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46 States Accuse Drugmakers of Price Collusion

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Novartis AG’s Sandoz unit was at the center of a sweeping conspiracy with competitors to raise prices of generic drugs by more than 1,000%, according to the latest U.S. lawsuit by state antitrust enforcers against the industry.

A nationwide group of state attorneys general said in a complaint filed in federal court Wednesday that Sandoz and other drugmakers colluded to artificially inflate prices for more than 80 topical treatments like creams and ointments from 2009 through 2016.

“They are committing a massive fraud on the American people,” Connecticut Attorney General William Tong, who is helping to lead the states’ investigation, said on a press call.

The case is the third major complaint in a six-year investigation by states that accuse pharmaceutical companies of a widespread price-fixing and market-allocation conspiracy. The attorneys general say industry executives engaged in a scheme to stop competing with one another on generic-drug prices and to protect their profits.

(Related: Collusion Allegations Hit Generic Drug Company Stocks)

The new complaint focuses on common, generic ointments used to treat a variety of skin conditions such as eczema, psoriasis, inflammation caused by allergic reactions, scaly growths caused by sun exposure, and fungal infections like athlete’s foot and ringworm. Nine in 10 drugs used in the U.S. is a generic copy of a name-brand medication.

Tong said the generic drugmakers had created the largest corporate cartel in American history, which cost American consumers billions of dollars because of inflated prices.

Separately, the drugmakers also face a criminal probe by the U.S. Justice Department that has so far led to charges against four executives and criminal settlements with four companies, including Sandoz.

Sandoz in March agreed to pay $195 million to settle the Justice Department’s case. The settlement came after a former Sandoz executive, Hector Armando Kellum, pleaded guilty in February to a price-fixing charge and agreed to cooperate with the Justice Department’s investigation.

Novartis said in a statement that it disagrees with the “broad claims” alleged by the states.

“The individual instances of misconduct at the core of the resolution we reached with the U.S. Department of Justice in March do not support the vast, systemic conspiracy the states allege,” Novartis spokesman Eric Althoff said in an emailed statement. “We take seriously our compliance with antitrust laws, and we will continue to defend ourselves in this matter.”

Advancing Probe

The lawsuit, brought by 46 states, four U.S. territories and the District of Columbia, is based on millions of documents obtained from generic drugmakers, cooperating witnesses and a database of more than 11 million call records.

According to the attorneys general, the companies routinely shared information about pricing strategy and had longstanding agreements not to compete for one another’s customers. Executives stayed in constant contact through text messages and phone calls as well at industry dinners, cocktail parties and golf outings, the suit alleges.

In addition to Sandoz, the states sued Perrigo Co., Teva Pharmaceutical Industries Ltd. and its Actavis unit, Mylan NV, and a host of others.

Mylan called the complaint “baseless” and said it has found no evidence executives engaged in price-fixing. Teva said it was reviewing the complaint, and that the claims remained mere allegations. Perrigo said in a statement it “intends to vigorously defend this case and looks forward to presenting a full defense, which will include all of the facts.”

Dermatology Leader

Novartis became a leader in dermatology medicines in 2012 when it reached a $1.5 billion deal for closely held Fougera Pharmaceuticals Inc. After the deal, all but one of Fougera’s sales executives lost their jobs, and that employee is now cooperating with the states, according to the complaint. The states relied in part on notebooks the employee used to keep track of price increases he discussed with competitors.

The lawsuit details dozens of instances of coordination among the companies. For example, in May 2014, Taro Pharmaceutical Industries Ltd. had finalized a list of planned price increases for generic medicines, including a more than 1,000% increase on clobetasol, used to treat skin conditions like eczema, psoriasis and rashes.

Taro employee Ara Aprahamian placed a series of calls to a Sandoz employee before the price increases took effect. That unnamed Sandoz employee communicated with his supervisor, Kellum, about the increases, and Kellum ultimately told the employee to communicate to Aprahamian that Sandoz would follow. In July 2014, Sandoz increased the price of clobetasol to match Taro and another company.

Aprahamian was indicted by the U.S. in February on price-fixing charges and has pleaded not guilty.

Taro Treasurer William Coote said in a statement that the allegations made by the states are without merit.

“Taro Pharmaceuticals is committed to the highest level of ethics and integrity in every aspect of our operations,” Coote said.

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