In some ways, it was the corporate world equivalent of the infamous baptism scene in Francis Ford Coppola’s The Godfather, when, in a single 24 hours, the newly anointed don of the Corleone family executed a plan to simultaneously eliminate rivals in La Cosa Nostra.
In this case, however, the family was made up of generic-drug makers Teva Pharmaceuticals, Mylan, Actavis, Lupin, Novartis’ Sandoz, Taro Pharmaceuticals and others. On a single day, Friday, April 4, 2014, the scheme hiked the price on 22 generic drugs—ranging from cephalexin, a bacterial infection antibiotic, which jumped 185%, to ketoconazole cream, used to combat athletes foot and jock itch, which jumped 110%, to diflunisal, an anti-inflammatory, up as much as 182%.
In the annals of marketing, their concerted action was impressive. The move rubbed out price competition and profit erosion in an industry plagued by them—and created a windfall for those in on the game.
For more than four years, federal and state prosecutors have been investigating the industry, trying to figure out why the prices of drugs that came off patent failed to decline, and in some cases actually soared, defying basic principles of supply and demand. Historically, the generics business was known to drive down the prices of pharmaceuticals by as much as 80%. Criminal charges have already been levied against a smaller company, Heritage Pharmaceuticals, and its founders, and a federal investigation of others remains ongoing. Heritage has entered into a deferred prosecution agreement with the federal government. Others have been implicated in an older civil lawsuit filed by the states, including former billionaire Satish Mehta and Mylan’s president, Rajiv Malik.
The allegations mostly revolve around conspiracy to fix prices in violation of the Sherman Antitrust Act in an effort to maintain market share and boost profits. Mehta, Malik and the drug companies have moved to dismiss the civil charges. Some of the companies, like Mylan, have said they have investigated the allegations and found no evidence of price fixing.