States sue Cody Labs’ parent company over alleged price fixing

Posted 11/9/17

Philadelphia-based Lannett Company is one of 18 generic drug manufacturers — and its doxycycline monohydrate is one of 15 medications — now being targeted by the state attorneys in a civil antitrust lawsuit.

“We allege in this complaint …

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States sue Cody Labs’ parent company over alleged price fixing


Attorneys general from 45 states and the District of Columbia have accused Cody Laboratories’ parent company of conspiring with its competitors to fix the price of an antibiotic.

Philadelphia-based Lannett Company is one of 18 generic drug manufacturers — and its doxycycline monohydrate is one of 15 medications — now being targeted by the state attorneys in a civil antitrust lawsuit.

“We allege in this complaint that the defendant companies’ collusion was so pervasive that it essentially eliminated competition from the market for these 15 drugs in its entirety,” Connecticut Attorney General George Jepsen, who’s leading the case, said in a statement last week. Jepsen said the investigation is continuing and that he expects more companies and drugs will be targeted in the future.

Lannett is specifically alleged to have conspired with three other manufacturers — Heritage Pharmaceuticals, Par Pharmaceuticals Company and Mylan Pharmaceuticals — to raise prices for “doxy mono” in 2013 and 2014.

“We cannot comment on the details of allegations in an ongoing litigation, but we believe the allegations are meritless,” Lannett CEO Arthur Bedrosian told investors and analysts in a quarterly conference call on Monday.

Bedrosian did say that doxycycline monohydrate represents a small percentage of the company’s sales and “more importantly, the marketplace for this drug was intensely competitive, demonstrated by the fact that, during the relevant time period, Lannett lost substantial market share to competitors.”

It was not immediately clear whether Cody Laboratories has any role in manufacturing doxycycline monohydrate; a Lannett spokesman did not respond to questions.

The State of Wyoming is not participating in the civil suit, nor is neighboring South Dakota; Montana, Colorado, Idaho and Nebraska are participating.

Wyoming Attorney General Peter Michael — an appointee of Gov. Matt Mead — did not respond to questions asking why the state is not a part of the litigation. A spokesman for Mead declined to comment on the suit, referring questions to Michael’s office.

The state is currently in the process of loaning $23 million to Cody Laboratories to help build a new pharmaceutical production facility on Cody’s northern edge. Staffing the $50.5 million facility, now under construction on Road 2AB, is expected to create 57 new jobs. Bedrosian said the steel structure is complete and the project is on schedule to be finished in 2020.

The State Loan and Investment Board — made up of Gov. Mead, Secretary of State Ed Murray, Treasurer Mark Gordon, Superintendent of Public Instruction Jillian Balow and State Auditor Cynthia Cloud — approved the $23 million, low-interest loan last month; the board had voted to commit $11 million last year, but upped their commitment after Cody Labs determined the project would be more expensive and create more jobs than first thought.

Gordon’s office is now working to finalize the terms of the loan, having completed much of its due diligence over the past year.

“It’s all going well,” Gordon said Friday, saying he’s optimistic the loan will close in the coming months.

Asked about the impact of the states’ legal complaint against Lannett, Gordon said it’s something his office has considered.

“We do look at that,” he said. “We’ve asked a lot of questions about that lawsuit.”

In assessing the quality of the company’s collateral for the loan, Gordon said the treasurer’s office has factored in how the suit might affect Lannett.

“Regardless of what the outcome of any legal actions might be, it [the new production facility is] still a quality asset for Cody,” Gordon added. “It provides great jobs; it’s a very important diversifier for Wyoming and so we recognize the importance of all that.”

The civil suit from the 46 attorneys general was originally filed in December 2016 and at that point, it only targeted six companies regarding two drugs.

According to Forbes’ reporting, the civil suit was spawned by a criminal investigation into the actions of former Heritage Pharmaceutical CEO Jeffrey Glazer. Glazer has pleaded guilty to antitrust violations for conspiring with other pharmaceutical manufacturers.

“Since it takes at least two parties to agree to fix the price of a product, the government seems intent on widening its case,” Forbes wrote in April.

The separate civil case brought by the states widened last week, when they announced they’re targeting 18 companies and 15 medications.

Though Lannett is alleged to have played a smaller role than some other companies in the complaint, the attorneys general say Lannett conspired with Heritage, Par and Mylan to “artificially fix, raise, stabilize and control the prices for generic drugs.”

According to the complaint, Heritage heard in February 2013 that there would be more demand for doxy mono.

“In order to ensure a successful increase [in price], Heritage began reaching out to certain competitors,” the attorneys general allege.

Lannett raised its prices for doxy mono in June 2013. The complaint alleges a member of Heritage’s sales team and her counterpart at Lannett also agreed to raise prices for the drug in April 2014.

The suit includes quotes from text messages and internal emails to support the allegations, but the details are redacted in the public version “in order to avoid compromising ongoing investigations.” The U.S. Department of Justice has been investigating possible antitrust violations by various generic drug makers and subpoenaed Lannett documents in fiscal years 2015 and 2016.

Other class action lawsuits, brought by private citizens, are also pending against dozens of generic makers over alleged price fixing. In one of those cases, Lannett has been accused of fixing prices for the blood pressure medication dixogin.

The company says it followed the law in all cases and disputes the allegations.

Generic drugs are effectively copies of brand-name medications. The Food and Drug Administration gives developers of new drugs exclusive marketing rights for a certain number of months or years, then eventually approves generic equivalents to create competition and generally drive down prices.

However, Connecticut attorney general Jepson says prices of generics have instead “skyrocketed” in recent years because of collusion by drug makers.

The attorneys general allege the manufacturers named in the suit — including Lannett — “meet and collude” at various industry dinners and events and frequently talk with each other to keep prices artificially high.

“Defendants actively monitor and track each others’ fair share and discuss it with each other in the context of agreements on specific drugs,” the complaint says, adding, “The objective is to attain a state of equilibrium, where none are incentivized to compete for additional market share by eroding price.”

For example, the state attorneys say the president of Mylan agreed to give up two large accounts to Heritage, a competitor, when Heritage began selling an antibiotic called Doxy DR.

“We have been investigating these allegations thoroughly and have found no evidence of price fixing on the part of Mylan or its employees,” Mylan executives said in a statement last week, adding, “Mylan takes its legal obligations seriously and operates with the highest levels of integrity and character.”

Mylan drew a slew of negative media coverage for raising the price of their EpiPens — devices that inject drugs to quell severe allergic reactions — from around $100 a pair in 2008 to more than $600 last year.

Mylan agreed to pay the federal government $645 million in August to settle allegations that it had over-billed Medicaid by misclassifying the brand name drug as a generic medication. EpiPens are not a part of the pending suit brought the states.

Without mentioning the devices by name, Lannett CEO Bedrosian addressed the EpiPen price controversy during an August 2016 conference call with investors and analysts. Bedrosian said the pharmaceutical industry faces rising costs — and media outlets don’t report on decreases in price, according to a transcript compiled by the website Seeking Alpha.

Bedrosian added that Lannett must make a profit on its products or they’ll be discontinued.

“The public needs those drugs. We’re in a healthcare field. So we’re trying to do the right thing. Price our products, so we make the profit — so we survive and we can file ANDAs [Abbreviated New Drug Applications],” he said, referring to the process of getting generic drugs approved by the Food and Drug Administration (FDA).

Bedrosian added that, “we are working very hard to file ANDAs and reduce the cost of healthcare in the U.S. But sometimes to do that, you have to raise the price when you have an opportunity.”

In his quarterly remarks to investors and analysts on Monday, Bedrosian predicted prices for generic drugs would generally start to “rebound” and see modest increases by September 2018.

“... Generally speaking, this anti-price phenomenon, where people are against anybody raising a price, are ridiculous in light of what FDA wants to do, which is upgrade facilities, meet new requirements that they’re putting out there, which requires us to spend more money on our operation and our facilities,” he said. “You cannot continue to do that if you don’t raise prices on some of your products.”

Bedrosian described the company’s strategy as raising prices to be as profitable as possible while reacting to competitors.

Lannett reported Monday that, between July and September, the company had net sales totaling $155 million with gross profit of $67.7 million, or 44 percent.

The price of Lannett stock sunk Oct. 31, the day the states’ lawsuit was announced, but partially rebounded the next day. By Wednesday evening, company stock was trading at $25.20 a share — a six-month high.