Last Friday, in a 510-page lawsuit, Connecticut and 43 other states filed a lawsuit against 20 drugs makers and 11 individuals in a Connecticut district federal court alleging that the “generic pharmaceutical industry has operated pursuant to an understanding among generic manufacturers not to compete with each other and to instead settle for what these competitors refer to as “fair share.””
New York Times – “Leading drug companies including Teva, Pfizer, Novartis and Mylan conspired to inflate the prices of generic drugs by as much as 1,000 percent, according to a far-reaching lawsuit filed on Friday by 44 states.”
The industrywide scheme affected the prices of more than 100 generic drugs, according to the complaint, including lamivudine-zidovudine, which treats H.I.V.; budesonide, an asthma medication; fenofibrate, which treats high cholesterol; amphetamine-dextroamphetamine for A.D.H.D.; oral antibiotics; blood thinners; cancer drugs; contraceptives; and antidepressants.
“We all know that prescription drugs can be expensive,” Gurbir S. Grewal, the New Jersey attorney general, said in a statement. “Now we know that high drug prices have been driven in part by an illegal conspiracy among generic drug companies to inflate their prices.”
In court documents, the state prosecutors lay out a brazen price-fixing scheme involving more than a dozen generic drug companies and just as many executives responsible for sales, marketing and pricing. The complaint alleges that the conspirators knew their efforts to thwart competition were illegal and that they therefore avoided written records by coordinating instead at industry meals, parties, golf outings and other networking events.
The bulk of the collusive activity occurred from July 2013 to January 2015, according to the complaint, when Teva raised prices on nearly 400 formulations of 112 generic drugs. A key element of the scheme, the complaint alleges, was an agreement among competitors to cooperate on pricing so each company could maintain a “fair share” of the generic drug markets. At the same time, the companies colluded to raise prices on as many drugs as possible, according to the complaint.
Though the complaint paints Teva Pharmaceuticals USA, which is based in Pennsylvania, as a leader in the conspiracy, it describes the conduct as “pervasive and industrywide.”New York Times
According to New Jersey Attorney General Gurbir Grewal, “more than half of the corporate defendants are based in New Jersey, and five of the individual defendants live in the state.”
Teva, one of the world’s largest generic manufacturers faced criticism in February 2018 “for charging $18,375 for a bottle of 100 pills for a rare medical condition known as Wilson disease.”
Mylan generic manufacturer also faced recent outrage when the cost of their two-injection EpiPen went from $100 to $600.
According to the summery of the complaint, states are alleging, in part:
This understanding has permeated every segment of the industry, and the purpose of the agreement was to avoid competition among generic manufacturers that would normally result in significant price erosion and great savings to the ultimate consumer. Rather than enter a particular generic drug market by competing on price in gain market share, competitors in the generic drug industry would systematically and routinely communicate with one another directly, divvy up customers to create an artificial equilibrium in the market, and then maintain aniticompetitively high prices. This “fair share” understanding was not the result of independent decision making by individual companies to avoid competing with one another. Rather, it was a direct result of specific discussion, negotiation and collusion among industry participants over the course of many years.
By 2012, Teva and other co-conspirators decided to take this understanding to the next level. Apparently unsatisfied with the status quo of “fair share” and the mere avoidance of price erosion, Teva and its co-conspirators embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States. Teva and its competitors sought to leverage the collusive nature of the industry to not only maintain their “fair share” of each generic drug market, but also to significantly raise prices on as many drugs as possible. In order to accomplish that objective, Teva selected a core group of competitors with which it already had very profitable collusive relationships – Teva referred to them as “High Quality” competitors – and targeted drugs where they overlapped. Teva had understandings with its highest quality competitors to lead and follow each other’s price increases, and did so with great frequency and success, resulting in many billions of dollars of harm to the national economy over a period of several years.GENERIC DRUGS COMPLAINT – pdf; pages 2-3
Connecticut Attorney General William Tong.
Tune in to .@60Minutes at 7 p.m. on Sunday to hear how our attorneys cracked the case. https://t.co/8ReiC97V5N— AG William Tong (@AGWilliamTong) May 11, 2019
CBS Bill Whitaker spoke to Tong and the attorneys in his office who cracked the case for a report to be broadcast on 60 Minutes, on Sunday, May 12.
Watch: Generic Drug Makers Accused of Price Fixing.
“I think that what we have come upon is that the generic drug industry is the largest private sector corporate cartel in history,” Tong says. Tong’s lead investigators on the case are seasoned antitrust attorneys Michael Cole and Joe Nielsen. They tell Whitaker they found evidence of price fixing dating back to 2006. The Connecticut attorney general only had to look in his own medicine cabinet to be convinced. “This is my bottle of doxycycline… I take every day for a skin condition and there is a conspiracy around doxycycline…I’m one of the victims.” The price of the commonly prescribed antibiotic surged 8,281 percent, from $20 to more than $1,849, between 2013 and 2014.
The generic drug industry points to drug shortages and market forces as reasons behind the price increases. In court filings related to a separate, but similar, ongoing case against them, generic drug makers argue there is no proof of an overarching conspiracy to fix prices. But, after two years of digging, Joe Nielsen says he found evidence, including e-mails, phone records, and text messages, pointing to illegal price fixing as the reason behind the price spikes.
“This is an organized, systematic effort to conspire and fix prices and avoid competition. This is criminal behavior,” says Nielsen.
For further reading:
TNB: Rigging the System: BigPharma and States’ Medicaid Skyrocketing Drug Prices; August 19, 2018.
TNB: Jordon & Meadows Try to Torpedo Oversight Committee Rising Drug Costs Investigations; April 11, 2019.