Federal US Generics case hits roadblock

The article set out below was published by Bloomberg overnight in the US.

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A Massive U.S. Drug Price-Fixing
Probe Has Hit Major Roadblocks

Authorities have called it one of the biggest cases of corporate collusion in history, costing patients billions of dollars.
By Riley Ray Griffin, David McLaughlin and Ben Elgin
‎30‎ ‎July‎ ‎2019
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FBI agents in black vehicles pulled up at the suburban Pittsburgh headquarters of generic drug giant Mylan NV. Wearing windbreakers with block-yellow FBI logos and carrying a warrant, they headed for the fifth-floor executive offices.
The September 2016 raid was meant to surface what a multiyear Justice Department investigation hadn’t found up to that point: evidence that Mylan’s top executives played a role in what authorities have described as widespread price fixing in the generic-drug industry—potentially one of the biggest corporate collusion cases in U.S. history. Mylan, which on Monday announced a deal to be absorbed into Pfizer Inc.’s older drugs unit next year, has denied any wrongdoing.
But while the raid began briskly, it soon bogged down into a two-day standoff between Mylan’s lawyers and the federal authorities over access to the executive offices. The company was willing to give agents access to Mylan President Rajiv Malik’s workspace. But its lawyers argued that the office of Chief Executive Officer Heather Bresch was outside the warrant’s scope. While Mylan agreed to provide some of Bresch’s emails, the FBI left without ever getting inside.
Three years after the FBI visited Mylan, a sweeping federal investigation into the generics industry has hit significant obstacles—even as more than 40 state attorneys general have filed their own state-level civil complaints with specific claims of collusion. Those lawsuits detail extensive telephone contacts and meetings among executives at competing generics makers that preceded allegedly coordinated price hikes on drugs.

Mylan President Rajiv Malik; Mylan Chairman Robert Coury; Mylan CEO Heather Bresch
Source: Times of India/BCCL; Stan Honda/AFP; Bloomberg
Thus far, only two executives have been charged in the federal probe, both from a never-heard-of-it New Jersey-based drugmaker called Heritage Pharmaceuticals Inc. Both pleaded guilty more than two years ago.
The Justice Department will likely bring additional charges soon, according to two people familiar with the investigation, though it’s not clear who might be charged. Both people said the probe has encountered challenges, but they said it’s no different from any other complex case.
Still, other people who know the case said cooperation from some key witnesses and companies has been hard to come by, raising the possibility that targets of the probe may get to watch the most serious allegations wither away. The clock is ticking. On at least some of the conduct that has come to light, the five-year criminal statute of limitations is set to expire next year, leaving only the prospect of potential civil charges.
“If the Justice Department had an easy time of finding informants, then we probably would see this case further along,” said John Lopatka, an antitrust law professor at Penn State Law, in an interview. “It has every reason to act expeditiously when it has enough information to proceed. The fact that it’s not acting with much speed is some indication it’s not getting the cooperation it would like.”
The drugmakers say there’s a simple reason for the lack of prosecutorial activity: They say they’ve done nothing wrong.
“Mylan with assistance from outside counsel has thoroughly investigated allegations made against our company and employees. We have not found any evidence to corroborate the allegations,” the company said in a statement. “We are prepared to make our case in a court of law and are confident that the case against Mylan and its employees is meritless.”
Pfizer and Mylan’s merger announced Monday would transform Mylan’s drug business, adding older but still profitable medicines like Lipitor and Viagra. Much of the leadership will remain in place. While Bresch is retiring and being replaced by a Pfizer executive, the companies said, Malik will stay on as president. Robert Coury, Mylan’s chairman, will be executive chairman of the new firm, and Mylan will control the majority of board seats.
On Monday, Coury talked about the deal as a way to move past the allegations.
“If you take a look at some of the overhang that our industry has been suffering with all the price-fixing and all of the opioids and some of the other stuff, with this new scaled balance sheet, it just puts us in a complete different profile,” he told investors.
The state lawsuits—filed in 2016 and this year—allege a wide-ranging conspiracy among 20 drugmakers to carve up the market and raise the prices of more than 100 drugs found in medicine cabinets across America. That price fixing, authorities allege, has cost taxpayers and patients billions of dollars. In some cases, patients who needed the drugs found they were suddenly priced out of their reach.
That’s not how it was supposed to be. Since a landmark 1984 law created the generic drug market, the U.S. has limited the patent protections for brand-name medications and fostered a competitive market for affordable generic equivalents, saving U.S. consumers hundreds of billions of dollars. Nine out of every 10 drugs dispensed in the U.S. are generic.
But if a handful of drugmakers can secretly get together and raise the price of generic drugs until they’re no longer affordable, then what’s the point, asks psychiatrist Aron Tendler, who says his patients have grappled with what he calls inexplicable price hikes.
“It defeats the purpose for having generics,” Tendler said.
Bloomberg’s reporting for this story is based on interviews with more than 50 people, including current and former employees at Mylan and other drugmakers, lawyers close to the investigations, as well as hundreds of pages of lawsuits filed by U.S. states, and regulatory filings by the companies. Many details of the investigations and the FBI raid on Mylan have never been reported before.


The generics business can be tough, with thin margins and constant competition. Many companies have relocated manufacturing to India and China, cutting labor costs but creating new problems with quality and oversight. After all, if a pill’s price exceeds a competitor’s, buyers could simply move to the cheaper option.
Amid that pressure, an understanding has taken hold in the industry, according to four former sales executives who spoke to Bloomberg: Compete with one another, but not too hard. The executives asked not to be named to provide candid descriptions.
Said one former executive at Amneal Pharmaceuticals Inc., which manufactures more than 200 generic drugs: We had to be smart, but not be greedy. Amneal didn’t respond to requests for comment.
Beginning in 2014, amid significant price hikes for several generic drugs, state and federal officials began investigating whether a handful of executives and their companies had conspired to set prices and share their markets.
Word of the federal probe began to emerge piecemeal, in individual companies’ disclosures to shareholders, and by November 2016, Bloomberg News reported that more than a dozen drugmakers were under a federal grand jury’s scrutiny. The Heritage executives pleaded guilty two months later.
Meanwhile, two lawyers on the staff of the Connecticut attorney general began their own investigation in 2014 in response to media reports about skyrocketing prices. Within days, they’d sent out the first of what would eventually total almost 300 subpoenas. In December 2016 they filed an initial lawsuit—joined by 19 other states—that accused Mylan, Teva and four other drugmakers of manipulating the price of an antibiotic and a diabetes treatment.
An expanded version of that complaint—joined by 25 more states—named a dozen more drugmakers as defendants in October 2017. Then, last May, Connecticut and more than 40 other states filed a new lawsuit, alleging that 20 drugmakers and their subsidiaries conspired to fix the prices of more than 100 products.
As the state efforts gathered steam, the federal probe saw comparatively little action after the Heritage executives’ guilty pleas. In April 2018, Bloomberg reported that the Justice Department was close to announcing new charges against at least two companies and several executives. More than a year later, in May 2019, federal officials announced more charges: Heritage, the same company that had surfaced in the first indictments, settled U.S. charges that it conspired to fix drug prices.
Thus far, the states’ civil complaints provide the most complete narrative of the alleged conspiracy: Certain executives called the market for generic drugs “the sandbox,” and the rule was that everyone had to play nice.
It wasn’t nice at all for consumers, according to allegations in the lawsuits, which suggest that almost every major generic manufacturer played a role in the collusion.
The complaints list thousands of phone calls between executives at such companies as Mylan, Teva, Sandoz and a dozen others, primarily from late 2012 to early 2015. The content of their discussions is rarely detailed in the litigation.
The 2019 complaint says that on some occasions, executives met in person. Some meetings took place at a steakhouse in Bridgewater, New Jersey, near several drugmakers’ U.S. offices. Other pricing discussions occurred during an industry golf outing at a country club in Bowling Green, Kentucky. An industry “girls night out” for female executives was used as cover for collusion, authorities also allege.
Throughout, ostensible competitors traded price lists, coordinated bids for business and sliced up the markets for more than 100 drugs, according to the state lawsuits.
Take, for instance, the blood pressure drug nadolol, which was first approved by U.S. regulators in 1979 and became available as a cheap generic in 1993.
Nadolol (40mg tablets, 100 tablet package)

Blood pressure medication, price per tablet

• Mylan
• Sandoz
• Teva

0.001.002.003.00$4.00Jan '96$0.00$0.00$0.95200020102015
Source: Connecture
In 2012 the manufacturers of generic nadolol—Sandoz, Mylan and Teva—began to ratchet up the old drug’s price. Executives for the three drugmakers spoke frequently by phone in the days before and after some of the increases, which exceeded 2,000% for certain formulations, according to the complaint. Days before Sandoz Inc.’s Aug. 27, 2012, increase, two of its executives spoke with a counterpart at Teva Pharmaceutical Industries Ltd., who then twice called a Mylan official, “acting as the conduit of information between Sandoz and Mylan,” the complaint alleges. By mid-2013 all three companies had matched one another’s price hikes.
Stephen DiGirolamo, 68, who’d taken nadolol for decades, saw the price of a three-month supply rocket from $10 to at least $200, he said. “It was a good drug, but all of a sudden, the price went through the roof,” says DiGirolamo, a retired facilities manager for AT&T Inc. who lives in Spring Hill, Florida. With some anxiety, DiGirolamo and his doctor decided to switch to cheaper alternatives.
Plenty of people stayed with nadolol, and its higher prices led to higher sales. Mylan and Teva have generated additional sales of $274 million and $80 million, respectively, due to nadolol’s price increases alone, according to a report from Boston-based investment bank SVB Leerink.
One set of 2013 price increases by Teva, including for the cholesterol drug pravastatin, generated $937 million in extra quarterly sales for the company, according to a company document cited in the 2019 state lawsuit.
Also in 2013, Mylan raised the price of two antipsychotic drugs; haloperidol increased by 250% and trifluoperazine by 80%. According to the states’ recent lawsuit, three days before those Aug. 9, 2013, increases, a Mylan executive called a manager at Sandoz who is described as a cooperating witness. Sandoz was Mylan’s primary competitor for the two drugs.
Haloperidol (5mg tablets, 1,000 tablet package)

Antipsychotic medication, sometimes used to treat Tourettes, price per tablet

• Mylan
• Sandoz

0.000.200.400.600.80$1.00Jun '87$0.51$0.00200020102015
Source: Connecture
Trifluoperazine (2mg tablets, 100 tablet package)

Antipsychotic medication, sometimes used to treat nausea, price per tablet

• Mylan
• Sandoz

0.000.200.400.600.801.00$1.20Sep '94$0.45$0.00200020102015
Source: Connecture
When Walgreens, a Mylan customer, contacted Sandoz a month later to seek a competing bid on the drugs, Sandoz declined. A Sandoz sales rep was told in an internal email to lie about the reason to Walgreens, according to documents cited in the states’ 2019 complaint.
“We discussed internally and decided not to pursue [Walgreens] on these at this point,” wrote a Sandoz executive. “Trying to be responsible in the sandbox. I recommend you blame supply.”
Several months later, Sandoz increased its pricing on the two antipsychotic drugs to match Mylan’s.
A spokesman for Novartis AG, which runs Sandoz, said the company believes the claims in the state cases “are without merit, and we will vigorously contest them.” A spokeswoman for Teva didn’t respond to repeated requests for comment.
The Justice Department’s criminal prosecutors face a higher bar than the states’ civil attorneys, which might explain why the lawsuits would move faster, said Harry First, a professor at New York University School of Law.
Yet it’s not clear why the federal probe hasn’t produced more charges, First said, especially since Heritage is alleged to have conspired with others.
Heritage pleaded guilty in May to working with “various corporations and individuals” to fix prices for glyburide, which treats diabetes. The states’ complaint alleges that Heritage conspired with Teva, Aurobindo Pharma and Citron Pharma on the price of glyburide. But no other company or individual has been charged since Heritage. Officials at each of the companies didn’t respond to requests for comment.
“Where are those defendants and why aren’t they charged?” First asked. “If they conspired, they conspired with other companies. They can’t fix prices all by themselves.”


In their generics industry investigation, federal prosecutors kept sending out subpoenas, but they struggled to secure the cooperating witnesses they needed to explain the alleged conspiracy to a jury, according to a person familiar with the federal probe. One key cooperating witness committed suicide, setting back the investigation, the person said, and surprise visits by the FBI to some senior executives’ homes failed to get them to crack.
Another challenge for prosecutors: convicting a generic drugmaker of price fixing would likely bar that company from working with federal health programs like Medicare—ultimately reducing the competition they’re trying to ensure.
Mylan had been one of the least cooperative targets in the state and federal investigations, according to people familiar with both probes. It refused to comply with a state subpoena, and prosecutors didn’t consider its response to a December 2015 federal subpoena satisfactory, the people said. The company disputed those statements.
“We have cooperated—and will continue to cooperate—fully with the authorities,” Mylan said in its statement.
Malik, Mylan’s president, personally received a surprise visit by the FBI and a subpoena, according to a person familiar with the matter.
Malik’s lawyer, Robert Cleary of Proskauer Rose, said in a telephone interview that “Mr. Malik directly and categorically denies any allegation that he participated in any type of anticompetitive conduct. That simply didn’t happen.” Cleary declined further comment.
Multiple former Mylan employees told Bloomberg that Malik, CEO Bresch and Chairman Coury stayed heavily involved in the company’s day-to-day operations. They described the top leaders as unafraid to call workers many levels below them to manage decisions, including on pricing. The employees said they were never asked to participate in any illegal activity.
Since the states’ latest lawsuit, Mylan’s shares have dropped about 25%—part of a trend that’s seen the stock lose almost three-quarters of its value since 2015. Analysts lay part of the blame on a series of public controversies.
“Corporate governance has been an issue for investors for some time,” said SVB Leerink analyst Ami Fadia. “Now, in addition to the alleged price collusion, there’s the backdrop of an industry that’s going through continued weakness in business fundamentals.”
In 2012, news reports revealed that Coury used Mylan’s corporate jet to fly to various cities where his son, Tino, was playing concerts as part of a budding pop music career. Coury is now entitled to personal use of the plane for up to 70 hours a year, according to a May 24 filing. He’s also entitled to a cash payment for any unused portion of that time, the filing says, based on a formula in his contract and capped at about $1.5 million a year—an unusual arrangement. The drugmaker also continues to pay his family’s consulting firm $450,000 annually, the filing shows.
As shares lost value over the past four years, Coury, Bresch and Malik collectively received more than $100 million in compensation.
On Monday, Coury made clear that he’ll be in control of the new company that results from the merger with Pfizer’s off-patent drug unit.
“This Executive Chairman role, it is a real active role. Quite frankly I will continue to do the four things that I always have done for the company,” Coury said on a call with investors, including running the new company’s strategy, guiding dealmaking, picking key personnel, and working closely with “a certain group of people around the globe that I stay fairly close with.”
Mylan said in its statement before the Pfizer deal was announced that Coury “has helped build Mylan into a global leader in the generic and specialty pharmaceutical industry. His commitment to and insistence on ethical behavior and compliance with the law is well known by all who know him, including employees, customers and shareholders.”
Pfizer CEO Albert Bourla said Monday that his company is satisfied with Mylan’s response to the price-fixing allegations.

Mylan headquarters in Canonsburg, Pennsylvania
Photographer: Jeff Swensen/Getty Image
“We went through all the documents; we used lawyers to do that,” Bourla said in an interview following the merger announcement. “We assessed that the defense exposure is a reasonable exposure. We felt that there were no issues to proceed.” Pfizer’s exposure assessment covered Mylan’s potential legal liabilities, but not those of any individual executives, the company said.


When the FBI pulled up to the company’s headquarters in 2016, Mylan was busy dealing with another problem.
A congressional committee was preparing to hold a hearing on Mylan’s price setting for EpiPen, a life-saving shot of epinephrine for people who experience severe reactions to bee stings, peanut butter or other allergens. Mylan had acquired the rights to EpiPen, then gradually raised the price of a two-pack from about $100 to $600. At the time, Mylan said that it didn’t capture all of the money from those price increases, and that some of the money went to middlemen in the supply chain that distributes the drugs. The company later introduced a lower-priced version of the product.
Regardless, the higher prices outraged parents who had to shell out for the drug ahead of school and camp, and lawmakers summoned Bresch, the daughter of Democratic West Virginia Senator Joe Manchin and a 27-year Mylan employee, to testify.
She had traveled to the Washington offices of McDermott, Will & Emery, a law and lobbying firm that was helping prepare her for what would almost certainly be a hostile hearing, when she got a phone call informing her that the FBI had arrived at Mylan, according to people familiar with the matter. Halfway across the world in Germany, Coury and Malik got a similar call while visiting a company Mylan had recently acquired.
The FBI’s surprise visit turned into a long argument with Mylan’s lawyers over access to Bresch’s computer and files.
Bresch walked between conference rooms at the law firm, getting updates on the efforts to keep the FBI out of her files in Pittsburgh and then returning to her preparation for the EpiPen hearing.
Ultimately, the FBI had to compromise. Mylan, which had brought in more lawyers as the standoff continued, agreed to give agents some of Bresch’s emails but wouldn’t grant full access to her office, people familiar with the matter said.
Almost three years later, it’s still not clear exactly what the investigators obtained from the raid. Mylan declined to answer specific questions about the investigations or the FBI’s September 2016 visit.
At Mylan, while former employees say they were never asked to do anything illegal, they also recall that senior executives told them at times to push the boundaries of what they considered to be appropriate behavior.
Coury had a phrase that some people believed captured that urging, according to two people who heard him use it repeatedly in meetings.
“There’s the law,” Coury would say, “and then there’s everything else.”