20 states sue six generic drug makers for alleged price-fixing

Attorneys general in 20 states, including Pennsylvania,  sued six generic drug makers Thursday, accusing them of a widespread conspiracy to reduce competition and raise generic drug prices.

The lawsuit, filed in U.S. District Court in Connecticut, comes one day after the Justice Department accused two former N.J. pharmaceutical executives of conspiring with rivals to fix prices for generic medications. Those represented the first criminal charges from a two-year investigation into price collusion among generic drug makers.

"This is huge news. Generic drugs are supposed to lower prices for consumers," said Michael A. Carrier, professor and antitrust law specialist at Rutgers Law School in Camden. "But when generic manufacturers get together to increase price, divide markets, and cover their tracks, the system falls apart.

"This lawsuit, filed by state attorneys general of both parties, could be the start of numerous lawsuits at the federal and state levels that could upend the entire generic drug industry," Carrier said.

The six companies named in the states' civil lawsuit are: Teva Pharmaceuticals USA in North Wales, Pa.; Mylan Pharmaceuticals in Canonsburg, Pa.; Heritage Pharmaceuticals of Eatontown, N.J.; Aurobindo Pharma USA in Dayton, N.J.; Citron Pharma in East Brunswick, N.J.; and Mayne Pharma USA in Raleigh, N.C.

The suit alleges that the companies participated in "numerous illegal conspiracies" to restrain trade, inflate and manipulate prices, and reduce competition for two drugs — doxycycline hyclate delayed release, an antibiotic, and glyburide, a diabetes medicine.

Jeffrey Glazer, former CEO of Heritage Pharmaceuticals,  and Jason Malek, a former president, were charged Wednesday by the Justice Department for allegedly colluding with other unnamed firms and individuals to fix prices for doxycycline hyclate and glyburide.

The alleged criminal price-fixing by Glazer and Malek  occurred from April 2013 to December 2016, according to documents filed in U.S. District Court for the Eastern District in Philadelphia.

Both Teva and Mylan said they had found no evidence of price-fixing at their companies. "And so on the facts, we vigorously deny any allegations of wrongdoing," Teva said.

Heritage Pharmaceuticals reiterated that "we are fully cooperating with all aspects of the Department of Justice's continuing investigation."  Last month, Heritage initiated its own legal action against Glazer and Malek "to seek redress for an elaborate embezzlement."

Glazer and Malek were fired from Heritage in August, according to the firm's civil lawsuit. Heritage accused the pair of stealing millions of dollars from the company over at least seven years. The firm alleged that its deposed top executives engaged in an elaborate scheme involving fake companies, false identifies, and fictitious offices.

The states' investigation of six generic drug makers, which is ongoing and may include more generic drugs, uncovered evidence of long-running conspiracies to fix prices and allocate markets, Pennsylvania Attorney General Bruce R. Beemer said.

The alleged conduct caused consumers to pay "substantially higher prices for many generic pharmaceutical drugs," Beemer said.

U.S. sales of generic drugs were estimated at $74.5 billion in 2015. Currently, the generics industry accounts for about 88 percent of all prescriptions written in this country, the attorneys general said.

The State of Connecticut in July 2014 started a probe of the reasons behind suspicious price increases of some generic drugs, according to the lawsuit, which was filed under seal to avoid compromising the ongoing criminal investigation.

The states allege that the misconduct was conceived and carried out by senior drug company executives and their subordinate marketing and sales executives.

The suit further alleges that the six drug companies routinely coordinated their schemes through direct interaction with competitors at industry trade shows, customer conferences and other events, as well as by direct email, phone, and text messages.

The anticompetitive conduct — including efforts to fix and maintain prices and allocate markets – caused harmful and continuing effects in the country's health-care system, the states allege.

The states further allege that the drug companies knew their conduct was illegal and made efforts to avoid communicating with each other in writing or, in some instances, to delete written communications after becoming aware of the investigation.

"The challenge in these cases is making sure you offer enough evidence that rivals have colluded to increase price," said Carrier, the Rutgers law professor.  "Here, the 20 states submitted a strong complaint that included evidence of agreement through trade shows, conferences, emails, phone calls, and text messages."