A huge lawsuit accuses nearly 20 big drug companies, a billionaire and two brothers-in-law of cozying up to hike drug prices. Here's the inside story. http://bit.ly/2QGzE9x
Shayanne Gal / BI Graphics
Shayanne Gal / BI Graphics
- Attorneys general for most U.S. states are bringing a large federal antitrust lawsuit against nearly 20 generic drugmakers, alleging they illegally collaborated to jack up drug prices.
- Business Insider is the first to report on the unredacted suit, which alleges frequent, close communications between employees of rival companies about how to increase prices.
- Common drugs had their prices doubled, tripled, or even increased 1,000% or more, costing taxpayers and patients and violating federal and state competition and consumer protection laws, the federal antitrust suit alleges.
- These drugs treat anxiety, insomnia, epilepsy, heart failure, diabetes and more.
- The lawsuit has brought new scrutiny to generic drugs, which are often thought of as low-cost, and the business practices of generic drugmakers.
When New Jersey drugmaker Heritage Pharmaceuticals was laying plans to start selling a new drug in early 2013, a high-ranking employee asked a colleague to get on a call with the vice president of a rival, according to newly revealed allegations in a massive federal lawsuit.
The goal, according to an email referred to in the civil suit, was to "discuss strategy." Heritage leader Jason Malek was focused on how the company should set the price for its new product, a bone disease treatment, based on insight gleaned from competitors, the allegations continued.
"The information from customers and competitors will be key in our pricing and bidding decisions," Malek said, according to the complaint.
Heritage employees were able to learn how the rival planned to set the price for its own version of the bone drug, and also discussed plans to divide up the market, the complaint alleges.
The details of the alleged exchange are revealed in a federal antitrust case that's ensnared some of the biggest names in the drug industry.
Attorneys general for 45 states, plus the District of Columbia and Puerto Rico, allege that nearly 20 companies that manufacture generic drugs illegally collaborated with competitors to jack up prices for pharmaceuticals and divvy up markets to limit competition.
Common drugs had their prices increased 1,000% or more
Business Insider is the first to report on the unredacted complaint, which was filed under seal in the Eastern District of Pennsylvania, revealing for the first time the communications that allegedly took place between employees of rival companies, including massive firms like Teva, Novartis' Sandoz and Mylan.
The conversations paint an in-depth picture of close, frequent contact about pricing and market decisions by way of LinkedIn, phone calls, text messages and emails — all with the goal of hiking prices on a broad range of generic drugs, the lawsuit claims.
Common drugs had their prices doubled, tripled, or even increased 1,000% or more, costing taxpayers and patients and violating federal and state competition and consumer protection laws, the suit alleges. There is also an ongoing U.S. Department of Justice criminal investigation.
The drugs treated conditions like epilepsy, heart failure, anxiety, insomnia, hypertension, diabetes, asthma, arthritis and more.
The investigation has targeted prominent companies like the largest generic drugmaker, Teva, and ensnared the CEO of Emcure Pharmaceuticals and the president of Mylan.
Two high-ranking former Heritage Pharmaceuticals employees who also happen to be brothers-in-law, former president Malek and former CEO Jeffrey Glazer, have previously pled guilty to price-fixing and other charges in separate criminal actions and are cooperating with investigators.
The investigations have brought new scrutiny to generic drugs
The investigations have also brought new scrutiny to generic drugs, which are cheaper versions of brand-name medicines created once their patents have expired. Because of their reputation for low costs, generic drugs have largely escaped criticism about high prices directed at very expensive brand-name pharmaceuticals.
Generic drugs are often touted as a key market-based way to use competition to bring down the high cost of pharmaceuticals in the US. But the lawsuit alleges that drugmakers colluded to undermine that competition, harming patients and taxpayers.
In a statement to Business Insider, Heritage said that it fired Malek and Glazer in 2016 after an internal investigation revealed "serious misconduct" by both Malek and Glazer, and has been cooperating with an ongoing federal criminal investigation, which is looking into suspicions of price fixing, bid rigging and other anticompetitive conduct in the generic drug industry. The company is also suing Glazer and Malek in a separate, ongoing lawsuit, the statement noted.
"We are deeply disappointed by the misconduct and are committed to ensuring it does not happen again," the statement said.
Lawyers for Malek and Glazer told Business Insider in a statement that the Heritage lawsuit "is malicious and without merit, and we look forward to demonstrating this in court."
The other companies named in this piece that returned a request for comment all denied the allegations.
Sandoz said in a statement that "we believe these claims are without merit and will vigorously contest them." Mylan referred Business Insider to a previous statement, which said that "we have been investigating these allegations thoroughly and have found no evidence of price fixing on the part of Mylan or its employees." Teva said in a statement that it denied the allegations and "will continue to vigorously defend itself."
The companies came to agreements to divvy up market share, the AGs allege
The generic drugmakers had a range of slang that they used to collude, according to the allegations by the AGs. The companies allegedly came to agreements to divvy up market share, in what the complaint says they called "fair share" and playing "fair." Another term, "playing nice in the sandbox," referred to compliance with these types of arrangements, according to the complaint.
Teva, the world's largest generic drugmaker and one of the defendants in the case, allegedly participated, according to the complaint. The company was allegedly approached by a customer on behalf of a competitor in late 2014, and was asked to give up a specific customer to that competitor, according to the complaint.
After internal discussions, a Teva employee told the customer to pass along that "we are playing nice in the sandbox and we will let them have [the targeted customer]," the complaint further alleges.
The AGs allege that earlier in 2014, Malek, Heritage's former president, reached out to Teva about acetazolamide ER, which is used for a wide range of conditions including glaucoma, epilepsy and heart failure.
Together, the complaint says, the two companies had nearly 80% of the market for the drug.
The AGs who brought the suit claim that Malek and a Teva employee came to an agreement over the phone that if Heritage increased its prices, Teva would either follow or at least not seek to win customers by underbidding Heritage.
The same Teva employee and Malek also began speaking about increasing the price of the anti-fungal medication nystatin in mid-2013, the AGs further alleged in the suit.
When the increases were broached internally, the employee, who had been hired to head Teva's pricing team, initially opposed them, according to the complaint. But, the complaint alleges, after conversations with Malek, the employee later added the drug to a list of "Price Increase Candidates."
The decision dragged into the next year, 2014, when the drug was again on a spreadsheet of price increase candidates, with the note that the decision had been shared with its two main nystatin rivals, according to the allegations. Teva then allegedly doubled the drug's price to roughly $100.
A Heritage employee allegedly sent a text message to a rival informing it of a price hike, according to the complaint
The state AGs claim that collaboration to boost the price of nystatin involved other generics-makers. Specifically, they allege that while on a call about the drug, a Heritage employee sent the following text message to an employee of Sun Pharmaceutical Industries, an Indian generic drugmaker which also made the drug.
"Work news: we are raising price on Nystatin. Just letting you know. :)," the employee said.
Asked how much, she responded: "double the price."
The AGs allege that Sun then also started increasing the price of its nystatin.
A Sun spokesperson told Business Insider in a statement that it believes the lawsuit's allegations are "without merit and will continue to vigorously defend against them."
AGs allege Heritage's former president told a colleague to 'jack it up'
Generic drugmakers were also in touch with each other about other chances to raise prices, according to allegations in the complaint. The suit claims that in 2014, a Sun employee told Heritage about a temporary decision to stop manufacturing the antibiotic paromomycin.
Heritage controlled a majority of the market share for the antibiotic, according to the complaint, and Sun was its only competitor back then.
"Need price increase to go immediately. Jack it up," Heritage's Malek allegedly said to another Heritage employee.
Shayanne Gal / BI GraphicsThe labyrinthine complaint alleges activity going back at least as far as 2012. Midway through that year, Teva had just stopped making the generic drug nimodipine, according to the complaint, leaving just two manufacturers: Heritage and Sun's Caraco division.
Nimodipine was a major product for Heritage, according to the complaint. When Heritage's Malek asked an employee to reach out to Sun, the suit alleges, the employee learned that the drug wasn't a big product for Sun, and Sun was satisfied with its position.
Heritage allegedly pressed on. With a drug distributor proposal in play and an industry event coming up, "the timing is critical if we want to raise our pricing everywhere," the complaint alleges a Heritage employee emailed to Malek.
"So we will increase the price, you should tell them that so they can do the same without any [competition]," Malek allegedly emailed back later in the exchange.
The complaint claims that the two companies eventually did come to an understanding on pricing, with both taking major increases.
When, later in 2012, Heritage allegedly heard that Sun might have to recall the same product, nimodipine, the complaint claims that a Heritage employee was eventually able to confirm it with her Sun contacts in mid-April of 2013.
"Great feedback, time for next increase!" Malek is quoted as saying in response. About a week later, the complaint claims he added instructions to keep coordinating with Sun, "to make sure if/when they are back they talk to us first so we can be smart about it."
Employees at rival companies allegedly spoke directly about how they were approaching customers, complaint says
The group of attorneys general also claim that Heritage and the Indian drugmaker Dr. Reddy's Laboratories collaborated to increase the price of the drug meprobamate in 2013, when they were the only two manufacturers of the generic treatment for anxiety, tension and insomnia.
"We don't want to make any waves and we are not looking for additional share, just want to maintain what we have at a minimum of a 4x price," the complaint alleges Malek said, asking two employees if they wanted to get in touch with Dr. Reddy's.
Shayanne Gal / BI GraphicsDr. Reddy's had been thinking about increasing its price too, the complaint alleges, but it didn't have enough of the product, according to communications cited in the complaint.
The complaint alleges that, to show its commitment to the agreement, Malek told a Heritage employee that he recommended "letting the market dry up a bit… We are taking the price up asap everywhere else."
Both companies then increased their prices around the same time, Heritage in April of 2013 and Dr. Reddy's in May, the group of 45 states further claimed.
(A Dr. Reddy's spokesperson told Business Insider that the company prefers not to comment on ongoing litigation.)
Heritage tried similar tactics with Mylan for the drug Doxy DR, an antimicrobial for severe acne, for which Mylan was its sole competitor, the complaint alleged.
The state AGs also claim the now-former Heritage CEO Jeffrey Glazer told Mylan President Rajiv Malik that the company's reaction to Heritage's bid for an unnamed "very important large retail pharmacy account" would "set the tone of whether this is a high priced item or more erosion."
Mylan ended up submitting a bid to the pharmacy that was only $10 lower, and Heritage ended up the pharmacy's sole supplier of Doxy DR, according to further allegations.
Heritage and Mylan kept working together to keep the price of a drug high, according to the complaint
The two companies kept working together to keep the price of Doxy DR high, according to the complaint. The complaint alleges that this became tricky when competing for customer accounts. Specifically, it claims that, after competing for a large account in fall 2013, Heritage's Malek emailed Glazer, referring to Mylan's president: "We should reach out to rajiv [sic], we need one more account and we are done."
But, the complaint further alleges, Glazer wrote back that the two of them had to be careful not to disrupt their agreement with Mylan— and in fact, Heritage allegedly ended up not pushing it with that large retailer.
"We need to look at our market share, current biz and pricing with and without [the one large account at issue] and make a decision," the complaint alleges Glazer emailed to Malek. "You don't want them retaliating and lowering prices at other accounts."
Gapping down
In reaction to disappointing earnings/guidance:
- MU -8.4% (in-line Q1, guided down Q2) FDX -7.6% (lowered FY19 EPS, rescinded FY20 profit target, announced new cost initiatives) GIS -3.8%
FDX warning weighing on transports:
- UPS -3% (following FDX earnings), IYT -1.4%, JBHT -0.9%
MU warning weighing on memory/chip stocks:
- LRCX -3.1%, ASML -2%, AMAT -1.6%, SMH -1.4%, ADI -1%, AMD -0.9%, QCOM -0.5%
Other news:
- SURF -19.2% (reduces scope of CD47 program SRF231 and accelerates IND filing for SRF388 (IL-27) into Q4 2019; extends cash runway through 2021 )
- FB -1.6% (NYT reports the company shares more data than it has previously indicated)
Analyst comments:
- UAA -2% (Atlantic Equities downgrades to Underweight)
Gapping up
In reaction to strong earnings/guidance:
- JBL +9.9%, WGO +9.7%, SCS +4.9%, AIR +1.5% FANG +1.5%
M&A news:
- CIVI +11.9% (to be acquired Centerbridge Partners funds for $17.75/share in cash)
- GSK +5.6% (creates consumer health JV with PFE)
- GE +5.1% (reportedly filed for healthcare IPO)
- PFE +1.4% (consumer health JV with GSK)
RV stocks showing strength following upside report from Winnebago (WGO):
- CWH +3.9%, LCII +3.7%, THO +3.5%
Other news:
- ADRO +29.6% (Aduro Biotech and Eli Lilly anounce research collaboration and license agreement for development of novel immunotherapies)
- RCII +6.4% (after 10% decline on merger termination news with Vintage Capital)
- TLRY +4.7% (extends yesterday's strength)
- FMCC +2.6% FNMA +1% (Treasury Secretary Steven Mnuchin said he wanted to work w/Congress on GSEs late yesterday)
Analyst comments:
- BBY +1.6% (upgraded to Neutral at MoffettNathanson)
- HSY +0.8% (BAML upgraded to Buy at Underperform)
- ROKU +2% (Keybanc out positive)
Wife of Jailed Nissan Director Greg Kelly Says He’s a Victim of Boardroom Coup
Dee Kelly says her husband was caught up in a plot by Nissan CEO to seize control from Carlos Ghosn; Nissan says alleged misconduct landed them in jail
The wife of Greg Kelly, the Nissan Motor Co. NSANY 0.86% director jailed alongside former Chairman Carlos Ghosn in Japan, said her husband was the victim of a boardroom coup and was lured to Tokyo despite plans for surgery in the U.S.
Donna “Dee” Kelly, making her first public comments since her husband’s arrest on Nov. 19, gave the clearest rebuttal yet of the charges against him and criticized Japanese authorities’ treatment of him in detention.
In a video statement provided to The Wall Street Journal by Mr. Kelly’s U.S. lawyer, Ms. Kelly said her husband was caught up in a plot by Nissan Chief Executive Hiroto Saikawa to seize control of the Japanese car maker from Mr. Ghosn, who was ousted last month after being taken into custody over alleged financial misconduct.
“Greg has been wrongly accused as part of a power grab by several Nissan executives headed up by the current CEO, Saikawa,” she said in the video.
A Nissan spokesman said, “The cause of this chain of events is the misconduct led by Mr. Ghosn and Mr. Kelly.” The spokesman added, “During the internal investigation into this misconduct, the Prosecutors Office began its own investigation and took action.”
Ms. Kelly said her 62-year-old husband was suffering from a spinal ailment that needs immediate attention and wanted Japanese prosecutors to release him so he could undergo surgery in the U.S. before his condition causes permanent damage.
The Tokyo prosecutors office said Mr. Kelly was receiving proper care in detention and declined to comment further.
Messrs. Ghosn and Kelly were charged this month by Japanese prosecutors with underreporting Mr. Ghosn’s compensation on Nissan’s financial statements. A person familiar with Mr. Ghosn’s legal defense has said Mr. Ghosn maintains his innocence.
Nissan was quick to cut ties with Mr. Ghosn, increasing tensions with strategic partner Renault SA, which owns a 43.4% stake in the Japanese auto maker.
Earlier this week, Mr. Saikawa rebuffed a request from Renault deputy CEO Thierry Bolloré to convene an early shareholder meeting, saying Nissan needed several months to find ways to improve its governance.
Mr. Kelly, who was one of three senior-ranking board members at Nissan, was detained after flying to Japan from the U.S., where he had returned in 2015 after giving up most of his operational duties at the company.
“Greg and Mr. Ghosn fully believe that they did not break the law,” Ms. Kelly said in the video. She said there would be more to say in the coming days but didn’t elaborate. “The truth of this will come out,” she said.
Nissan declined to make Mr. Saikawa available for comment.
Mr. Kelly, a U.S. citizen, was one of the few Americans to hold a senior leadership role at a company led mostly by European and Japanese executives. He was also the first and only American to become a senior-ranking director on Nissan’s board when he joined it in 2012.
Known inside Nissan as a fierce Ghosn loyalist and behind-the-scenes troubleshooter, Mr. Kelly ran the CEO’s office and human resources in 2010 when new executive-compensation rules went into effect. Prosecutors allege that after the rules changed, Messrs. Ghosn and Kelly caused Nissan illegally to omit some $44 million in Mr. Ghosn’s compensation in the company’s financial statements over five years.
Ms. Kelly said her husband, a lawyer by training, had to solve complex legal issues facing the company as part of his job and he relied on both inside and outside sources to assist him in this work.
Before his arrest, Mr. Ghosn was planning to call a board meeting to reshuffle the company’s top management—including removing Mr. Saikawa as CEO and reinstating Mr. Kelly in a management position, according to people familiar with the plans.
Mr. Kelly typically participated in Nissan board meetings by phone. But Ms. Kelly said Nissan executive Hari Nada told Mr. Kelly he was needed in Japan and persuaded him to attend the meeting in person, arranging for a corporate jet to fly him from Nashville to Tokyo.
Ms. Kelly said her husband had been reluctant to go because of his health and a scheduled surgery in early December. He suffers from spinal stenosis, a compression of spaces in the spinal cord, which has caused him to experience numbness, tingling and shooting pains in the extremities, she said.
Nissan declined to comment on the events leading to Mr. Kelly’s arrest and declined to make Mr. Nada available for comment.
Since being jailed in Tokyo, Mr. Kelly’s Japanese attorney said his health has deteriorated, in part because he has slept on a futon on the floor and without a special neck pillow, Ms. Kelly said. His American doctor said Mr. Kelly’s symptoms could become permanent if he doesn’t have the surgery, she said.
“We are asking the prosecutors to release Greg and allow him to get the treatment that he needs,” said Ms. Kelly, who is in the U.S. “With Christmas less than 10 days away, my Christmas wish would be for Greg to be home with his family, recovering from his surgery.”
Prosecutors have received court approval to detain Messrs. Ghosn and Kelly without the possibility of bail through Thursday, and they can seek a 10-day extension of that period. After that—assuming prosecutors don’t bring forward new suspicions—the defendants would be eligible to seek release on bail, but courts in similar cases have declined to grant it.
Japanese authorities said they will ask a doctor to examine Mr. Kelly to confirm his diagnosis and need for surgery, Ms. Kelly said. He hasn’t been allowed to speak with family members in person or on the phone, nor receive any letters from friends and family members, she said.
A spokesman for the detention center in Tokyo declined to comment. A Ministry of Justice spokesman, speaking generally about detainees, said it could take some time for items from the family to be delivered if the detainee’s condition wasn’t life-threatening.
UK unveils temporary visa plans for EU nationals after Brexit
‘Safety valve’ for companies dependent on labour from the bloc fails to pacify business
EU nationals of all skill levels will be allowed to enter Britain after Brexit for up to one year at a time, under a new visa regime intended to reconcile Prime Minister Theresa May’s promise to take back control of immigration with business concerns about recruitment.
The new temporary visa is designed to act as a “safety valve” for employers adjusting to the end of free movement for EU nationals but failed to win round business groups worried about increased bureaucracy and a rapid turnover of short-term workers.
The plans were contained in a long awaited white paper on immigration, which was published on Wednesday after being delayed more than a year.
In his foreword to the document, Sajid Javid, home secretary, said it set out a reformed system that “welcomes talent from every corner of the globe and demonstrates the UK is open for business”.
But business groups have been deeply concerned about the government’s plans to curb immigration — a longstanding aim of Mrs May, who has consistently argued that one of the main objectives of Brexit is to take back control of the UK’s border.
The CBI, the leading business lobby, warned of “the economic damage of draconian blocks on access to vital overseas workers”.
Industry groups have warned that the delay to the white paper has left them without enough time to adjust to any new regime that would end priority entry for EU nationals. At present, European workers are not subject to any immigration restrictions.
The new blueprint’s provisions for a “transitional” visa are a concession to such concerns. The temporary scheme would run until least 2025 — and allow EU migrants and those from “low-risk” non-EU countries to enter the UK without a job offer for up to a year.
But although such measures will ease concerns about an immediate “cliff-edge” for workers in sectors such as construction, hospitality and retail after the end of the Brexit transition period, they are likely to increase the administrative burden on migrants and mean that employers will no longer be able to rely on a long-term, low-skilled workforce.
Workers entering under the transitional visa will have no rights to settle, access public funds, or bring family members.
However, the white paper softens initial proposals, backed by the government’s independent immigration advisers, that would have set a minimum salary threshold of £30,000 for migrants to enter as “highly skilled workers”. The threshold will now be put out to consultation following criticisms that it was too high.
It will also be subject to some exemptions, including graduate jobs.
In a big change to the current regime, the cap on the number of skilled worker visas issued each year — now set at 20,700 — will also be abolished. Employers will no longer need to prove they have tried to recruit locally before bringing in a worker from overseas.
The Home Office promised to “streamline” the application process for employers wishing to sponsor visa applicants. Both the skilled worker visa and the temporary visa will open to EU migrants in autumn 2020 to allow time for applications before the end of the scheduled transition period in December of that year.
Mrs May’s exit deal with the EU, which is facing formidable opposition in the House of Commons, would establish a transition period that could run until the end 2022 during which time free movement would remain.
But if the deal has not been agreed by the time Britain is scheduled to leave the EU on March 29 2019, free movement will end immediately.
The paper provoked a rift within the cabinet, with Philip Hammond, chancellor, and Greg Clark, business secretary, arguing fervently against some of the curbs favoured by Mrs May.
While the Treasury secured some eleventh-hour amendments to the plans, Josh Hardie, deputy director-general of the CBI, described the proposals as a “sucker punch for many firms right across the country.”
“A new immigration system must command public confidence and support the economy. These proposals would achieve neither,” he said.
“These proposals must change. And when a new system that will work is agreed, the UK must be given time to adapt. This means at least two years to implement the changes after the rules are finalised.”
Ahead of the white paper’s publication Mr Javid said the new system would “bring net migration down to more sustainable levels” although he refused to endorse the Conservative manifesto pledge of reducing net migration to the “tens of thousands.” Mr May reaffirmed that reducing migration to such a level was still her aim when asked at prime minister’s questions.