Kroger, other grocers take on generic drug industry with price-fixing suit

Kroger and other grocery companies have sued generic drugmakers for alleged collusion on pricing. (Pixabay)

Generic drug makers are already staring down price-fixing probes and government allegations of collusion. Now, Kroger and other grocery chains are getting involved, suing Mylan, Teva, Endo and many other companies for an "overarching conspiracy" to artificially inflate prices on certain drugs. 

The plaintiffs, which all have pharmacy operations, allege in a 241-page lawsuit (PDF) filed last week that the drug companies met at industry meetings, communicated digitally and more to reach collusive agreements, raise prices and divide up the market to help one another. 

The suit cites pricing on 30 drugs but said others could be added after discovery. In pointing to large price hikes on certain products by multiple companies—at around the same time—the grocers say the pricing dynamics are "so unusual and extraordinary as to demonstrate the existence of a conspiracy." 

Teva declined to comment on the lawsuit and Endo said it doesn't comment on pending litigation.

"That said, Endo is committed to providing top-quality products that improve patients’ lives, and in doing so, we take our legal obligations—including those relating to product pricing—very seriously," an Endo spokesperson added. "As such, we plan to vigorously defend the company against these claims."

Kroger is joined in the suit by Albertsons and the H.E. Butt Grocery Company, all of which own stores with on-site pharmacies that sell generic drugs. The plaintiffs say they were hurt by the alleged collusion and are suing for damages and a permanent injunction. They say the effect of the collusion continues today. 

Generic drug industry executives kept in touch about pricing through an "almost constant stream" of industry trade events, golf outings, dinners and more, according to the lawsuit. Some executives had extensive contacts at rival drugmakers, the plaintiffs added. 

For instance, Teva senior sales executives had more than 1,500 contacts at Actavis, Apotex, Ascend, Aurobindo, Citron, Dr. Reddy's, Glenmark, Heritage, Lannett, Mayne Pharma, Par Pharmaceuticals, Sandoz, Sun Pharma and Zydus, according to the lawsuit. Heritage Pharma leadership had more than 500 contacts around the industry, according to telephone records cited in the court filing.  

"Collusion is the only plausible inference to draw from the extremely high number of competitors’ contacts revealed by defendants’ phone records," the suit suggests.

Further, the suit argues, the fact that former Heritage Pharma executives entered a plea agreement with federal prosecutors last year establishes "that a conspiracy did exist." Former Heritage CEO Jeffrey Glazer and former president Jason Malek entered their respective deals in exchange for assisting with the ongoing government probe. Their sentencing is set for March, according to the lawsuit. 

In addition to industry meetings and phone records, the lawsuit also says many of the companies are near each other in New York City or surrounding areas, "giving them easier and more frequent opportunities to meet and collude." 

In January 2014, for example, "at least 13 high-ranking male executives, including CEOs, presidents, and senior vice presidents of various generic drug manufacturers" met at a New Jersey steakhouse, according to the grocery chains. Female employees sometimes met for "Girls' Night Out" or "Women in the Industry" gatherings, according to the suit, during which they "discussed competitively sensitive information." 

The filing is the latest salvo in a multiyear generic drug price-fixing probe that's resulted in a lawsuit by attorneys general from 46 states against Mylan President Rajiv Malik, Emcure CEO Satish Mehta and 18 drug companies. The states alleged price fixing on 15 drugs, buts said the scheme could be much larger.

Kroger and its co-plaintiffs cite allegations from that lawsuit in their own filing. 

Additionally, the Justice Department has an ongoing investigation that could yield a civil lawsuit, Assistant Attorney General for the antitrust division Makan Delrahim said recently at George Mason University, according to Bloomberg.

Editor's note: This story was updated with a statement from Endo and to reflect that Teva declined to comment.