Feds charge Heritage execs with price fixing; DOJ ringing out 2016 on a roll against Pharma offenses

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The former chief executive and former president of generic drug company Heritage Pharmaceuticals Inc. (Eatontown, NJ) have been charged with conspiring to fix prices, the first charges in a continuing Justice Department antitrust probe.

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In charges unsealed Wednesday, prosecutors allege former Heritage CEO Jeffrey A. Glazer and former President Jason T. Malek conspired with competitors to fix prices and allocate customers for the antibiotic doxycycline hyclate and glyburide, used to treat diabetes, according to the Wall Street Journal.

“These two executives sought to enrich themselves at the expense of sick and vulnerable individuals who rely upon access to generic pharmaceuticals as a more affordable alternative to brand-name medicines,” Deputy Assistant Attorney General Brent Snyder said.

“By entering into unlawful agreements to fix prices and allocate customers, these two executives sought to enrich themselves at the expense of sick and vulnerable individuals who rely upon access to generic pharmaceuticals as a more affordable alternative to brand-name medicines,” Snyder, of the DOJ’s Antitrust Division, added.

The company said it fired the executives in August and is fully cooperating with the Justice Department. Heritage also said it recently filed its own civil lawsuit against the men:

“to seek redress for an elaborate embezzlement and self-dealing scheme. We are deeply disappointed by the misconduct and are committed to ensuring it does not happen again.”

The Heritage lawsuit alleged the executives stole millions of dollars from the company.

The doxycycline hyclate price-fixing took place from as early as April 2013 until at least December 2015, prosecutors allege, and the glyburide conspiracy from as early as April 2014 until at least December 2015.

The charges, filed in a Philadelphia federal court, don’t specify how many other companies or executives the Justice Department believes were involved. Plea bargains with the executives could be coming soon, according to a person familiar with the matter, says the Journal.

Heritage was among the drug firms that drew attention from members of Congress in 2014 amid concern about what lawmakers described as “staggering price increases” for generic drugs, the Journal points out.

Sen. Bernie Sanders (I-VT) and Rep. Elijah Cummings (D-MD), in an October 2014 letter to the company, cited data from a trade association indicating the average market price for doxycycline hyclate had increased by as much as $1,829 for a bottle of 500 tablets.

Heritage responded at the time that the lawmakers appeared to be referring to a version of the drug it didn’t make, and that there had not been “any significant price increases” for its product.

“At a time when one out of five Americans cannot afford the medication they need, we must do everything we can to end the greed and illegal behavior of the drugmakers,” Mr. Sanders said Wednesday following the charges.

Prices for some generic drugs have risen sharply in recent years. The Government Accountability Office in August issued a report (pdf) finding that more than 300 of 1,441 established generic drugs analyzed had at least one extraordinary price increase of 100% or more between 2010 and 2015.

According to the Journal, the Justice Department previously has sent subpoenas to several generic-drug manufacturers, including Teva Pharmaceutical Industries Ltd.; Mylan NVDr. Reddy’s LaboratoriesTaro PharmaceuticalsEndo International PLC; and Actavis, which Allergan PLC recently sold to Teva.

According to a report from Bloomberg, the DOJ’S investigation could extend to more than a dozen companies and cover over 20 products.

Steve’s Take:

It was just a few days ago that I posted a piece about the former CEO and president of Insys Therapeutics being arrested on federal charges of bribing doctors to illegally prescribe the company’s fentanyl-based pain medication and defraud insurers. So I’m thinking, what a great send-off for 2016 proving that our regulators are working hard to bring such scoundrels to justice.

Then, first thing I read today is that the US Justice Department is back at it, accusing two generic pharmaceutical executives of colluding with each other to fix prices. Just a month after details of a wide-ranging generics price fixing probe made their way to the public, the Justice Department has stepped forward with its first such charges. Prosecutors are determined they won’t be the last.

Two former execs at New Jersey-based Heritage Pharmaceuticals, Jeffrey Glazer and Jason Malek, face charges of conspiring to “fix prices, rig bids and allocate customers” for the antibiotic doxycycline hyclate for more than two years. Authorities also claim the men “conspired to fix prices and allocate customers” for the diabetes drug glyburide for more than a year.

According to a Bloomberg report, text messages between the two executives from April 2015 suggest they each pocketed $466,000 in profit from their illegal actions in one day alone.

“Conspiring to fix prices on widely-used generic medications skews the market, flouts common decency, and very clearly breaks the law,” Special Agent in Charge Michael Harpster of the FBI’s Philadelphia Division said in a statement.

Glazer previously served as CEO Heritage Pharmaceuticals while Malek was president there, according to past releases and web records. Bloomberg reports that the suspects plan to plead guilty.

According to FiercePharma, Leerink Partners analyst Jason Gerberry wrote in a Wednesday (December 14, 2016) note that, based on past price-fixing probes:

“We believe the DOJ could launch separate cases against generic pharma manufacturers over the course of the next 1-2 years.”

Bloomberg in November reported details of the probe, which now focuses on roughly a dozen companies and two dozen drugs. Aside from the DOJ, groups involved in the investigation include the FBI and the US Attorney’s Office for the Eastern District of Pennsylvania.

Among the companies disclosing subpoenas are Israel-based Teva Pharmaceutical, the world’s largest generics maker, and fellow drugmaker Mylan Labs. According to FiercePharma, analysts have pegged Teva’s potential liabilities at $300 million to $700 million, and Mylan’s at $380 million to $770 million, based on the drugs “most likely” to be involved in the probe, according to a Wednesday (December 14, 2106) note from Evercore ISI analyst Umer Raffat. IMS data show that Mylan sold doxycycline hyclate during the period in which Glazer was colluding on price, according to Forbes. In addition to Heritage, glyburide is sold by Teva, Aurobindo and Citron.

Gerberry sees little financial risk to either Mylan or Teva from the Heritage charges. The subpoena Mylan disclosed listed products that did not overlap those mentioned in the Heritage charge documents, Gerberry wrote in a Wednesday evening note. Teva did have a “dominant” position in the glyburide market during the time period under investigation, Gerberry noted, but sales that period were “negligible,” and thus unlikely to trigger much of a financial penalty.

The Bloomberg report doesn’t come as a complete surprise. Prior reports in early November suggested that charges against executives of generic companies would be filed in December amid a two-year antitrust investigation, according to Bezinga.

Some interesting background, compliments of Forbes, notes that Glazer, 45–a lawyer by training who graduated from Seton Hall University Law School–started his career working at New York City law firms and as a lawyer for a pharmaceutical company in New Jersey.

Glazer founded Heritage in 2005 and has been its CEO from the start. He sold the company to Emcure Pharmaceuticals in 2011. Emcure is a generic drug company based in Pune, IN, that is run by billionaire Satish Mehta, who is the biggest shareholder of the company.

But then, get a load of this. In 2008, Glazer hired his wife’s brother, Malek, who had previously had a career in the telemarketing business. Are you thinking what I’m thinking? Malek rose through Heritage’s sales division and ultimately became the company’s president. Hmmm. What a coincidence.

Heritage fired Glazer and Malek in August and in November the company filed a massive racketeering lawsuit against the brothers-in-law, accusing them of running “a criminal enterprise” that included five dummy corporations and numerous schemes “to steal the company’s profits and property.”

In a highly detailed 130-page complaint filed in New Jersey federal court, Heritage claimed that Glazer and Malek had Heritage sell deeply discounted drugs to their dummy corporations that sold the drugs to Heritage’s own customers that paid market price.

Glazer and Malek redirected $9 million of Heritage’s sales to one of these dummy corporations, Dorado Pharma, between 2012 and 2015, the complaint alleges. Heritage also claimed that Glazer and Malek embezzled the company’s intellectual property through the transfers of abbreviated new drug applications.

According to Heritage, the brothers-in-law centralized Heritage’s decision making, not allowing Heritage’s marketing and finance team to approve product pricing changes and discouraged cross-team communications at the company, resulting in few employees knowing much about the overall business.

In its legal filings, Heritage claims Glazer and Malek met in private for hours daily to make all big decisions themselves and restricted employees from meeting India-based board members of the company.

Boiled down to its nitty gritty, this matter establishes how absolutely thorough the DOJ can be in fashioning an iron-clad case of criminal misconduct. And then make the charges stick.

Gone are the days, pointed out in the Insys piece, where highly educated C-suite executives can bribe physicians to write dodgy prescriptions for expensive, unapproved medicines and engage in elaborate price-fixing schemes and, if caught, get off with a plea-bargained fine but no hard time.

It’s not just patients who are injured. The rest of us also are defrauded and all bear a share of the economic cost of the medicines being peddled illegally and for the prosecution of these crimes. Recently, however, most of these criminal practices systematically are being stamped out and actual jail time for the perpetrators will serve as disincentive to others.

Steve's Take: @senatorsessions should keep @TheJusticeDept on track to quelling #pharma crimes Click To Tweet

Hopefully, the example set by the DOJ in intensifying its efforts to quell these outrageous actions will be carried forward in the Trump administration. As I have pointed out, Sen. Jeff Sessions of Alabama, who is President-elect Trump’s nominee for attorney general, appears to have the right stuff to carry the torch.