RxUSA loses its $2.3-billion lawsuit against big distributors and pharma industry; vows to appeal

October 28, 2009
Pharmaceutical Commerce, Pharmaceutical Commerce - October 2009,

Back in 2006, FDA was on the verge of implementing a national requirement for restricting pharmaceutical distribution to “authorized distributors of record” (ADRs) who would be exempt from passing pedigree information among themselves to complete a sale, something that had been part of revisions to the Pharmaceutical Drug Marketing Act (PDMA) since the late 1990s. But, in an eleventh-hour ruling, and against the expectations of most in the pharma business, an injunction against FDA was upheld—and on appeal, FDA was forced to back down from implementing it at all (Pharmaceutical Commerce, June-August, p. 8).

The litigant in that suit was RxUSA, a relatively small distributor in Port Washington, NY, owned by Robert Drucker. While RxUSA is an authorized distributor for some pharmaceuticals, much of its business was derived from secondary wholesaling—buying product from some other source (often, another distributor) and then reselling it. It would need pedigree documentation to make legitimate sales of this product to customers. By winning the suit, RxUSA enabled hundreds and possibly thousands of small, non-ADR distributors to remain in business.

Simultaneously with the FDA litigation, RxUSA sued the Big Three distributors, Bellco Drug Co. (now a part of AmerisourceBergen) and HD Smith, along with 16 pharma manufacturers, including most of the top companies. RxUSA claimed that, by withholding pedigree information for sales to RxUSA, the industry was engaged in a trust and in allegedly illegal restraint of trade. The lawsuit alleged damages of $2.3 billion.

In a late September ruling, the US Court for the Eastern District of New York threw out the suit (RxUSA Wholesale Inc. v. Alcon Laboratories Inc. et al., case number 06-03447), asserting that RxUSA failed to show that there was a monopoly or illegal restraint of trade. In essence, the ruling validates the defendants’ right to choose with whom to do business. Last spring, a related lawsuit against AmerisourceBergen alone was also thrown out, more or less for the same reasons, according to ABC’s annual report.

Drucker has not commented on the outcome, other than to say that an appeal is planned. But according to a writeup of the case at Law360 (New York), the US Court ruling is “without leave to amend.”

Pedigree going forward

Much of this case revolves around wonkish details of commercial contracts and FDA regulations. The bigger picture is that FDA, with the support of larger pharma companies and distributors, has wanted to shut down secondary wholesaling altogether for years. The ADR requirement (which exempts ADR holders from passing pedigree information in mostny state pedigree rules) along with the efforts to establish a national pedigree program, has been part of this effort. Ironically, however, many secondary wholesalers have invested in the IT systems needed for passing pedigree documentation, and are supportive of a national pedigree—provided that pharma companies and big distributors convey the necessary pedigree data. The National Council of Pharmaceutical Distributors (Washington, DC), a trade group of secondary wholesalers, is on record as supporting current legislation to develop a national, electronic pedigree system, but this legislation has taken a back seat to the larger debate over healthcare reform. Stay tuned.