Ex-Heritage Pharma execs first up for federal charges in generics price-fixing probe

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 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.

“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 of New Jersey-based Heritage Pharmaceuticals while Malek was president there, according to past releases and web records. Bloomberg reports the suspects plan to plead guilty.

The charges come after a series of companies—including generics makers far larger than Heritage—disclosed subpoenas from federal officials, all as part of an industrywide investigation. The Heritage charge documents mention two "co-conspirators"—identified as Company A and Company B—and therein lies the danger for other generics makers who fit that description.

Leerink Partners analyst Jason Gerberry wrote in a Wednesday 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 U.S. 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 copycat drugmaker Mylan. 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 note from Evercore ISI analyst Umer Raffat.

Gerberry sees little financial risk to either company 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.

"Knowing very little about the DOJ's broader inquiry, we take some solace from the fact that the first indictment occurred with a small, privately held corporation that presumably had less stringent controls than a larger, publicly traded peer," Gerberry said.