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States bring price fixing lawsuit against Teva and other drug makers

Teva colluded with 20 competitors on 86 generic drugs to avoid price erosion and keep inflated prices high, lawsuit says.

Susan Morse, Senior Editor

Forty-three states and the U.S. Territory of Puerto Rico have brought a lawsuit against Teva Pharmaceuticals and an estimated 20 other companies, including Mylan Pharmaceuticals and Pfizer, alleging collusion and pricing fixing for generic drugs that raised the cost to consumers by more than 1,000 percent for some prescriptions.

Teva and its competitors sought to use the collusive nature on the industry to significantly raise prices on as many drugs as possible, the lawsuit filed May 10 stated. This included generic drugs to treat HIV, kidney disease, high blood pressure, high cholesterol and attention deficit disorder.

"In order to accomplish that objective, Teva selected a core group of competitors with which it already had very profitable collusive relationships -- Teva referred to them as 'high quality' competitors -- and targeted drugs where they overlapped," the lawsuit said. "Teva had understandings with its highest quality competitors to lead and follow each other's price increases, and did so with frequency and success, resulting in many billions of dollars of harm to the national economy over a period of several years."

IMPACT

Teva raised prices on about 112 generic drugs between July 2013 and January 2015, according to the lawsuit. Of the 112, Teva allegedly colluded with its competitors on at least 86 drugs.

The size of the price increases varied, but some were well over 1,000 percent, according to the lawsuit.

Because of the collusion, Teva reduced competition in the generic market for more than 100 different generic drugs. Generics account for nearly 90 percent of all prescriptions written.

The lawsuit said the conduct on the part of drug manufacturers is pervasive and industry-wide, to avoid price erosion and maintain inflated pricing. They divide up market share by either refusing to bid for particular customers or providing a cover bid they know will not be accepted.

The defendants knew their conduct was unlawful, the states contend.

TREND

Generic drugs were among the few bargains in healthcare, the lawsuit said.

When a generic enters to the market, the manufacturer prices its product slightly lower than the brand-name manufacture.

When a second generic enters the market, the average generic price is reduced  to nearly half the brand-name price.

However, generic manufacturers in the industry have traditionally operated on the understanding of non-competition to avoid price erosion.

"Rather than enter a particular generic drug market by competing on price in order to gain market share, competitors in the generic drug industry would systematically and routinely communicate with one another directly, divvy up customers to create an artificial equilibrium in the market, and then maintain anti-competitively high prices," the lawsuit stated. "This 'fair share' understanding was not the result of independent decision making by individual companies to avoid competing with one another. Rather, it was the direct result of specific discussion, negotiation and collusion among industry participants over the course of many years."

Connecticut began an investigation into drug pricing in 2014, which was eventually expanded by 48 additional states and U.S. territories. After Connecticut opened its investigation, the Department of Justice Antitrust Division convened a criminal grand jury investigation, according to the lawsuit.

The plaintiffs are seeking a finding that the actions by the defendants violated federal and state antitrust and consumer protection laws. They are asking for a permanent injunction to keep them from continuing their illegal conduct,  a "disgorgement" of gains, plus damages and civil penalties.

THEIR TAKE

Drug makers operate under the Hatch-Waxman Act of 1984 to balance two conflicting interests: to encourage drug innovation and to promote competition between brand and generic drugs.

Generic drug manufacturers argue that significant price increases are due to a myriad of benign factors such as industry consolidation, FDA-mandated plant closures, or elimination of unprofitable generic drug product lines, the lawsuit said.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com

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