As 2016 draws to a close, we look at some recent cases of (alleged) drug
price-fixing and examines its implications on a fast-changing global
pharmaceutical industry.
Last week, federal prosecutors in the US unsealed criminal information against Jeffrey
Glazer, the former CEO and founder of Heritage
Pharmaceuticals — a generic drug maker which was sold to India’s Emcure
Pharmaceuticals in 2011.
This way, Heritage Pharmaceuticals became the base of Emcure’s US operations. It generates several hundred million dollars of annual revenue, according to IMS Health data.
Federal prosecutors have also filed criminal information against Heritage’s former president, Jason Malek, who is Glazer’s brother-in-law.
Interesting, Emcure was placed on the US Food and Drug Administration’s (FDA) import alert list last year. The warning letter posted earlier this year unveiled data integrity violations, thereby making
it a part of the list of Indian companies facing compliance troubles. The
Heritage Pharmaceutical case only compounds the troubles for Emcure.
The ring leader of price manipulation
Following the federal criminal investigation, 20 states in the US filed a lawsuit against Mylan, Teva and four
other generic drug makers, saying they conspired on the pricing of two common
generic drugs.
The lawsuit, filed in the district court of Connecticut, names Heritage
Pharmaceuticals as a “ring leader” of the price manipulation, and also lists Mayne,
Aurobindo
and Citron
as participants.
According to federal prosecutors, Glazer participated in a price-fixing
conspiracy related to two generic drugs, doxycycline
hyclate (used primarily to treat severe acne) and glyburide
(an oral diabetes medicine).
The government says between April 2013 and December 2015, Glazer and his
co-conspirators worked together to fix and maintain prices of doxycycline
hyclate.
The price of doxycycline increased 8,000 percent — from US $ 20 for 500 tablets to US $ 1,849 between October 2013 and May 2014 — according to Senator Amy Klobuchar.
According to the complaint, Glazer and Malek communicated with Mylan
executives over phone calls and emails and agreed to allocate market share.
They also agreed not to indulge in a price war for doxycycline.
Mylan agreed to walk away from at least one large national wholesaler and
one large pharmacy chain to let Heritage increase its market share, the
complaint says.
Malek also had a direct relationship with an unnamed Teva employee and the
two agreed to raise prices on glyburide, the complaint adds.
The embezzling brothers-in-law
Heritage fired Glazer and Malek in August.
In November, the company filed a massive racketeering lawsuit against the brothers-in-law, accusing Glazer and Malek of running “a criminal enterprise” that included five dummy corporations — Tal Pharma LLC, Dorado Pharma
LLC, Element Pharma LLC, VetGen Pharma LLC, and Astor Pharma LLC — and numerous schemes “to steal the company’s profits and property.”
In a detailed 130-page complaint filed in federal court in New Jersey, Heritage claimed that Glazer and Malek had the company sell deeply discounted drugs to their dummy corporations that sold the drugs to Heritage’s own customers that paid the market price.
The complaint alleges that Glazer and Malek redirected US $ 9 million worth of Heritage’s sales to one of these dummy corporations — Dorado Pharma — between 2012 and 2015.
Heritage also claimed that Glazer and Malek embezzled the company’s intellectual property through the transfers of abbreviated new drug applications (ANDA).
The accusations against Glazer and Malek
Here is a list of some accusations made by Heritage against Glazer and
Malek:
• “Over the course of at least seven years, Glazer and Malek looted tens of millions of dollars from Heritage by misappropriating its business opportunities, fraudulently obtaining compensation for themselves, and embezzling its intellectual property.”
• “The magnitude of defendants’ theft is captured in an August 2015 text message exchange, in which Glazer told Malek that their scheme had netted US $ 466,000 in profit that day.”
• “Similarly, during a text message exchange with Malek in September 2015, Glazer spoke boastfully about the “healthy orders” coming into Dorado Pharma, one of their dummy corporations, and his conclusion that they would generate US $ 2.85 million. Malek later confirmed that his calculations showed profits totalling more than US $ 2.5 million.”
• “Malek even went so far as to falsely pretend on multiple occasions to be a female customer service representative named “Judy Jones” while communicating with Heritage employees through an email account associated with Dorado Pharma, one of the defendants’ dummy corporations.
• “In May 2012, Glazer instructed a Heritage employee to complete an FDA submission transferring the company’s ANDA for the generic drug Ketoprofen to defendants’ company Dorado Pharma — with no compensation of any type to Heritage. Shortly thereafter, Glazer and Malek entered into contracts for the manufacture and marketing of Ketoprofen through Dorado Pharma.”
• “In February 2016, Glazer sold an ANDA held by Heritage at a below-market price to a close business associate. In exchange for this favorable sales price, the purchaser agreed to pay kickbacks to Glazer and Malek through Tal Pharma.”
• “Shortly after his termination from Heritage, Glazer also embezzled more than six million membership rewards points from the company’s American Express account. As the primary cardholder for Heritage’s account, Glazer had sole access to these points and the ability to transfer or redeem them at his sole discretion. Based on information and belief, Glazer has converted these membership rewards points accrued by the company, with an estimated value of US $ 60,000, for his own personal benefit”
Price fixing case against Impax
While US regulators filed charges of price-fixing, another US-based generic company — Impax
Laboratories — received a subpoena in the same case.
According to the Financial Times, Impax’s pricing came under scrutiny yet again this week.
The company started selling mebendazole
this year at an average wholesale price of US $ 442 per pill. Due to this steep
price, the two-pill treatment for pinworm (a parasitic infection) costs US $
884 in the US, where it is a prescription-only drug.
In the UK, however, it is available over the counter for £6.99 (or US $ 8.65) for a pack of four pills, or £1.75 (US $ 2.17) each. In the developing world it can be bought for less than 1 cent per pill.
Mebendazole is on the World Health Organisation’s list of essential medicines. Pinworms are common in
children and affect 200 million people a year worldwide. It is recommended that
a family takes treatment for this infection at the same time.
Therefore, a family of four would have to shell out a whopping US $ 3500 or
more for the treatment.
Drug prices under scrutiny in UK too
Earlier this month, Pfizer was fined £84.2 million (US $ 104.24
million) in the UK by the Competition and Markets Authority (CMA) for ramping
up the cost of an epilepsy drug to the NHS by as much as 2,600 percent.
Issuing its biggest fine, the CMA had said the “extraordinary price rises have cost the NHS and the taxpayer tens of millions of pounds”. Pfizer, however, had rejected CMA’s findings.
This week, Allergan
was provisionally found to break competition law by raising the price
of 10 mg hydrocortisone tablets by more than 12,000 percent.
Hydrocortisone tablets are used as the primary replacement therapy for people whose adrenal glands do not produce sufficient amounts of natural steroid hormones, as in the case of Addison’s disease. The condition can be life threatening.
Our view
Across the world, pricing of both branded and generic drugs is coming under
scrutiny. As political winds push for faster drug approvals and the possibility
of cross-border trade of drugs, the pharmaceutical industry should brace for a
2017 where routine business practices will most likely stop becoming
routine.
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