Health Law Daily Wrap Up, PRESCRIPTION DRUGS—2d Cir.: Dismissal of 340B antitrust claims against four diabetes drug makers reversed on appeal, (Oct 20, 2025)

By Justin Marcus Smith, J.D.

Safety-net health centers plausibly pleaded that Sanofi-Aventis, Eli Lilly, Novo Nordisk, and AstraZeneca engaged in a horizontal price-fixing conspiracy based on closely timed parallel conduct and plus factors.

Two federally funded health centers plausibly pleaded that four drug manufacturers conspired to limit diabetes drug availability under the Section 340B Drug Discount Program, held the United States Court of Appeals for the Second Circuit, in reversing the district court dismissal. The antitrust claims were not barred because the health centers sought recovery for “lost access” losses, not increased prices, and also sought injunctive relief. There was no risk of duplicative recovery. The health centers pleaded parallel conduct supporting a plausible inference of concerted action. Among other things, the facial timing of 340B drug supply curtailment mostly occurred within a one-month period and purportedly caused a sharp drop in discounted drug sales volume. The failure of the manufacturers’ joint lobbying efforts did not necessarily negate the possibility of a conspiracy thereafter. The district court should not have applied its own interpretation of which alternative explanation was more plausible on a motion to dismiss. The health centers also alleged various plus factors like interfirm communications and actions against individualized self-interest. The Second Circuit reversed, vacated the district court dismissal, and remanded (Mosaic Health, Inc. v. Sanofi-Aventis U.S., LLC, No. 24-598 (2d Cir. Oct. 15, 2025)).

Background. Two federally funded health centers (Mosaic Health, Inc. and Central Virginia Health Services, Inc.) operating a total of 40 safety-net clinics sued four diabetes drug manufacturers (Sanofi-Aventis U.S., LLC; Eli Lilly and Co. and Lilly USA, LLC; Novo Nordisk Inc.; and AstraZeneca Pharmaceuticals LP). The health centers said these manufacturers conspired to limit the availability of diabetes drugs under the Section 340B Drug Discount Program. The drugs at issue were rapid- and long-acting analog insulins and incretin mimetics. The 340B program creates a discount for providers like the health clinics here by establishing a ceiling price.

Manufacturers that provide drugs paid through Medicare and Medicaid must offer the Section 340B discount, and the instant manufacturers did so for safety-net hospitals and clinics like those here for at least a decade. However, as of 2020, the manufacturers allegedly lobbied the government to limit Section 340B diabetes drug discounts. The lobbying efforts were not successful, and despite a presidential executive order, the four manufacturers largely curtailed 340B discounts. A few exceptions applied, for example, for safety-net providers with no in-house pharmacy if they designated one local pharmacy to serve their patients. The health centers alleged the restrictions caused significant financial loss to safety-net hospitals and clinics.

The health centers alleged violations of federal and state antitrust laws and state common law. After the district court granted the manufacturers’ Fed. R. Civ. P. 12(b)(6) motion to dismiss, the court denied the health centers’ motion for leave to file a second amended complaint. The court reasoned the health centers failed to allege parallel conduct and failed to allege plausible facts to infer a conspiracy. The health centers appealed, and applying de novo review, the Second Circuit reversed, vacated dismissal, and remanded.

Illinois Brick. At the threshold, the Second Circuit disagreed with the manufacturers’ contention that Supreme Court decisions barred the health centers from asserting claims under the Sherman Act. See Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011); Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

The Second Circuit said the manufacturers were wrong about Astra in two ways. First, Astra did not say the health centers, as indirect purchasers, could not bring Sherman Act claims to the same extent they could not bring Section 340B claims. The Second Circuit noted the health centers were not seeking to enforce Section 340B mandates or pricing agreements at the 340B ceiling price. The health centers only sought to enjoin alleged price-fixing independent of any district court finding of 340B violation.

Second, unlike the overcharge claims in Astra, Congress did not intend for the Health Resources and Services Administration (HRSA), a unit of HHS, to adjudicate and enforce antitrust price-fixing claims. HRSA would only resolve disputes to ensure covered entities pay at or below the ceiling price. HRSA would not police antitrust violations.

Illinois Brick also did not bar the action because the health centers expressly disclaimed damages for overcharges. Where Illinois Brick might apply, the health centers sought recovery for losses as a result of “lost access” rather than increased prices. Accordingly, there was no risk here of duplicative recovery per Illinois Brick. The health centers also sought injunctive relief to enjoin the alleged horizontal price-fixing conspiracy under Section 16 of the Clayton Act.

Conspiracy pleaded. The Second Circuit found the proposed second amended complaint alleged sufficient parallel conduct to infer a possible horizontal price-fixing conspiracy.

The Second Circuit said it was plain that the health centers did not need to plead the exact same conduct within a tight timeline to state a claim under Section 1 of the Sherman Act. Second Circuit precedent after Twombly has accepted a broad understanding of parallel conduct. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Parallel conduct turns on general similarities in substance, timing, or effect, that support a possible inference of concerted action.

The Second Circuit said the proposed second amended complaint plausibly alleged the manufacturers acted “similarly enough in substance” by curtailing 340B discounts and raising prices in the market for certain popular diabetes medications within four months of each other. In doing so, the manufacturers eliminated the bulk of their 340B sales for diabetes drugs, earned higher profits, avoided competing, and reduced diabetes drug availability. Three of the four manufacturers announced curtailment of 340B discounts within only one month of each other. Subsequent policy adjustments that allowed for various exceptions did not change the analysis.

The Second Circuit held the district court erred in determining the health centers did not plausibly allege that disparate manufacturer conduct ultimately achieved substantially similar end results. Aggregated data in the proposed second amended complaint purported to show parallel decimation of 340B discounts and a concomitant 75% drop in discounted sales to contract pharmacies. Various manufacturer policy exceptions, like shipping to one community pharmacy of a safety-net provider, did not make the actions more disparate than the Twombly parallel conduct, nor did they change the overall effect of restricting Section 340B drugs.

The district court emphasized the failure of the manufacturers’ joint lobbying efforts as an “obvious alternate explanation” for the facts of the alleged conspiracy, but the Second Circuit disagreed. The lobbying failure was hardly obvious as an alternate explanation because it did not clearly negate the possibility of a conspiracy. A court may not properly dismiss a complaint merely because it finds a different interpretation of the facts more plausible. The health centers only needed to allege a plausible theory based on circumstantial evidence. They did not need to allege the sole theory or even the most plausible theory.

Plus factors. The Second Circuit also found the health centers pleaded sufficient plus factors. The four manufacturers allegedly controlled the diabetes drug marketplace as direct competitors. If true, that would make concerted action and restrictions easy to coordinate and maintain. Joint adoption of restrictions denying covered entities the ability to buy Section 340B drugs for delivery to contract pharmacies would, if true, eliminate the vast majority of related 340B drug sales and thereby increase profits and reduce competition. The health centers also sufficiently alleged the restrictions were against any individual manufacturer’s own economic self-interest. By acting together, the manufacturers would plausibly enjoy “safety in numbers” limiting their market share risk and risk of exclusion from Medicare and Medicaid.

Allegations of high level of interfirm communications on the 340B issue, sharing of lobby services, and joint participation on the PhRMA industry association board, likewise supported an inference of conspiracy. The Second Circuit concluded the district court failed to credit plausible inferences of alleged conspiracy with the common aim of collusion.

State claims. Last, the Second Circuit concluded amendment of the state law claims would not be futile because the health centers plausibly alleged a horizontal price-fixing conspiracy. The Second Circuit accordingly directed the district court to reexamine its ruling on the health centers’ allegations about the state law claims.

The case is No. 24-598.

Judge: Pérez, M.

Attorneys: Brian Marc Feldman (Aurelian Law PLLC) for Mosaic Health, Inc. Rajeev Muttreja (Jones Day) for Sanofi-Aventis U.S., LLC. John C. O’Quinn (Kirkland & Ellis LLP) for Eli Lilly and Co. and Lilly USA, LLC. Ashley C. Parrish (King & Spalding LLP) for Novo Nordisk Inc.

Companies: Mosaic Health, Inc.; Sanofi-Aventis U.S., LLC; Eli Lilly and Co.; Lilly USA, LLC; Novo Nordisk Inc.

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