Indian pharma companies feel the heat of price-fixing charges by US govt: All you need to know

Of the 20 major pharmaceutical firms named in a recent antitrust lawsuit filed by 44 American states, seven of them are Indian.

Sun Pharma’s US arm, Taro, Zydus, Lupin, Aurobindo Pharma, Dr Reddy’s, Wockhardt, and Glenmark Pharma, have been accused of conspiring to inflate prices of generic drugs, by over 1000% in certain cases. Other firms under the scanner include reputed multinational firms like Heritage Pharma, Apotex, Par Pharma, Pfizer, and Sandoz.

The 524-page lawsuit charges them with collusion with the world’s largest manufacturer of widely-prescribed generic drugs, Israeli pharma company, Teva Pharmaceuticals. This is quite possibly the largest cartel case in the history of the US pharma industry.

Largest drug cartel in the US?

According to the complaint filed by the prosecution, Teva, in turn, colluded with 19 other organisations to inflate the prices of 112 critical drugs between July 2013 and January 2015. Competitors also colluded with each other on drugs that Teva did not market, as per the complaint, thus severely impacting American consumers.

Most parties to the case, including Dr Reddy’s and Aurobindo Pharma, both headquartered in Hyderabad, Telangana, have denied allegations of price rigging, despite the US Department of Justice citing examples and incontrovertible evidence in its filing.

“Clomipramine HCL, also known by the brand name Anafranil, is used for the treatment of obsessive-compulsive disorder, panic disorder, major depressive disorder, and chronic pain. In addition to Defendants Sandoz and Mylan, Defendant Taro also manufactured Clomipramine HCL. Indeed, it was Taro that led a price increase on this product on May l, 2013. The price increase was striking—more than a 3,440% increase to Taro’s WAC pricing on certain formulations,” the DoJ filing reads.

Timeline of case

In December 2016, the Attorney General (AG) of the State of Connecticut along with the Attorneys’ General of various other US states filed a lawsuit in Federal Court against Aurobindo Pharma and other generic drugmakers in the US, alleging they violated antitrust laws by fixing prices and allocating customers. This was done with the intention of inflating prices, arresting competition and unreasonably restrain trade for 15 separate generic drugs.

As per the complaint, sales representatives of competing companies met at social events such as conferences, golf outings, cocktail parties and lunch “to discuss and share competitively-sensitive information concerning upcoming 30 bids, specific generic drug markets, pricing strategies and pricing terms in their contracts with customers.”

The country-wide probe began in 2014, was first filed in 2016, and its scope was expanded in 2018.

The case picked up steam in 2017 when two executives of US company Heritage Pharmaceuticals pleaded guilty to fixing prices for two generic drugs, doxycycline and glyburide, agreeing to cooperate with the larger investigation.

History of India generics in the US

The burgeoning US generic drug market was valued at $103.8 billion in 2018, having grown at 12.1% between 2011 and 2018, according to IMARC Group. It is expected to reach $190.4 billion by 2024.

According to reports, 90% of the US drug market is generic which means a majority of prescriptions in the US are for generic drugs and nearly 40% of it comes from India.

India’s foray into the generic drug industry began in 1935 with Cipla becoming quickly adept at reverse-engineering drug formulas. It was supplying India and other countries with low-cost versions of important Western medicines by 1950.

Then the US Congress in 1984 passed the Drug Price Competition and Patent Term Restoration Act, allowing generic pharma companies to circumvent protracted drug testing and FDA approval procedures.

So when the US began to import generics in the eighties, Cipla and other generic drug makers came to be seen as heroes, especially by critics of Big Pharma. This admiration grew in the new millennium, when Cipla offered to provide an HIV drug at 4 percent of Big Pharma’s price — to tens of millions of Africans who would otherwise go untreated. 

The bottle of lies behind India’s generic drug exports

The wider generics industry has recently come under the radar for harming and sometimes killing patients with bad medicine produced at lightly regulated plants in India and China and pumping quick and dirty drugs into unsuspecting patients in every corner of the globe. Now they are gouging prices of these drugs as well.

Once founded to counteract Big Pharma, careless drug manufacture and export is causing the generic industry to merge with it today.

Tweaking existing drugs to generate new patents, creating artificial demand to inflate prices and acquiring rivals to stifle competition are all tricks in the Big pharma book that generic drug makers seem to have borrowed.

One such case of cutting corners, and sending faulty drugs to poor nations where they are consumed without verification, was brought to FDA’s notice by Ranbaxy whistleblower Dinesh Thakur that followed a tenuous legal battle earlier this decade.

According to a recent report by the US Trade Representative (USTR), almost 20% of all pharmaceutical goods sold in the Indian are counterfeit; India is also among the top producers exporting cheap counterfeit generic drugs to Canada, Africa and the EU, the US and the Caribeean — claims that were described as “exaggerated” by a top Health Ministry official.

Why it matters

Katherine Eban in her book Bottle of Lies writes how instead of an environment with constant oversight, the Indian generic drug industry thrived because of a culture where outwitting inefficient bureaucracies was crucial. That resulted in a business model prioritising speed and volume over quality and accuracy, she notes.

In the absence of strict laws to avoid illegal drug approvals and investigation into high-ranking official drug regulators and the health ministry, the problems will continue to exacerbate in India.

At the same time, strictures from the US FDA on quality-related issues as well as the current charges about anti-competitive behavior will have a knock-on effect on the industry’s growth. India is the world’s third-largest drug producer by volume and according to a Business Standard report on May 2, Indian pharma exports recently hit $19.14 billion, reporting double-digit growth after 3 years.

But in light of the recent lawsuit, it is worth recalling that after the Ranbaxy scandal broke, the US tightened FDA scrutiny on abbreviated new drug applications, which resulted in stricter reprisals. Needless to say, the retinue of allegations has been damning for the country’s growing pharmaceutical market that is oft reputed to be the “pharmacy to the world”.

In April, when the initials and titles of implicated individuals, along with the industry code words, were made public, the shares of Aurobindo Pharma hit a low of Rs 775.50. Meanwhile, the shares of Dr. Reddy’s Laboratories hit a low of Rs 2,758.80. The stock of Glenmark Pharmaceuticals dipped to Rs 646.55, while that of  Zydus Wellness Ltd. reached Rs 1,308.55 at its lowest.

“To counter the problem, we are looking at the end-to-end implementation of the blockchain technology and implementation of QR is also ready to be rolled out” for greater transparency, a senior official in the health ministry told The Print. Recently, NITI Ayog, Oracle, Apollo Hospitals and Strides Pharma Sciences ran a pilot blockchain project in the growing battle against fake drug issue.

In the US, mechanisms like “collusive bid rigging and market allocation agreements designed to prevent price wars from occurring” enabled the 20 companies to gouge prices, suggesting they must be outlawed or regulated. Pressure from 44 states will perhaps bring an end to this lethal culture. The leniencies granted to generics must be arrested before fake and overpriced drugs cause more damage, even if it means at the cost of India’s pharma industry.

What’s next

If found guilty, the penalties may range from a few million to hundreds of millions of dollars. Plaintiff states have demanded a trial by jury which adds an emotive angle to the case, although out-of-court settlements may also be on the table.

Setting the precedent at this juncture is the historic case of Turing Pharma CEO Martin Shkreli, who is currently serving seven years in solitary confinement for hiking the price of Retrophin from $13.50 to $750 a pill. 

Another instance of pharmas playing gods involves Valeant Pharmaceuticals, whose CEO Mike Pearson infamously slashed the research budget and focused entirely on buying up other companies’ medicines and then jacking up the prices.

Netflix docu-series Dirty Money focuses on the time Valeant raised the price of a vital drug for people with a rare copper allergy from $30 a month to $20,000 a month. As people handed over their life savings to stay alive, Valeant’s stock price soared and what’s worse – even after their unethical business practice was uncovered, the prices remained high.

“We didn’t find anything they were doing which was illegal,” Senator Claire McCaskill told the filming crew. “And that’s the thing that’s startling about this.”

Prarthana Mitra is a Staff Writer at Qrius

Generic drugsInternational TradePharma