Generic Drugmakers Face Antitrust Suit Alleging Price Fixing

Shares of Teva Pharmaceutical Industries Limited (NYSE:TEVA) fell almost 15% on May 13 following media reports of an antitrust lawsuit filed by 44 states against the company and several other generic drugmakers for allegedly artificially inflating prices of generic drugs, in some cases exceeding 1000%. Other companies named in the 510-page lawsuit were Mylan (NASDAQ:MYL) , Sandoz (the generic arm of Novartis [ (NYSE:NVS) ]), Dr. Reddy’s Laboratories and a subsidiary of Pfizer (NYSE:PFE) among others. While shares of Mylan were down 10%, Novartis’ stock declined around 2%. Dr Reddy’s was down more than 4% and Pfizer declined slightly.

The group of 44 states was led by Connecticut attorney general William Tong. The lawsuit, filed in Connecticut federal court, alleged that these drugmakers conspired during lunches, dinners, golf outings and other social events, to inflate the prices of more than 100 generic drugs. The lawsuit alleges that these companies perpetrated a multi-billion fraud on Americans by manipulating prices of generic drugs, which are supposedly cheaper “copycat” versions of the branded drugs. The generic drugmakers allegedly “systematically” divided the market so that they do not compete with one another and at the same time can charge high prices. If the allegations are true, the companies will be slapped with huge damages and penalties. Teva alone allegedly increased prices of more than 100 generic drugs.

Teva denied the charges saying that these were just allegations and that the company has not engaged in any conduct that will result in civil/criminal liability.

The lawsuit comes amid attempts by both President Trump and Congress to keep prices of drug prices low and ensure affordability of high-cost drugs. Trump has, time and again, criticized pharmaceutical companies for steep pricing of medicines. Industry players have been reeling under pressure for quite some time now as they fear that Trump’s pharma plan could dent their profits.

Though the industry has been constantly warned by Trump to keep prices of drugs affordable, it is probably not doing anything about it. On his part, the President can take several steps in this direction. He can push for faster generic approval, which he is already doing. He can also ask for discounted rebates to be disclosed, put limitations on promotions/advertisements of the drugs and mandate Medicare to negotiate drug prices with manufacturers.

It is high time drug companies take steps to provide relief to consumers by keeping cost of medicines affordable. Until then, the drug pricing controversy will remain an overhang on the space.

Teva, Mylan and Dr Reddy’s carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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