Last month, Elijah E. Cummings, the [then] ranking member of the House Committee on Oversight and Government Reform, and Senator Bernard Sanders, [then] chairman of the Senate Subcommittee on Primary Health and Aging, asked 14 generic drug makers to provide data concerning escalating prices charged for generic pharmaceuticals. (here) Several recent articles, and filings with the SEC, report that the Antitrust Division is also taking a hard look at the generic pharmaceutical industry (here);(here);(here).
A recent analysis found that half of all generic drugs sold through retailers became more expensive over the past 12 months and the prices paid by pharmacies more than doubled for one out of 11 generics (here)(here). The FDA reports that nearly 8 in 10 prescriptions are filled with generic pharmaceuticals. Americans spent about $325.8 billion on prescription medicines in 2012 (here). Generics now account for 28 percent of pharmaceutical spending (here).
Two generic pharmaceutical companies have reported receiving antitrust related subpoenas, Lannet Company, Inc. and Impax Laboratories . Lannett is headquartered in Philadelphia and was founded in 1942. It develops, manufactures and distributes generic prescription pharmaceutical products in tablet, capsule and oral liquid forms to customers throughout the United States. Lannett markets its products primarily to drug wholesalers, retail drug chains, distributors, and government agencies and its catalog lists 79 generic products. Impax Laboratories is a generic pharmaceutical company headquartered in Hayward, CA. Impax markets at least 133 generic pharmaceutical products. Neither company is among the top five corporations dispersing generic medicines.
In July of 2014 both Lannett and Impax received interrogatories and a subpoena from the State of Connecticut Office of the Attorney General concerning its investigation into pricing of digoxin. The Connecticut Attorney General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law (here). Digoxin is a drug that is used to treat congestive heart failure. Digoxin has been cited as an example of a sudden spike in prices for some generic drugs, which are traditionally lower-cost alternatives to brand-name medicines and, therefore, are widely prescribed. Both companies maintain they acted in compliance with all applicable laws and regulations and continue to cooperate with the Connecticut Attorney General’s investigation.
Lannett reports that on November 3, 2014, the Senior Vice President of Sales and Marketing of the Company was served with a grand jury subpoena relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act. The subpoena requests corporate documents of the Company relating to communications or correspondence with competitors regarding the sale of generic prescription medications, but is not specifically directed to any particular product and is not limited to any particular time period (here at p. 16). The Company maintains that it has acted in compliance with all applicable laws and regulations and intends to cooperate with the federal investigation. Impax Laboratories reports that a sales representative received a similar grand jury subpoena for records and testimony (here).
The fact that the Antitrust Division subpoenas do not seem to be limited to a certain medication may be problematic for pharmaceutical companies, especially in light of the Congressional investigation into price increases. The generic drugs involved in the Congressional investigation beyond digoxin are: doxycycline hyclate; albuterol sulfate; glycopyrrollate; divalproex sodium ER, pravastatin sodium; neostigmine methylsulfate; benazepril/hydrochlorothiazide; isuprel; and nitropress. Claimed price increases of from 388% to 8,281% are being investigated (here).
The companies under investigation are not the only ones that should be concerned about these investigations. Pharmaceutical companies and antitrust practitioners should be aware of the Antitrust Division’s “omnibus” method of evidence gathering evidence in these matters. Antitrust Division attorneys are a suspicious lot, and they will generally take the view that if a company is fixing prices with competitor A in market X, it may well be engaged in illegal conduct in other markets. The Division will create a company “tree” and follow connections into other branches in an effort to expand the investigations. Companies under investigation are also offered incentives to cooperate to expand the investigation. Ironically, the more price-fixing activity a company can disclose to the government, the lower its penalty may be. The government in essence will “pay” for cooperation. What may appear to potentially be a very limited investigation may quickly expand exponentially, particularly in light of the Antitrust Division’s Corporate Leniency policy and the potential benefits available with Amnesty Plus. When I was with the Antitrust Division, I worked on the worldwide vitamin investigation. This was one of the first of the major international cartels and the first in which an executive of a foreign company served prison time in the United States. We continually expanded the investigation, broadening the types of vitamins subject to collusion and the companies involved in different offshoots of the cartel.
It is impossible to know at this early stage whether the Antitrust Division is beginning a broad investigation of price-fixing in the generic pharmaceuticals market, or whether its focus will remain on digoxin and the two companies that have been subpoenaed. However, companies within “cannon shot” of the Division’s investigation would be well served to refocus their compliance efforts, and if any illegal activity is detected, consider all options including self-reporting to take advantage of the Corporate Leniency Policy.
 According to the Generic Pharmaceutical Association, the top five U.S. corporations by unbranded generic prescriptions dispensed are Teva Pharmaceuticals USA, Mylan Labs, Inc., Actavis (formerly Watson Pharmaceuticals), Sandoz (Novartis), and Lupin Pharma, respectively.