After months of percolating discontent about generic drug price hikes, the U.S. Senate is hauling drugmakers to a hearing this week. But though companies face an interrogation spotlight there, speakers won't be led away in handcuffs. The real threat lies at the Department of Justice, which is likely considering criminal prosecution for price-fixing and other antitrust violations, Law.com reports.
Two generic drugmakers--Lannett and Impax Laboratories ($IPXL)--recently disclosed that employees had received grand jury subpoenas from the Justice Department, demanding any information on pricing discussions with their competitors. According to an analysis published by Law.com, civil antitrust probes in the pharma business are the bailiwick of the Federal Trade Commission. The DOJ handles civil claims in other industries--and all criminal antitrust violations.
So, the fact that the DOJ is investigating any "exchange of pricing information" in the pharma business "likely indicates that the agency anticipates uncovering criminal antitrust conduct in the form of price-fixing or customer allocation," the article notes.
For companies, any antitrust investigation is significant. The potential consequences of a criminal probe are much higher, though. Fines are larger, and companies often face monitoring by external compliance police. So far, only two companies have disclosed subpoenas, but other companies may join them.
What's potentially more significant is that individuals involved in any price-fixing or anticompetitive activity could actually be prosecuted. They might even face prison sentences. According to Law.com, the Sherman Act stipulates fines of up to $1 million and up to 10 years in prison.
"Criminal antitrust investigations may reach beyond the corporate structure and focus on individuals, often leading to severe financial penalties and even jail time for those who participated in or condoned the illegal conduct," the article states. Individual prosecution is rare--one analysis shows 246 individual convictions from 1999 to 2009--but the simple threat of it can make DOJ antitrust cases difficult and expensive to fight.
In a securities filing, Lannett disclosed that its SVP of sales and marketing was served with a subpoena related to a federal probe of the generics industry. The feds' request for documents covers any communication about pricing, about any of the company's drugs. The company had already said it's under investigation by the Connecticut attorney general for pricing of the heart drug digoxin.
Impax's disclosure said that a company sales rep received a Justice Department subpoena asking for "any communication or correspondence with any competitor" in the sale of generic drugs.
Meanwhile, as the Senate hearing approaches, the New England Journal of Medicine published an article citing several price increases for generic drugs. The price hikes typically followed a big decline in competition, as generics companies bailed out of less profitable meds, leaving few rivals to vie for market share. Because of "near monopoly" conditions for those drugs, companies were able to jack up prices.
This isn't the first time that individual prosecution has been held out as a potential penalty for pharma executives. The FDA has made noises about going after individual executives in off-label marketing cases, but so far hasn't followed through on those threats.
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