As state attorneys general and Department of Justice move against generic manufacturers, plaintiffs’ firms have filed more than 90 antitrust suits on behalf of third party payers.
The pressure on generic drug manufacturers is intensifying as investigations by the Department of Justice and state attorneys general have resulted in criminal charges against two former executives and the first government complaint alleging six firms conspired to raise prices and allocate markets.
While drug companies have faced antitrust claims in the past over so-called pay-for-delay deals and product hopping, this is a new and potentially more threatening inquiry as it involves conduct that is inherently unlawful. Companies could be hit with criminal and civil fines and see their executives imprisoned. They are also being deluged with an onslaught of suits by plaintiffs’ firms, filed on behalf of indirect and direct purchasers. As of Feb. 10, more than 90 complaints were filed involving 14 generic drugs.
The Connecticut attorney general’s office initiated the probe of the generic drug industry in July 2014 when it issued the first subpoenas to generic firms requesting information on their product pricing. Four months later, the Department of Justice’s antitrust division began a parallel criminal investigation issuing subpoenas to firms for information on their pricing and communications with competitors.
The inquiries were overshadowed last year as attention focused on the dramatic price increases of off-patent drugs by Turing Pharmaceuticals AG and Valeant Pharmaceuticals International Inc. and the presidential election campaign, in which Hillary Clinton, Bernie Sanders, and Donald Trump criticized the brand-name industry for its pricing practices. (See timeline of Rx drug pricing probe.)
But in December the generic industry was once again in the spotlight as the government took the first enforcement actions resulting from the investigations. On Dec. 14, the DOJ unsealed criminal charges against two former Heritage Pharmaceuticals Inc. execs for fixing prices, allocating customers and rigging bids. The government said that from about April 2013 until at least December 2015 they and their co-conspirators directed subordinate employees to meet and communicate to discuss the sale of doxycycline and glyburide. (Also see "Generic Price Fixing Probe: First Charges Unsealed, More May Come Before Inauguration Day" - Pink Sheet, 14 Dec, 2016.)
The following day, 20 state attorneys general filed suit against Heritage and five other companies – Aurobindo Pharma USA Inc., Citron Pharma LLC, Mayne Pharma USA, Mylan Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc. – claiming they entered contracts and conspiracies to maintain prices and reduce competition for Doxy DR (doxycycline delayed release) and glyburide. More actions against other firms are expected.
Connecticut Attorney General George Jepsen said his office has developed compelling evidence of collusion and anticompetitive conduct across many generic drug companies.
“While our initial lawsuit is pending in federal court, our investigation into this conduct is ongoing, and we are currently partnered with more than 35 states on this investigation,” Jepsen said. “We believe the conduct is widespread, involving a significant number of drugs, and we intend to aggressively pursue enforcement of our state and federal antitrust laws to restore competition and integrity to this market.”
Conspiracy Alleged Via Trade Shows, Dinners
The government and Congress began scrutinizing the generic industry following a spike in generic drug prices in 2013.
Sen. Sanders and Rep. Elijah Cummings drew attention to the increases in October 2014 when they sent letters to 14 generic drug manufacturers requesting information about their price hikes. For example, in letters to Actavis (now Teva) and Mylan they noted that the firms had increased the price for a 500-count bottle of 100 mg tablets of doxycycline by more than 8,000%, from $20 to more than $1,800. (Also see "Mylan Joins Firms Facing DOJ Probe On Price Hikes; Senate Plans Industry-Free Hearing" - Pink Sheet, 7 Dec, 2015.)
The state attorneys general complaint goes into detail in alleging how companies conspired to fix prices and thwart competition for Doxy DR and glyburide. It alleges that Heritage was the “principal architect and ringleader” of a series of conspiracies.
In one instance, the complaint says that when Heritage entered the market for Doxy DR on July 2, 2013, the only other generic manufacturer was Mylan. The complaint alleges that Heritage and Mylan executives agreed to allocate market share and refrain from competing with one another for customers. It says Mylan agreed to “walk away” from at least one large national wholesaler and one large pharmacy chain to allow Heritage to obtain the business and increase its market share.
The complaint asserts that all the defendants sought to avoid communicating with each other in writing, or to delete written electronic communication. It cites emails and text messages, including a June 2014 text message exchange between individuals at Citron and Heritage in which they agreed to raise the price of glyburide. Details about communications, including the names of individuals, are redacted from the complaint.
The complaint claims that the defendants and others in industry have used industry trade shows, including those of the Generic Pharmaceutical Association, to discuss upcoming bids, specific generic drug markets, pricing strategies and pricing terms in their contracts with customers. They also cite interaction at industry dinners and “Girls Night Out” meetings and dinners.
On Feb. 9, the DOJ filed an unopposed motion to intervene in the case, saying it was necessary to protect the integrity of its related ongoing criminal investigation. The department indicated that further actions were to follow, saying it had unsealed “the first criminal charges” in the investigation. The defendants, former Heritage CEO Jeffrey Glazer and former president Jason Malek, pled guilty to the charges on Jan. 9 and are to be sentenced on Sept. 28.
‘Acting Responsibly’ By Raising Drug Prices
The generic drug industry is sensitive to the pricing controversy. At its annual meeting in Orlando, GPhA announced a rebranding campaign and renamed itself the Association for Accessible Medicines. (Also see "GPhA Rebrands As AAM, Hopes To Change Tenor Of Drug Pricing Debate" - Pink Sheet, 14 Feb, 2017.)
While the association is promoting the generics industry as driving savings rather than costs, the lawsuits convey a different image.
A complaint by an employee health and welfare benefit plan against levothyroxine manufacturers Lannett Co. Inc. and Mylan alleges that the companies formed a price-fixing cartel that included all their levothyroxine products. As evidence, the complaint includes charts of Medicaid reimbursement per unit for dosages of generic levothyroxine and comments Lannett CEO Arthur Bedrosian and Mylan CEO Heather Bresch made on earnings calls.
The complaint says that in a Sept. 10, 2013 earnings call, Bedrosian was asked for his reaction to Mylan increasing the price of levothyroxine “quite significantly,” and he replied, “You mean after I sent them the thank you note?”
According to the complaint, Bedrosian then said, “So whenever people start acting responsibly and raise prices as opposed to the typical spiral down of generic drug prices, I’m grateful.” He also said of two possible competitors that he hoped they would be responsible and not go into the marketplace.
The complaint also quotes remarks Bresch made on May 2, 2013 that some prices were “literally cheaper than dirt for some of these older products,” and that the bar “needs to go up and get rebalanced from a pricing perspective.”
The complaint, 1199 SEIU National Benefit Fund v. Lannett Co., was filed in the Southern District of New York on Dec. 14, the same day the DOJ brought felony charges against the former Heritage execs. The complaint cites the DOJ charges and links its allegations to the broad DOJ probe of the industry.
Plaintiffs firms began suing generic firms after the state AGs and DOJ began their investigations. The first complaint brought on behalf of indirect purchasers was filed on March 2, 2016 against manufacturers of digoxin and doxycycline. Numerous other complaints followed and in August they were consolidated in mulitidistrict litigation. The DOJ has intervened in this litigation as well.
The government actions in December have led to a surge of suits, most of which are on behalf of health and welfare funds. They target generic manufacturers of 14 drugs, including clobetasol, clomipramine, desonide, divalproex, fluocinonide, pravastatin, propranolol, and ursodiol. (See chart of cases below.)
Brand-Name Companies Face Different Scrutiny
While brand-name companies have been sharply criticized for their drug pricing, they are free to set whatever price they wish for their products and are not subject to price fixing claims. However, a consumer class action lawsuit against three insulin manufactures is trying to make a case against pricing behavior based on other legal grounds.
The complaint alleges that Sanofi, Eli Lilly & Co. and Novo Nordisk AS violated the Racketeer Influenced and Corrupt Organizations Act and state consumer protection laws by unlawfully engaging in a scheme to inflate the benchmark prices of rapid- and long-acting analog insulin drugs and then marketing the spread between the benchmark prices and real prices to pharmacy benefit managers, causing consumers to overpay for them. (Also see "Diabetes Rebate Model Challenged On Morality Grounds In Class Action Suit" - Pink Sheet, 31 Jan, 2017.)
There appears to have been some conflict between plaintiffs’ firms over the litigation. The suit was filed in the District of Massachusetts by Hagens Berman Sobol Shaprio on Dec. 30 and then dismissed on Feb. 2. In a notice to the court, Hagens said that another action over the same conduct had been filed first in the District of New Jersey. On Feb. 2, the same plaintiffs filed a similar suit against the same companies in the US District Court for the District of New Jersey. They are now represented by Carella, Byrne, Cecchi, Olstein, Brody & Agnello.
Like the initial suit, the new complaint states that insulin drugs that used to cost $25 per prescription now cost between $300 and $450 and some patients now pay almost $900 per month.
For decades, brand-name firms have faced government investigations for their marketing behavior, with the focus on off-label promotion and kickback allegations. The subject of the probes has shifted in recent years and companies are now facing investigations about their patient assistance programs, support of non-profit organizations, and contractual agreements with pharmacy benefit managers. (Also see "Pharma Pricing, Non-Profit Ties Get Increasing Scrutiny From Prosecutors" - Pink Sheet, 14 Sep, 2016.)
But the heat is now on the generic drug industry. The extent of the fallout remains to be seen with the future actions of the state AGs and DOJ. If history is any indication, it will be costly and bruising.