In February 2020, former senior Sandoz/Novartis AG executive Hector Armando Kellum pled guilty for his role in a conspiracy to fix prices, rig bids, and allocate customers for generic drugs. According to the Information, from at least March 2013 until at least June 2015, Kellum’s participation in the conspiracy affected products including clobetasol (used to treat inflammation and itching from skin conditions) and nystatin triamcinolone cream (used to treat fungal skin infections).
Kellum’s co-conspirators included a generic pharmaceutical company headquartered in New York and well as several individuals, including Ara Aprahamian, a former Taro Pharmaceutical Industries marketing executive, who was indicted in Philadelphia on February 4, 2020. Kellum has agreed to cooperate with the Antitrust Division’s ongoing investigation into criminal antitrust violations in the generic drug industry.
Kellum marks the fourth executive to be charged in this investigation and is the third to plead guilty to the charges. Kellum’s guilty plea confirmed Sandoz’ involvement and role in the scheme. While Sandoz has been the largest company to be implicated thus far, more generic companies (including some larger than Sandoz) could be in trouble as the investigation and list of cooperating witnesses expands.
In addition to the four individuals, two companies have been charged and resolved via deferred prosecution agreements (Heritage Pharmaceuticals Inc. and Rising Pharmaceuticals Inc.).
Kellum is facing a statutory maximum penalty of ten years in prison and a $1 million criminal fine. However, that maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
Novartis Reaction
Jamie Bennett, spokeswoman for Novartis, noted that the conduct outlined in the plea agreement was “in direct contravention of our company’s values and the clear policies and trainings we had in place at the time” and that the company was “continuing to cooperate with the government in its investigation.”
Government Reactions
“With today’s guilty plea, the Antitrust Division continues its prosecution of high-ranking executives who conspired to cheat America’s most vulnerable elderly consumers by raising prices for vital drugs,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “Competition in our healthcare system is a critical focus for the Antitrust Division and rooting out collusion by executives is a key priority in keeping our markets free.”
“Today’s guilty plea by the former pharmaceutical senior executive is yet another example of the dedication and determination exhibited by the legal and investigative teams,” said Special Agent in Charge Scott Pierce, U.S. Postal Service Office of Inspector General. “Along with our partners at the Department of Justice and the Federal Bureau of Investigation, the U.S. Postal Service Office of Inspector General will continue to aggressively investigate those individuals responsible for unlawful behavior within the generic drug industry.”
“Kellum’s plea shows he lost sight of the basic principle that medicine is intended to heal sick people, not line an individual’s pockets by colluding to rig bids and manipulate drug prices,” said Timothy R. Slater, Assistant Director in Charge of the FBI Washington Field Office. “The FBI and our partners will continue to fight for the American public to have access to a competitive marketplace for pharmaceuticals. We will not stand by while large corporations and business executives in power try to skirt the rules at the expense of unsuspecting citizens.”