Price Fixing and Collusion Cause of Skyrocketing Generic Drug Prices
Generic drugmakers are under antitrust scrutiny in a series of lawsuits alleging collusion to illegally hike prices of specific generic drugs, sometimes by more than 1000%. The Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce."
Generic drugs – which are equivalent to brand name drugs – have saved direct purchasers, consumers, and the American healthcare system tens of billions of dollars annually because generic pharmaceuticals typically introduce competition into a market where none previously existed. Typically, when a first generic drug manufacturer enters a branded market, the generic is priced only slightly lower than the branded drug. However, the appearance of a second generic manufacturer typically reduces the average generic price to nearly half the brand price. As additional generic manufacturers enter the market, prices continue to fall. For branded products that attract a large number of generic manufacturers, the average generic price can fall to around 15% of the branded price. Over the last several years, however, that price dynamic has changed for many generic drugs. Prices for dozens of generic drugs have skyrocketed. Investigations into these drastic price increases have begun to reveal a broad, well-coordinated, and long-running series of schemes to fix prices, allocate markets, and rig bids for a number of generic drugs in the U.S.
On December 12 and 13, 2016, the U.S. Department of Justice (“DOJ”) filed the first criminal charges stemming from its ongoing investigation. See United States v. Glazer, No. 2:16-cr-00506-RBS (E.D. Pa. Dec. 12, 2016 Dec. 12, 2016); United States v. Malek, No. 2:16-cr-00508-RBS (E.D. Pa. Dec. 13, 2016). These cases are both pending in this District and allege that these former senior executives of generic pharmaceutical maker Heritage violated Section 1 of the Sherman Act by participating in conspiracies to fix prices, rig bids and allocate customers for a number of generic drugs. According to Count One of the Glazer Indictment, “[t]he charged combination and conspiracy consisted of a continuing agreement, understanding, and concert of action among the defendant and co-conspirators, the substantial terms of which were to allocate customers, rig bids, and fix and maintain prices for doxycycline hyclate sold in the United States.” On January 9, 2017, the two indicted executives pled guilty to conspiring to manipulate prices of a doxycycline hyclate between April 2013 and December 2015 according to news reports at the time. News sources also reported that at the plea hearing, DOJ prosecutors stated that the Heritage executives’ superiors and subordinates as well as rival companies were also involved in the conspiracy.
There are 18 complaints pending against more than 30 pharmaceutical companies including Teva, Mylan, Actavis and Heritage as a result of the alleged price-fixing conspiracy. The actions have been consolidated in the Eastern District of Pennsylvania and may well turn out to be one of the largest and most complex price fixing litigations ever filed. Both retailers and wholesalers that purchase large quantities of generic drugs should be reviewing their supply contracts to see if they have potential claims as either direct or indirect purchasers.
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Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust/pharmaceutical, consumer and employment class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in Pennsylvania, Delaware and California. The firm is counsel for the class in the generic drug pricing actions described above.
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