U.S. Files First Charges in Generic Drug Price-Fixing Probe

(Bloomberg) -

The Justice Department accused two executives of colluding with other generic pharmaceutical companies to fix prices, the first criminal charges stemming from a sweeping two-year investigation.

Jeffrey Glazer, a former chief executive officer of Heritage Pharmaceuticals Inc., and Jason Malek, an ex-president, were charged in Philadelphia, according to court filings unsealed on Wednesday. Each were charged in a criminal information with two counts of conspiring with other drug makers to fix the prices of an antibiotic and a drug used to treat diabetes.

Glazer and Malek intend to pleaded guilty and are cooperating with authorities, according to people with knowledge of the matter. A plea hearing is scheduled for Jan. 9.

From April 2013 to at least December 2015, Glazer and Malek conspired with others in the production and sale of generics, including doxycycline hyclate and glyburide, according to the court papers.

“Millions of Americans rely on prescription medications to treat acute and chronic health conditions,” Deputy Assistant Attorney General Brent Snyder of the Justice Department’s antitrust division said in a statement. The charges are an important step “in ensuring that generic pharmaceutical companies compete vigorously to provide these essential products at a price set by the market, not by collusion.”

Representatives for Heritage, which is privately held, weren’t immediately available to comment.

Drug pricing has met harsh criticism from U.S. lawmakers in the past year, with executives from Valeant Pharmaceuticals International Inc. and Mylan NV appearing before congressional committees to explain steep price increases. The Justice Department probe marks a broadening of Washington’s scrutiny from branded drugs, which are more expensive, to generic products.

Glazer and Malek were fired from Heritage in August, according to a civil lawsuit filed against the two executives by their former employer last month in federal court in New Jersey. Heritage accused them of stealing tens of millions of dollars from the company over at least seven years, according to that complaint.

“Glazer and Malek accomplished this brazen theft by creating at least five dummy corporations, which they used to siphon off Heritage’s profits through numerous racketeering schemes,” Heritage alleges in the lawsuit. “Through one particularly audacious scheme, Glazer and Malek, together with other co-conspirators, secretly arranged deeply discounted sales of Heritage products to their dummy corporations or through complicit third parties willing to act as straw buyers in return for bribes.”

Glazer and Malek then illicitly pocketed the profit that resulted when Heritage customers paid the market price for the drugs, Heritage said in the lawsuit.

The magnitude of the theft is captured in an August 2015 text message exchange in which Glazer told Malek that they had netted $466,000 in profit in one day. Glazer then wrote to Malek, “Distro $100k each,” which Heritage said referred to distribution of the proceeds. Malek responded: “That’s it?”

Lawyers for Glazer and Malek in the civil case didn’t immediately respond to e-mail messages seeking comment.

The U.S. antitrust investigation spans more than a dozen companies and about two dozen drugs, people familiar with the matter told Bloomberg last month. Though individual companies have made various disclosures about the inquiry, they have identified only a handful of drugs under scrutiny, including a heart treatment and an antibiotic.

Mylan, Mayne Pharma Group Ltd. and Endo International Plc had previously disclosed receiving subpoenas related to doxycycline. Their representatives didn’t immediately respond to requests for comment. Sun Pharmaceutical Industries Ltd., Lannett Co. Inc. and Teva Pharmaceutical Industries Ltd. make doxycycline but haven’t disclosed if subpoenas they received were related to those drugs. Sun and Lannett representatives also didn’t immediately respond to queries about whether they had been issued subpoenas over doxycycline.

Allergan Plc previously disclosed that its Actavis unit, which makes doxycycline, had received a subpoena, without specifying which drug it was asked about. It then sold the unit to Teva. Allergan spokesman Mark Marmur declined to comment.

Teva, Aurobindo Pharma Ltd. and Citron Pharma LLC make glyburide, according to data compiled by Bloomberg. Aurobindo and Citron representatives didn’t immediately respond to queries about whether they had been issued subpoenas over the diabetes drug.

Teva spokeswoman Elizabeth DeLuca didn’t respond to an inquiry about whether the company had been subpoenaed specifically over doxycycline and glyburide. Teva is “cooperating fully” with subpoena requests, she said by e-mail.

Other companies involved in the probe, potentially over different drugs, are Impax Laboratories Inc., Covis Pharma Holdings Sarl, and Taro Pharmaceutical Industries Ltd. All three have disclosed receiving subpoenas and have said they are cooperating.

None of the companies in the government’s investigation are named in the case against Glazer and Malek. Heritage, which is identified only as Company A in the documents, is a subsidiary of Emcure Pharmaceuticals Ltd., based in Pune, India.

Doxycycline hyclate, an old antibiotic, was prescribed 12 million times in the United States last year, according to Symphony Health Solutions data compiled by Bloomberg Intelligence. It’s used for a range of conditions including pneumonia, respiratory tract infections, Lyme disease and acne. Glyburide, a blood sugar lowering drug for diabetes, had 4 million prescriptions last year in the U.S.