300 drugs now in generic 'cartel' probe
But generics’ makers say anti-competitive behavior not proved.
Workers check pharmaceutical products in the production process at Teva Pharmaceutical Industries’ factory in Petah Tikva, Israel. In a court filing, Teva called allegations of a price-fixing conspiracy “conclusory and devoid of any facts.” AHIKAM SERI / BLOOMBERG
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HEALTHCARE
What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said. His comments represent the first public disclosure of the dramatically expanded scale of the investigation.
The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care.
“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.”
The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.
The victims were American health-care consumers and taxpayers, who foot the bills for overcharges on common antibiotics, blood-pressure medications, arthritis treatments, anxiety pills and more, authorities say. The costs flowed throughout the system, hitting hospitals, pharmacists and health insurance companies. They hit consumers who lack prescription drug coverage and even those with insurance, because many plans have high deductibles and gaps on prescription drug benefits.
In just one instance of extraordinary cost spikes, the price of a decades-old drug to ease asthma symptoms, albuterol, sold by generic manufacturers Mylan and Sun, jumped more than 3,400 percent, from 13 cents a tablet to more than $4.70. The example is documented in a lawsuit brought against the generic industry by grocery chains including Kroger.
“Everyone is paying the price,” Nielsen said. He offered a single word to explain the behavior: “Greed.”
While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.
Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.
Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy’s. Mylan denied wrongdoing in an emailed statement. Sun, Teva and Dr. Reddy’s did not respond to requests for comment. In a court filing, Teva said allegations of a price-fixing conspiracy “are entirely conclusory and devoid of any facts.”
But investigators say voluminous 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 plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.
Two former executives of one company, Heritage Pharmaceuticals, have pleaded guilty to federal criminal charges and are cooperating with the Justice Department in a parallel criminal case. A Justice Department spokesman declined to comment.
“It’s particularly ironic since the whole idea of generic drugs was we would get a lower price,” said Henry Waxman, the Democratic former California congressman who co-wrote the 1984 law establishing the Food and Drug Administration’s rules for generics. “If generic versions are higher than need be through rigged systems, that undercuts the whole idea.”
Generics account for 90 percent of the prescriptions written in the United States but just 23 percent of costs, according to the industry trade group, the Association for Accessible Medicines.
And generic drugs do act as a check on soaring drug bills fueled by brand-name manufacturers. In the Medicare prescription-drug program, according to a government study, prices on a benchmark set of older generic drugs dropped 14 percent from 2010 to 2015.
But for some generic manufacturers, the anti-competitive agreements drove up prices on most, if not all, of the products they sold, according to the states.
Officials say they have documented price increases of up to 2,000 percent. Throughout 2013 and 2014, soaring generic prices sparked consternation at drugstores and among state and federal lawmakers. Independent pharmacists said they were dismayed to learn of the price-fixing allegations.
“There’s old, old drugs that have been around a long time, and all of a sudden their price has increased by hundreds of percent and we don’t know why,” said J.D. Fain, owner of Pieratt’s Pharmacy in Giddings, Texas, a small town an hour drive east of Austin.
Unlike the brand-name drug industry, which gets years of patent exclusivity for novel drugs, generic companies operate in a market that was designed to save consumers and taxpayers large sums through aggressive competition. When the FDA grants approval for a generic product, the first company in the door gets six months of exclusive rights to market the drug. The price discount from the brand-name product is relatively small, say 10 percent.
Prices plunge as much as 50 percent once a second generic enters the market, the FDA has estimated. And by the time six or seven generic companies are competing on a particular drug, the price has declined 75 percent.
The states’ lawsuit contains particularly pointed allegations against Mylan and its president, Rajiv Malik, who is personally named as a defendant. Mylan faced public scrutiny in 2016 for raising the price of its EpiPen, to treat allergic reactions, by about 500 percent.
Although the EpiPen was not a generic product at the time, the outcry from physicians, patient groups and members of Congress drew negative attention to the second-largest generic manufacturer.
While traveling in the United Kingdom in 2013, Malik took a phone call from an executive of a competing firm, Heritage, the states say in their lawsuit.
Heritage had won FDA approval to market a version of the antibiotic doxycycline called Doxy DR, which is used to treat acne and a long list of infections.
That would put it in direct competition with Mylan for sales of the drug.
During the trans-Atlantic phone call, Malik and the Heritage executive, Jeff Glazer, agreed to divide up the U.S. market for sales of Doxy DR, according to the lawsuit by states and similar complaints by independent pharmacies and grocery-store chains.
Mylan said it has no evidence its executives did anything wrong.
Heritage did not return repeated phone messages.
MORE DETAILS
Among the 1 6 companies accused are some of the biggest names in generic manufacturing.
Investigators say documentation they have collected shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. Investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.
What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said. His comments represent the first public disclosure of the dramatically expanded scale of the investigation.
The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care.
“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.”
The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.
The victims were American health-care consumers and taxpayers, who foot the bills for overcharges on common antibiotics, blood-pressure medications, arthritis treatments, anxiety pills and more, authorities say. The costs flowed throughout the system, hitting hospitals, pharmacists and health insurance companies. They hit consumers who lack prescription drug coverage and even those with insurance, because many plans have high deductibles and gaps on prescription drug benefits.
In just one instance of extraordinary cost spikes, the price of a decades-old drug to ease asthma symptoms, albuterol, sold by generic manufacturers Mylan and Sun, jumped more than 3,400 percent, from 13 cents a tablet to more than $4.70. The example is documented in a lawsuit brought against the generic industry by grocery chains including Kroger.
“Everyone is paying the price,” Nielsen said. He offered a single word to explain the behavior: “Greed.”
While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.
Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.
Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy’s. Mylan denied wrongdoing in an emailed statement. Sun, Teva and Dr. Reddy’s did not respond to requests for comment. In a court filing, Teva said allegations of a price-fixing conspiracy “are entirely conclusory and devoid of any facts.”
But investigators say voluminous 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 plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.
Two former executives of one company, Heritage Pharmaceuticals, have pleaded guilty to federal criminal charges and are cooperating with the Justice Department in a parallel criminal case. A Justice Department spokesman declined to comment.
“It’s particularly ironic since the whole idea of generic drugs was we would get a lower price,” said Henry Waxman, the Democratic former California congressman who co-wrote the 1984 law establishing the Food and Drug Administration’s rules for generics. “If generic versions are higher than need be through rigged systems, that undercuts the whole idea.”
Generics account for 90 percent of the prescriptions written in the United States but just 23 percent of costs, according to the industry trade group, the Association for Accessible Medicines.
And generic drugs do act as a check on soaring drug bills fueled by brand-name manufacturers. In the Medicare prescription-drug program, according to a government study, prices on a benchmark set of older generic drugs dropped 14 percent from 2010 to 2015.
But for some generic manufacturers, the anti-competitive agreements drove up prices on most, if not all, of the products they sold, according to the states.
Officials say they have documented price increases of up to 2,000 percent. Throughout 2013 and 2014, soaring generic prices sparked consternation at drugstores and among state and federal lawmakers. Independent pharmacists said they were dismayed to learn of the price-fixing allegations.
“There’s old, old drugs that have been around a long time, and all of a sudden their price has increased by hundreds of percent and we don’t know why,” said J.D. Fain, owner of Pieratt’s Pharmacy in Giddings, Texas, a small town an hour drive east of Austin.
Unlike the brand-name drug industry, which gets years of patent exclusivity for novel drugs, generic companies operate in a market that was designed to save consumers and taxpayers large sums through aggressive competition. When the FDA grants approval for a generic product, the first company in the door gets six months of exclusive rights to market the drug. The price discount from the brand-name product is relatively small, say 10 percent.
Prices plunge as much as 50 percent once a second generic enters the market, the FDA has estimated. And by the time six or seven generic companies are competing on a particular drug, the price has declined 75 percent.
The states’ lawsuit contains particularly pointed allegations against Mylan and its president, Rajiv Malik, who is personally named as a defendant. Mylan faced public scrutiny in 2016 for raising the price of its EpiPen, to treat allergic reactions, by about 500 percent.
Although the EpiPen was not a generic product at the time, the outcry from physicians, patient groups and members of Congress drew negative attention to the second-largest generic manufacturer.
While traveling in the United Kingdom in 2013, Malik took a phone call from an executive of a competing firm, Heritage, the states say in their lawsuit.
Heritage had won FDA approval to market a version of the antibiotic doxycycline called Doxy DR, which is used to treat acne and a long list of infections.
That would put it in direct competition with Mylan for sales of the drug.
During the trans-Atlantic phone call, Malik and the Heritage executive, Jeff Glazer, agreed to divide up the U.S. market for sales of Doxy DR, according to the lawsuit by states and similar complaints by independent pharmacies and grocery-store chains.
Mylan said it has no evidence its executives did anything wrong.
Heritage did not return repeated phone messages.
MORE DETAILS
Among the 1 6 companies accused are some of the biggest names in generic manufacturing.
Investigators say documentation they have collected shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. Investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.