There are very few industries as notorious as Big Pharma. Fewer still have done more to deserve that notoriety. Tweaking existing drugs to generate new patents, price gouging by creating artificial scarcities and simply buying off competitors, there’s hardly a dirty trick that pharma companies haven’t tried.
So last week’s news about the charges filed by 44 US states alleging collusion between 20 drug makers to raise prices and allocate markets among themselves, comes as no surprise. While Israeli firm Teva is at the epicentre of the ring, which includes reputed multinational firms like Pfizer and Sandoz, also named are seven of India’s top pharma companies, including Taro Pharmaceutical Industries Ltd (a subsidiary of Sun Pharma), Glenmark, Dr Reddy’s and Aurobindo Pharma.
The charge against these companies is that they conspired to fix prices at artificially high levels. An excerpt from the department of justice (DoJ) filing gives a sense of how outrageous some of the hikes were: “Clomipramine HCL, also known by the brand name Anafranil, is used for the treatment of obsessive-compulsive disorder, panic disorder, major depressive disorder, and chronic pain. In addition to Defendants Sandoz and Mylan, Defendant Taro also manufactured Clomipramine HCL. Indeed, it was Taro that led a price increase on this product on May l, 2013. The price increase was striking—more than a 3,440% increase to Taro’s WAC pricing on certain formulations."
Significantly, the DoJ document also says that besides conspiring with Teva, the other “competitors also colluded with each other on drugs that Teva did not market." Presumably this included the seven Indian companies as well.
Predictably, all the accused companies have denied the charges. But that isn’t surprising.
Companies rarely accept wrongdoing until they are presented with incontrovertible evidence and the threat of even worse punishment if they continue with their denials. In 2011, the DoJ began investigations against automotive parts manufacturers in the US on charges of large-scale price-fixing. The case dragged on for seven years before finally last year all but two of the charged companies pleaded guilty, and a total of nearly $3 billion in criminal fines was imposed on them.
In fact, the present case, being dubbed the biggest single act of cartelization in the US, picked up steam when in 2017, two executives of Heritage Pharmaceuticals, an American company that is part of the current lawsuit, pleaded guilty to fixing prices for two generic drugs, doxycycline and glyburide, and agreed to cooperate with the larger investigation.
It is true that generics makers have provided badly-needed low priced alternatives to expensive drugs. Indeed, it was Cipla Inc., not named in the current investigations, that in 2001 provided the real impetus to Indian generics when it slashed prices for AIDS patients in Africa from $10,000 to $100 per year by launching its version of the HIV triple drug combination.
In recognition of the growing role of generics in the healthcare business, US Congress in 1984 passed the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act, to streamline the process for generic pharmaceutical approvals while simultaneously retaining the incentives needed for research and development. The Act came about following protracted and prolonged drug testing and approval procedures of the Food and Drug Administration (FDA). Its purpose was to allow a faster approval route to generic drugs. The act has served its purpose rather well. Nearly 90% of all prescriptions in the US are for generic drugs.
The US generic drug market, dominated by hospital pharmacies, was valued at $103.8 billion in 2018, having grown at 12.1% between 2011 and 2018, according to IMARC Group. It is expected to reach $190.4 billion by 2024, at a projected CAGR of 10.6% in the years from 2019 to 2024.
That represents a huge opportunity for Indian pharma firms which already have a major share of that market. However, recent events, including strictures from the US FDA on quality-related issues as well as the current charges about anti-competitive behavior, could act as a dampener.
The success of India’s software services companies rests on maintaining quality and ethical standards on par with the best in the world. Five years ago as the whole Ranbaxy story fell apart in the US, it queered the pitch for other Indian pharma companies who found themselves subjected to additional scrutiny by the FDA on abbreviated new drug applications (ANDAs). The knock-on effect of the current investigations could lead to similar reprisals. That is of course over and above the fines running into several millions of dollars that the accused firms will have to pay if the DOJ and the state attorneys are able to prove their charges.
Since the plaintiff states have demanded a trial by jury, there will be an emotive angle to whatever judgement is finally delivered. American citizens are literally sick of what they perceive as the excesses of the pharma companies. Witness the glee over news of solitary confinement for Turing Pharma’s infamous CEO Martin Shkreli, now serving a seven-year sentence for securities fraud. This is the man whose company hiked the price of antiparasitic drug Daraprim from $13.50 to $750 a pill. As evident from pronouncements by politicians, the knives are out for pharma companies. Will they pay heed?
Sundeep Khanna is an executive editor at Mint and oversees the newsroom’s corporate coverage