US probe into price-fixing hits Indian pharma majors

Mumbai: A US probe over price-fixing conspiracy by pharma majors has engulfed domestic generic drug biggies like Sun Pharma, Dr Reddy’s, Zydus Cadila, Glenmark and Emcure, damaging the reputation of an Indian industry already struggling with regulatory headwinds in their largest export market.
For the first time, two industry honchos — Rajiv Malik of US-based Mylan, and Satish Mehta of Pune-based Emcure Pharmaceuticals — are facing charges of a serious price collusion by several US states, after an earlier lawsuit was widened by adding more drugmakers and medicines.
The domestic industry, grappling with regulatory woes and pricing pressure in the US, faces one of the biggest such probes ever, which, if proven, can incur huge litigation and financial burden on companies, experts say.
The suit — which was filed in December 2016 and is now supported by prosecutors from 45 US states — alleges a broad conspiracy by Mylan Pharmaceuticals, Teva Pharmaceuticals and others, to set prices to boost profits at consumer’s expense. The filing on October 31 charges collusion by an additional 12 companies, taking the total to 18, as well as two individual executives, involving a total of 15 drugs.
In the expanded complaint, the states allege multiple illegal agreements to fix prices, artificially inflated and/or maintained prices, and reduced competition in the generic drug industry, involving certain diabetes, hypertension, antibiotics and asthma drugs.
“The generic drug market was conceived as a way to help bring down the cost of prescription medications for American consumers,” said Connecticut attorney general George Jepsen. “For years, though, those saving have not been realised, and instead the prices of many generic drugs have sky-rocketed. In our original complaint, the states — led by my office — alleged that prices for two generics drugs increased dramatically due to illegal conspiracies between six generic drug manufacturers.”
Jespen added, “When that complaint was filed, I said it was just the tip of the iceberg. Our ongoing investigation continues to uncover additional evidence, and we anticipate bringing more claims involving additional companies and drugs at the appropriate time.”
Though full details of the probe — and extent of US action — are still to emerge, analysts feel the news is a dampener for the industry, and would keep the pressure on companies. The complaint, according to Bloomberg, details numerous phone calls and emails between Malik and executives at closely-held Indian drugmaker Emcure Pharmaceuticals, and its subsidiary, Heritage Pharmaceuticals, around the time when Heritage launched an antibiotic in the US. Efforts to contact Emcure were futile.
Mylan said it has deep faith in the integrity of its president Rajiv Malik, and stands behind him fully, “while both intend to defend this case vigorously”. When contacted, other companies like Glenmark and Dr Reddy’s said they would “cooperate fully with all authorities”, and refrained from making further comments as it is sub-judice.
Industry experts say the charges of price collusion though serious, are difficult to prove, but could be an overhang on the companies’ stocks, particularly given that the investigation may expand in scope, going forward. “Even if not established, the development damages the reputation of Indian industry. But if the companies are convicted, litigation costs and penalties could deal a huge financial blow,” an industry expert said. The development did not have a major impact on companies’ stock prices on Wednesday.
Analysts pointed out this case is different from the US DoJ (Department of Justice) probe into drug price collusion that has been widely reported in the past. “Cumulative sales of these products do not appear very high at $1.2 billion. We are therefore not overtly concerned about the quantum of penalties or settlements arising out of these proceedings for most companies,” an analyst from Citi said, adding, “however, we believe that many companies may not be keen on letting proceedings drag on, and may opt to settle — the size of the product sales indicate that any potential fines may be manageable”.