GSK had to be willing to accept substantial penalties when purchasing all other Merck vaccines, “including those for which there is no other supplier,” the complaint said.

The move kept GSK from competing on price with its new product, Sugartown said. Instead of prices going down, as one would expect when a competing product enters the market, “Merck has maintained and increased the price,” the complaint said.

Old Weapon

Sugartown has past experience as a plaintiff on this issue. It filed a similar lawsuit against Sanofi Pasteur Inc. in 2011, alleging that Sanofi bundled a meningococcal vaccine, which is required for college students in some states but not others, with other universally required vaccines.

The parties settled that suit, and Sanofi paid $61.5 million.

These suits are part of a string of attacks on bundling practices in pharmaceutical and vaccine markets dating to the 1970s. For example, after more than three years of litigation, direct buyers of HIV drugs settled in 2011 for $52 million during trial with Abbott Laboratories on allegations of a complex bundling scheme.

The plaintiffs don’t always win in these cases. Wyeth-Ayerst Laboratories Inc. won a case in 2007 on allegations that it used loyalty rebates with pharmacy benefit managers to keep out competition for its estrogen replacement drug Premarin.

Thwarting Competition

Bundling vaccines can be a surprisingly effective way to keep out even the most efficient competitors, economists Kevin Caves and Hal Singer noted in a 2011 study on the impacts of bundling on meningitis vaccine markets. Even if a new market entrant offered its meningitis vaccine for free, it wouldn’t have been able to enter the market. The penalties for “breaking the bundle” for other vaccines would cost more than just paying for the meningitis vaccine in the bundle.

Contract terms and discount structure can be built so that “there is no positive price at which a hypothetical rival could induce an otherwise indifferent buyer” to buy their new product, Caves and Singer said.

The case is Sugartown Pediatrics LLC v. Merck & Co. Inc. , E.D. Pa., No. 18-cv-01734, 4/25/18 .

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Antitrust on Bloomberg Law