Connecticut Attorney General William Tong along with 43 other State AG’s filed a lawsuit in the US District Court for the District of Connecticut against 20 pharmaceutical companies and 15 individuals for allegedly conspiring to fix prices and allocate geographic markets for more than 100 generic drugs. The State of Connecticut was joined in the suit by 43 additional states. The defendants include some of the biggest names in the generic pharmaceutical industry – including Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals, Inc., Pfizer, Inc., and Sandoz, Inc. – and 15 individuals who are current or former senior-level executives of the corporate defendants. The generic drugs involved in the suit come from a broad range of classes, including contraceptives, antibiotics, and statins, and are intended to treat a large array of diseases from acute infections to cancer to multiple sclerosis.
According to a recent study completed by the US Food & Drug Administration, the price of a particular drug should drop to a somewhat predictable level after each additional generic competitor enters the market. Specifically, the first generic competitor to enter the market drops the price of a drug to 94% of the branded drug price. The entry of a second generic competitor brings the largest price drop, down to 52% of the branded drug prices. As more and more generic competitors enter, the price continues to drop, albeit in smaller increments – for example, a market with 10 generic competitors has a price of 26% of the branded drug price, at 15 generic competitors the price drops to 13%, and at 19 generic competitors the price drops to 6% of the brand.
From 2013 to 2014, the price of many generic drugs shot up. For instance, from July 2, 2013 to June 30, 2014, half of all generic drugs increased in price, and nearly 10% more than doubled. Albuterol , an asthma drug, increased 4,000%, while the antibiotic doxycycline increased 8,281%. Since this price behavior was contrary to typical pricing trends, these price spikes suggested anti-competitive practices and caught the attention of Congress. In addition, the Department of Health and Human Services Office of Inspector General launched an investigation, as did the US Department of Justice, and the state of Connecticut.
Following their investigation, the state of Connecticut filed suit alleging that the corporate and individual defendants, who were responsible for sales, marketing, pricing and operations, engaged in a “horizontal conspiracy to allocate markets and fix prices for multiple generic drugs” in violation of the Sherman Act. The complaint alleged that the industry executives functioned as an “interconnected web” to unlawfully discourage competition. The complaint further alleges that the defendants used specific language to refer to these activities, including “fair share,” “playing nice in the sandbox,” and “responsible competitor” to enforce an “ingrained culture of collusion.” The complaint seeks civil penalties and disgorgement of ill-gotten gains, as well as enjoining the defendants from continuing to engage in anticompetitive conduct.
Unfortunately, that wasn’t the only bad news for the generic industry this past weekend. The media showed interest in a newly published book entitled Bottle of Lies. The book, by investigative journalist Katherine Eban, details regulatory issues in the generic drug industry allegedly resulting in safety and efficacy issues in some generic drugs.