In 'Pharma Bro' antitrust case, judge won't curb states' disgorgement power

Former drug company executive Martin Shkreli exits U.S. District Court after being convicted of securities fraud, in the Brooklyn borough of New York City, U.S., August 4, 2017. REUTERS/Carlo Allegri
  • Manhattan federal judge rules against Vyera, Shkreli bid to limit scope of any push for nationwide disgorgement
  • Antitrust trial is set to start in December
  • FTC lost disgorgement power in April 2021 U.S. Supreme Court ruling

(Reuters) - New York and other states will be allowed to seek a nationwide disgorgement order if they win at trial on their claim that Vyera Pharmaceuticals LLC and its former chief executive Martin Shkreli participated in an anticompetitive scheme to maintain a price boost for the life-saving drug Daraprim.

U.S. District Judge Denise Cote in Manhattan federal court said in her ruling on Friday that New York law permitted the state to move to recoup alleged ill-gotten corporate gains nationally.

The ruling was a blow to Swiss pharmaceutical Vyera and its parent Phoenixus AG, which wanted to limit the reach of any pursuit of disgorgement to sales tied to victims within the plaintiff states.

Morgan, Lewis & Bockius partner Steve Reed, a lawyer for Vyera and Phoenixus, did not immediately return a message seeking comment on Monday. Duane Morris partner Christopher Case, who is representing Shkreli, also didn't immediately return a message seeking comment.

New York, joined by six states and the Federal Trade Commission, sued Vyera, Shkreli and other defendants last year alleging anticompetitive efforts to suppress generic competition to maintain a price hike from $17.50 to $750 per tablet of the antiparasitic drug Daraprim. The drug is used to treat the potentially fatal infection toxoplasmosis.

The plaintiffs plan to seek recovery of Vyera's net profits tied to U.S. sales of Daraprim. A bench trial is scheduled to start in December.

A representative from the New York attorney general's office did not immediately respond to a message on Monday seeking comment.

"The court can and should confirm its authority to grant the equitable monetary relief sought by the plaintiff states based on federal law alone," lawyers for the plaintiff states said in a court filing on Aug. 28. The defendants "have not cited any authority for the proposition that a federal district court's hands are tied."

Vyera and the defendants had argued "equity does not permit the state plaintiffs (individually or collectively) to pursue nationwide relief on behalf of citizens of other states that are not parties to this litigation."

Nicknamed "Pharma Bro," Shkreli is serving a seven-year term for securities fraud. In July, the U.S. government said it had sold a one-of-a-kind Wu-Tang Clan album, once owned by Shkreli, to pay off a $7.36 million forfeiture order tied to the fraud conviction.

The U.S. Supreme Court said in a ruling in April 2021 that federal law does not allow the FTC to seek monetary relief such as disgorgement. Cote said in a footnote: "The FTC has indicated that it may seek to reinstate its prayer for equitable monetary relief in the event Congress passes authorizing legislation."

The case is Federal Trade Commission v. Vyera Pharmaceuticals LLC, U.S. District Court for the Southern District of New York, No. 1:20-cv-00706-DLC.

For the plaintiffs: Jeremy Kasha of the New York attorney general's office

For Vyera Pharmaceuticals: Steven Reed of Morgan, Lewis & Bockius

For Martin Shkreli: Christopher Casey of Duane Morris

Read more:

U.S. Supreme Court curbs FTC's power to recoup ill-gotten gains

Judge whittles defenses for Shkreli, former company in FTC lawsuit

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