DOJ Catches Big Fish in Generic Pharmaceutical Criminal Antitrust Investigation
The Justice Department’s Antitrust Division announced a major guilty plea with Sandoz, Inc., in its expanding criminal investigation of the generic pharmaceutical industry. DOJ has been pursuing this investigation for several years with some progress, but the Sandoz guilty plea is a major accomplishment in the investigation.
Sandoz agreed to pay $195 million in exchange for a three-year deferred purchase agreement (“DPA”). DOJ filed a four-count felony information charging Sandoz with participation in four separate conspiracies. Sandoz agreed to cooperate with DOJ in its continuing investigations.
Sandoz’s guilty plea is the third company to plead guilty in the investigation. Sandoz admitted to entering into price fixing, customer allocation and bid-rigging schemes.
The four separate conspiracies, which occurred between 2013 and 2015, included:
- Sandoz conspired with a New York-based generic drug company and other individuals relating to clobetasol (cream, ointment, gel and solution);
- Sandoz conspired with Kavod Pharmaceuticals LLC (formerly known as Rising Pharmaceuticals, Inc., see HERE for clarification concerning Rising Pharmaceuticals Inc.) to allocate customers and fix prices of benazepril HCTA. Rising entered into a deferred purchase agreement in December 2019 for its role in the same scheme;
- Sandoz conspired with a Michigan-based generic drug company related to desonide ointment; and
- Sandoz conspired with a Pennsylvania generic drug company related to tobramycin inhalation solution.
DOJ has charged a total of seven companies and individuals. Sandoz and two other companies have entered into DPAs. Four individuals have been charged. Three executives have pleaded guilty, including former Sandoz executive Hector Armando Kellum.
Kellum’s guilty plea derived from his time as senior pricing and contracts director, and then as vice president of contracting and business analytics. Prosecutors alleged that Kellum “was responsible for overseeing pricing and contracts of generic drugs.”
Drug companies have entered into DPAs as opposed to pleading guilty because a criminal conviction could result in exclusion from federal healthcare programs and reimbursement for their products under Medicare and Medicaid.
A number of state attorneys general have an ongoing multidistrict parallel civil case against a large number of generic drug companies involving a large number of drugs. The guilty plea by Sandoz will have significant implications in DOJ’s ongoing criminal investigation and the parallel civil case.
Sandoz admitted that the sales result from the four conspiracies exceeded $500 million.
Sandoz is also negotiating with DOJ’s Civil Division to resolve potential claims under the False Claims Act and has reserved approximately $185 million for such a settlement.
DOJ’s investigation is continuing. Makan Delrahim, the Assistant Attorney General for the Antitrust Division that the criminal investigation is ongoing. Sandoz stated that the individuals involved in the conspiracies no longer work for the company.