What began at the end of 2016 as an antitrust lawsuit has now exploded into an investigation of alleged price-fixing involving at least sixteen companies and 300 generic drugs.
Background
The initial federal lawsuit, filed by 20 state attorneys general, alleged that six makers of generic drugs artificially inflated and manipulated drug prices in an effort to reduce competition. Former Connecticut Attorney General George Jepsen, one of the state attorneys general behind the suit, said his staff “developed compelling evidence of collusion and anti-competitive conduct” among many companies that manufacture and market generic drugs.
According to Jepsen, Heritage Pharmaceuticals was the “principal architect” behind the scheme, but there was also “widespread participation in illegal conspiracies across the generic drug industry.” Some of the other companies engaged in the “widespread participation” were Aurobindo Pharma USA Inc., Citron Pharma LLC, Mayne Pharma Inc., Mylan Pharmaceuticals Inc. and Teva Pharmaceuticals USA.
According to the complaint, the defendants coordinated with their competitors at industry trade shows, customer conferences and other events, as well as through direct email, phone and text message communications. The twenty states also allege that the drug companies knew their conduct was illegal and avoided communicating with one another in writing.
While Connecticut led the effort, other initial plaintiff states included Delaware, Florida, Hawaii, Idaho, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nevada, New York, North Dakota, Ohio, Pennsylvania, Virginia and Washington. The list of states involved in the investigation eventually grew to forty-six.
In addition to the number of states involved growing, the number of generic drugs involved in the investigations also grew – this all started as a lawsuit regarding an antibiotic and an oral diabetes medication.
According to the amended lawsuit, the state investigations were triggered by “skyrocketing” generic drug prices. The suit quotes generic industry officials as arguing the “significant price increases were due to a myriad of benign factors, such as industry consolidations, [federally] mandated plant closures, or elimination of unprofitable generic drug product lines.”
Two individual executives were named as defendants in the lawsuits, Rajiv Malik, president and executive director of Mylan N.V., the parent company of Mylan Pharmaceuticals Inc., and Satish Mehta, CEO and managing director of Emcure Pharmaceuticals Ltd., the parent company of Heritage Pharmaceuticals Inc.
Two other executives pled guilty to fixing drug prices in January 2017 and later agreed to settle with the states. Jason Malek, former president of Heritage Pharmaceuticals, and Jeffrey Glazer, former chairman and chief executive of the company, agreed to cooperate in the state probe and each will pay a $25,000 civil penalty. The executives are cooperating with the Department of Justice in a parallel criminal case.
Current Status
Now, investigators say that documentation they have collected, much of it under seal and not available to the public, shows the industry to be riddled with price-fixing schemes. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.
With Former Connecticut AG Jepsen no longer in office, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut seems to have taken a leading role in the probe. “This is most likely the largest cartel in the history of the United States,” Nielsen said. He cited the volume of drugs in the schemes, that they took place on American soil and the “total number of companies involved, and individuals.”
Individual Examples
According to the Washington Post story on the investigation, officials say they have documented price increases of up to 2,000 percent. In both 2013 and 2014, rising generic prices sparked anxiety and worry both by patients and among state and federal lawmakers.
A drug to treat bone issues related to cancer, zoledronic acid, was the subject of an alleged price-fixing scheme, between Heritage and Dr. Reddy’s. Heritage became the first generic manufacturer of the drug in the spring of 2013, but Dr. Reddy’s was close behind. Executives at the companies cut deals so each got a “fair share” of the market, while also conspiring to fix an inflated price, the complaints said. According to the Washington Post story, Dr. Reddy’s wound up with about 60 percent of the market and Heritage claimed 40 percent. Investigators cited evidence that executives knew they were acting illegally. As the discussions with Dr. Reddy’s took place, according to the complaints, a Heritage executive “sent a text message to his entire sales team reminding them not to put their pricing discussions with competitors in writing.”