State lawsuit offers insight into US DOJ generic drug probe

Connecticut Map

2 November 2017. By Leah Nylen and Joshua Sisco.

In October 2013, the price of digoxin — a generic drug used to treat irregular heartbeats — sold for 11 cents a pill. By the following April, the price had risen to $1.10 per pill.

What began three years ago as a discreet inquiry into digoxin pricing by the Connecticut attorney general’s office has morphed into an industry-wide probe involving state and federal prosecutors. On Tuesday, Connecticut and attorneys general from 45 other states and territories filed a federal complaint alleging price-fixing on 15 generic drugs by 18 major drug companies including Mylan, Teva, Actavis, Sun Pharmaceuticals and others.

So far, the US Department of Justice has only charged two individuals — Jeffrey Glazer and Jason Malek, the former CEO and president of Heritage Pharmaceuticals, respectively — with fixing prices of antibiotic doxycycline hyclate and glyburide, a diabetes drug. Both men pleaded guilty to the charges, but have yet to be sentenced. In May, the pair reached an agreement with the state AGs to cooperate with their probe.

Tuesday’s complaint appears to be the product of Glazer and Malek’s cooperation and offers hints into what may be coming from federal prosecutors.

‘Mind-blowing’ conspiracies

The conduct was rampant, Connecticut Attorney General George Jepsen said on a conference call Tuesday announcing the new complaint.

“Within the industry at the highest executive levels and down to the sales representatives, a culture of corruption and collusion exists,” Jepsen said.

Through hundreds of meetings, phone calls, text messages and dinners, executives from the companies agreed to allocate customers and fix drug prices, the new lawsuit states.

Among the many meetings, high-level executives from Actavis, Aurobindo, Dr. Reddy's, Lannett, Sun and others met in January 2014 at a steakhouse in Bridgewater, New Jersey.

A plethora of detailed meetings and conversations are described throughout the complaint, though much of it is redacted.

Ironically, the drug that started it all, digoxin, is no longer at issue. In addition to doxycycline and glyburide, the Justice Department is known to be looking into Glipizide-metformin, a diabetes drug similar to glyburide, and blood pressure medications Verapamil and Fosinopril HCTZ. Those three drugs were also listed in the AGs' suit.

But 10 other drugs named in the AGs' complaint are new.

All 15 of the drugs named in the suit were sold by Heritage. According to the complaint, at an April 2014 meeting, Malek identified 18 drugs for which Heritage would seek price increases. Sales representatives were instructed to reach out to contacts at rival drug companies and come to an agreement on the price increases. Malek himself was responsible for reaching agreements with Teva and Ascend on several drugs.

In 2012, Heritage and India’s Sun Pharmaceuticals began conspiring to allocate customers for the blood pressure drug nimodipine, the complaint says. “The plan for Heritage was that it would bid at a high price, which would be communicated to Sun beforehand, and would allow Sun to raise its price and still retain the Cardinal business,” the complaint states, referring to drug distributor Cardinal Health.

When Ascend entered the nimopidine market a year later, the companies “agreed on a plan where Heritage would raise its prices, Ascend would enter the market at a high price to avoid erosion, and in exchange Heritage would walk away from certain accounts that Ascend had targeted so that Ascend could gain market share at favorable pricing,” the complaint says.

In March 2013, when a generic version was close to market for zoledronic — a bone disease drug taken by cancer patients — Heritage and Dr. Reddy's Laboratories met “to refine their agreement on market share and initial pricing for Zoledronic Acid.” The companies were “acutely aware that what they were doing was illegal,” the complaint states.

In 2013, Heritage and Dr. Reddy's were also the only manufacturers in the market for anxiety drug meprobamate. “The two companies had an agreement in place to allocate market share between them and not compete on price,” the complaint says.

In allocating certain large pharmacy customers for doxycycline, Emcure’s Satish Mehta and Mylan’s Malik spoke on July 18, 2013, according to the complaint.

“The allegations of our complaint are shocking, and the depth and breadth of the conspiracies alleged are mind-blowing,” Jepsen said in a statement.

At odds with DOJ

The states’ case — along with dozens of class actions — could pose problems for DOJ. While the state AGs and DOJ often work together on antitrust cases, they can’t in this situation because DOJ’s investigation is criminal while the state probe is civil.

Of the 15 drugs named in the states’ lawsuit, only two are so far the subject of litigation seeking damages for price-fixing. The details in the states’ suit are likely to spawn more private litigation.

Heritage is also understood to have a leniency agreement with the DOJ that would grant it immunity from prosecution in exchange for its full cooperation with the investigation. Malek and Glazer are cooperating in the criminal case as well.

The DOJ is known to be investigating at least seven drugs not named in the AG suit. Those include Cidofovir, a treatment for eye infections common in AIDS patients; terbutaline sulfate tablets that treat bronchial disease; anesthetic cream prilocaine/lidocaine; psoriasis treatment calcipotriene topical solution; intravenous saline; blood pressure medication Propranolol; and potassium chloride powder used to treat low potassium levels.

Last week, DOJ attorneys asked a Pennsylvania federal court to pause litigation by the state AGs and private plaintiffs so as not to interfere with the criminal investigation. The hold could extend into the middle of 2018 and beyond.

In an unusually lengthy filing for such a request, federal prosecutors expressed concern that drug companies' exposure to civil claims could undermine their willingness to cooperate. Companies concerned over information leaking to civil plaintiffs “may decide not to cooperate with the government at all — or may do so only at a greatly reduced level — not in an effort to evade criminal responsibility, but to manage its potential exposure in private civil damages actions.”

The DOJ’s fears are not unfounded. The companies face billions of dollars in damages and disgorgement from the state and class cases. In recent months, some companies are understood to have been reluctant to cooperate with the federal case because of fears about civil damage exposure.

If the judge in Pennsylvania does grant the DOJ’s request, Connecticut’s assistant attorney general for antitrust Joe Nielsen said on Tuesday’s conference call that it wouldn’t preclude further investigation, but it will substantially slow down the existing litigation.

Nielsen said the states will likely oppose any request for a delay, setting up a showdown with federal prosecutors.

	Eliot Gao