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From: Charles Fournier charles.fournier@t1df.

org
Subject: Course of action Re--negotiation with Hagens Berman
Date: March 3, 2017 at 7:13 AM
To: Derek Loeser dloeser@kellerrohrback.com
Cc: Gretchen Obrist gobrist@kellerrohrback.com, Boss Julia julia.boss@t1df.org

Derek,

Thank you for your call regarding your initial contacts with Hagens Berman (HB). After providing
us a brief summary of the nature of your informal exchanges, you outlined three options going
forward:
A. Accept HB’s offer to join forces and enter into negotiation in good faith—but
concurrently file with the objective of consolidating the two claims thereafter.
B. Negotiate without filing; and, then, if an acceptable framework can be reached,
participate in the redrafting of HB’s complaint.
C. Ignore HB’s offer to join forces and file, then negotiate (if HB is still so inclined).
The course of action in the best interest of the class is Option A. We believe it is critical to
engage in a good faith negotiation effort towards a cooperation agreement as soon as possible.
The best interest of the class would be served by presenting a unified front and by building
upon the strength of our respective legal teams (as we discussed, there may indeed be an
antitrust angle, although not the one HB currently focuses on). But we have already attempted
to cooperate with Steve Berman; and he turned our offer down. The risk that he would either
refuse to compromise or would ultimately decide to file a consolidated complaint without us is
quite high. Even if he were to agree on a reasonable collaboration framework, he might still
resist the need to modify the complaint as substantially as we believe is necessary, or might
resist asking for an accounting of net prices (Steve might instead be inclined to focus on straight
cash settlement). We thus strongly believe that we need to continue building leverage and be at
all times ready to walk away from the negotiation table.

Practically speaking, each of the three courses of action you outline would require us to have a
ready-to-file complaint as early as possible. Even Option B would require us to hedge against a
very possible breakdown in negotiation, i.e. to have a complaint ready to file. None of these
three options is ‘easier,’ or more likely to succeed. Option C is the riskiest; Option A is the
safest; Option B could turn into a morass that would only serve Steve’s best interests.

Option A would allow us to affirm our unique contribution to the case and our equal right to
pursue this case separately should our negotiation efforts fail or should HB resist our efforts to
improve their complaint and seek an accounting of net prices. Option B and C are in HB’s best
interest. A procedural fight in New Jersey would be a distraction and, as you outlined, comes
with substantial risks. But so would be an attempt to negotiate from a position Steve seems to
believe is weak. During a negotiation Steve could also decide to go alone at the last minute.
That would leave us scrambling to file; we would be back to C but in a weaker position.

Steve’s resistance is likely to be motivated by the following issues:

Steve has already ignored our offer to help improve his complaint and may be
resentful of our public criticisms. Immediately after his initial filing of the case in
Massachusetts, we offered him three options — become members of the class; work as
litigation consultants; and meet with him as T1DF for the purpose of discussing possible
collaboration. He ignored us on the last two; we chose not to become members of the
class after Steve moved the case to New Jersey and put James Cecchi in charge despite
his obvious conflict of interest. Novo Nordisk’s legal counsel responded to our letter of
his obvious conflict of interest. Novo Nordisk’s legal counsel responded to our letter of
concern with a courtesy call. James Cecchi responded in substance to our letter inquiring
about conflicts inherent in his dual representation of the investor and patient classes.
Steve, with whom Julia and I had previously met in 2015, did not even acknowledge our
cooperation offer. We were forced to make our disagreement public and, as a result,
Steve may now hold a personal grudge against us. As a result of Steve’s actions, we, as
T1DF, have been chastised by the T1D community; but we won’t let personal
considerations interfere with collaborating with HB if such a collaboration is in the best
interest of the class.

HB has resisted the removal of James Cecchi as local counsel and may be
reluctant to recognize the validity of our public criticisms. James Cecchi’s conflicts
are quite obvious; we outlined them in several emails/letters. Yet, instead of keeping a
Chinese wall between the two actions, Steve Berman seems to have bent the fact pattern
of the Patient Claim to harmonize this claim with the antitrust claim upon which James
Cecchi's investor claim is predicated. Getting the Patient Claim fact pattern right would de
facto undermine the very basis of the investor claim. This conflict needs to be
remediated.

Steve would have to acknowledge that HB’s fact pattern is counterfactual and
unfairly targets Novo Nordisk and Sanofi. Bloomberg refers to the above situation as a
‘price war:’ "Diabetes is fertile ground for a drug-price fight. It's a $40 billion-plus market
in the U.S., with many big firms looking to protect billion-dollar franchises. Each of the
many medicines treating diabetes has multiple strong competitors. And all the customers
want to pay less….In an increasingly competitive market, drugmakers with long-acting
insulins have had to offer bigger and bigger rebates to payers”.
https://www.bloomberg.com/gadfly/articles/2016-09-29/novo-nordisk-job-cuts-diabetes-
drug-price-war-casualties See also http://www.biopharmadive.com/news/insulin-market-
novo-lilly-sanofi/427602/ But this price war has taken an unusual form: instead of
resulting in lower consumer prices, it has taken the form of an ever-intensifying rebate
competition between diabetes drugmakers to gain and maintain formulary access (the
“customers” in the Bloomberg article are PBMs/insurers)—thus the lockstep list price
increases. And Eli Lilly seems to have gotten the upper hand in this PBM-driven zero
sum game: success for one insulin manufacturer means failure for another.

Sanofi is currently seeing significant erosion in its position in the U.S. insulin
market. Lilly has quickly managed to displace Lantus—Sanofi’s most important
product in the market—from PBM formularies via the introduction of their slightly
cheaper biosimilar Basalglar. Novo Nordisk remains a meaningful competitor to Eli
Lilly, though Humalog has been gradually claiming market share from Novo
Nordisk’s Novolog. For example, Express Scripts, America’s largest pharmacy
benefits manager, has been downgrading Novo Nordisk’s drugs throughout 2016
— first Tresiba in March was relegated to the “non-preferred” formulary based on
Express Scripts' own studies; in August Express Scripts put Novo Nordisk’s
diabetes treatment drug Victoza on its exclusion list, while Eli Lilly’s drugs were
placed on the preferred list; in October, Express Scripts finally aligned with Eli
Lilly’s Humalog and Humalin, and excluded Novo Nordisk’s NovoLog and Novolin
—but kept Lantus on its formulary alongside Basaglar after Sanofi agreed to a
price cut (i.e. a larger rebate) of at least 10%. CVS and UnitedHealthcare replaced
Sanofi’s top-selling Lantus product with Lilly’s follow-on biologic Basaglar in
Sanofi’s top-selling Lantus product with Lilly’s follow-on biologic Basaglar in
December. https://www.bloomberg.com/news/articles/2016-12-07/lilly-threatens-
sanofi-s-dominance-in-insulin-with-knockoff-drug

Ironically, Novo Nordisk is the first manufacturer to take a proactive step in favor of
pricing transparency (revealing net pricing information in November 2016). The
major player in the current market, and the main supporter of applying “value
pricing” mechanisms to escalate the price of insulin in the post-rebate future, is Eli
Lilly.

Steve might be reluctant to admit that HB’s claim requires extensive changes. The
above fact pattern renders HB’s current claim moot. We believe that, contrary to the
allegations included in the current claim, Eli Lilly on the one hand, and the PBMs, on the
other hand, have a vested interest in engineering a monopolistic market. Both sides
would equally benefit from Sanofi’s and Novo Nordisk’s failure or partial withdrawal from
the U.S. market. We believe that Eli Lilly is driving the public List Price race while at the
same time discounting their net price more heavily than other manufacturers, in order to
get their product on PBM formularies with preferred-brand placement—thus increasing
Lilly’s overall sales volume and consequently reducing patient access to their
competitors’ products. As a result, we also believe that the discounted net price may be
much lower than initially thought (i.e. may be closer to the best commercial price offered
to the GSA and others, i.e. about $50). Exposure of this net price is one of the critical
outcomes of this case.

Steve has demonstrated that he would place highest value on a large cash
settlement, while insulin users first and foremost need net price transparency, both
retroactively and going forward. A cash settlement in response to injuries sustained
over a discrete recent period means little to a patient who will have to buy insulin for
decades into the future, if in the absence of full disclosure manufacturers end rebating
without also drastically lowering list price. We believe, based on our discussions, that
Steve Berman will always choose a larger cash settlement over a settlement or recovery
that includes a public accounting of net prices. However, the termination of the rebate
program and of the underlying PBM-controlled list pricing would open the door to value
pricing, i.e. a different but potentially more potent form of profiteering. It is therefore
critical for Keller Rohrback (KR) to have some control over the insulin manufacturer part
of the claim.

HB’s offer could compromise T1DF's standing in the diabetes community. It is in


Steve’s best interest to enmesh T1DF into his consolidation without publicly
acknowledging that our objections to James Cecchi’s role, possible intentions to
consolidate with the investor action, and the flawed decision to sue only the
manufacturers were all, in fact, reasonable and well-grounded—and might have led to a
challenge regarding class certification.

In the context of this claim but also in the eventuality of a post-rebate insulin
market, it is in the interest of the class to have a stronger and independent
watchdog. Filing an independent claim clarifies T1DF’s contribution on this crucial
issue. It would also—by putting on record our fact pattern and desired remedies—
issue. It would also—by putting on record our fact pattern and desired remedies—
protect T1DF’s reputation in the event that in a subsequent consolidation HB’s fact
pattern or a settlement agreeable to the anti-trust contingent but less
advantageous to the longterm interests of the class should prevail over our
objections.

We have much to lose from a scenario in which we appear to oppose, then join
unreservedly, then later return to opposition. An initial independent filing would
communicate more clearly that any subsequent compromise was in the interest of
preventing a split within the class, and would explain a later parting of the ways if it
was to return to a position we had articulated in our independent claim. Is there an
additional possibility that an independent Keller Rohrback filing on a stronger
manufacturer/PBMs fact pattern would attract copycat claims—potentially adding
new attorneys, less wedded to the antitrust fact pattern, to the counsel mix?

Assuming that HB agrees to entertain a negotiation, here are the conditions we believe are
important:
T1DF remains named plaintiff unless we choose otherwise.
James Cecchi should be replaced as local counsel. There should be no consolidation
with the investor action.
KR should remain in charge of the PBM part of the consolidated complaint (here we refer
to a consolidation subsequent to initial independent filing). Any issue not already in HB's
insulin claim should be kept separated. Based on our discussion, we believe you are well
aware of this issue and will act in the best interest of the class—i.e. to preserve any other
cause of action we might have to the maximum possible extent. The purpose of this
association with HB is solely to help them improve their insulin complaint and prevent a
bifurcation of fact patterns that would give defendants a tactical advantage.
HB should not be allowed to put KR on par with the two attorneys who filed the two
copycat antitrust actions (they contributed no substantive value; their sole contribution is
addition of a handful of plaintiffs). As the firm with the most experience in the PBM field,
KR should have a larger voice in a management committee currently controlled by
antitrust lawyers. Based on our discussion, we believe you are well aware of this issue
and will act in the best interest of the class.
As a corollary of the above, any collaboration framework should give us some form of
control over the consolidated complaint’s fact pattern, including the manufacturer part of
the claim—adding the PBMs to a flawed fact pattern and saying that the PBMs’ only role
was to cover up manufacturers’ anti-competitive actions would not be in the best interest
of the class.
Regarding the insulin manufacturers, the complaint must request an accounting of their
net prices. The determination of the exact net price of insulin is necessary to assess the
class’s past injuries but also to prevent future injuries, i.e. using an overstated net price
as the basis for “value pricing" going forward. Defendants are likely to strongly object to
this accounting. Accounting of net prices should be a condition precedent to any
settlement offer.
T1DF, Julia and I should also remain clients of KR, not HB. We will not sign HB's
retainer/agreement nor agree to give HB control over our activities as watchdog for the
T1D community. As you may have noticed, T1DF is the only entity that has taken a
critical interest in this matter.
critical interest in this matter.
Regards,
Charles & Julia
Charles Fournier, J.D.
Vice-President
Type 1 Diabetes Defense Foundation
Charles.Fournier@t1df.org
(206) 643-1479
www.t1df.org

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