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Criminal Global Cartel Focus on Generic Pharmaceuticals

pharma3The Antitrust Division is nearing the end of its largest, record-setting criminal cartel investigation – global auto parts suppliers. It has been a sprawling investigation that has leaped from product-to-product in the auto parts industry.

Nearly thirty companies have plead guilty (or agreed to do so) and over $2.3 billion in fines have been collected. Nearly forty individual have been charged, most of which have been resolved by guilty pleas.

Recently, the Antitrust Division has launched a new criminal cartel investigation focusing on the generic drug industry. The Antitrust Division has issued grand jury subpoenas to two generic drug makers, Lannett and Impax Laboratories, and two senior sales marketing executives.

The Antitrust Division’s action comes after Congressional inquiries to the generic pharmaceutical industry and a Connecticut Attorney General’s investigation was initiated. The Connecticut Attorney General acted after two drug makers raised their respective prices for digoxin, a congestive heart failure drug.   Pharmacies complained that price for the generic drug nearly doubled during last year. Digoxin was a relatively cheap generic drug and the price rose to as much as $50 per pill last year.

Generic drug prices also increased for a number of other medicines. Nearly half of all pharma2generic drugs increased last year.

Two members of Congress launched an investigation and asked 14 generic drug makers to provide data concerning the escalating prices for generic medicines. In some cases, prices increased by more than 1000%. For example, lawmakers cited the rise in Albuterol Sulfate, which is used to treat asthma, which increased from $11 cost per bottle of 100 pills to $434 per bottle. In addition, they cited the price increase for hyclate antibiotic from $20 per bottle of 500 tablets to $1849 per bottle of 500 tablets.

The Justice Department’s subpoenas focus on sharing and exchanging of pricing information and other issues among generic drug companies. The initial subpoenas, including two senior executives, suggest that the Justice Department has specific information relating to their participation in potentially criminal conduct. It is rare for the Justice Department to open a criminal investigation with specific subpoenas for individuals, along with company-focused subpoenas.

Given the breadth of such a potential cartel investigation, the Justice Department’s inquiry of the generic pharmaceutical industry could be significant. The prices for a large number of generic drug prices have increased significantly over the last year. There does not appear to be any rational explanation for such increases involving a diverse set of products.

pharmaThe scope of these price increases and the timing of them certainly raise serious concerns about collusive activity among competitors. The Justice Department’s investigation will quickly bear fruit or bog down in documents and time-consuming interviews and grand jury presentations.

For companies under investigation, the stakes are extraordinarily high – criminal investigations quickly focus on responsible executives and employees. A criminal case against a company can have serious collateral consequences because of private class action suits that typically trail criminal antitrust investigations.

Criminal cartel investigations frequently spread from one jurisdiction to another. A global cartel requires global settlements with numerous country enforcement agencies. It is a complex set of circumstances that can take years to sort out and complete.

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