Key generic drugmakers saw their shares sliding on news that the first charges have been brought by the antitrust division in the investigation related to generic drug pricing.
The Department of Justice (DoJ) said that two former senior executives, Jeffrey Glazer, the erstwhile CEO of a generic pharmaceutical company, and Jason Malek, the former president of the same company, have been charged for their roles in conspiracies to fix prices, rig bids and allocate customers for certain generic drugs.
According to the press release, the executives were charged with conspiring to fix prices, rig bids and allocate customers for an antibiotic, doxycycline hyclate and also for conspiring to fix prices and allocate customers for glyburide, a diabetes medicine. While the antibiotic conspiracy took place from Apr 2013 until at least Dec 2015, the diabetes drug conspiracy took place from Apr 2014 until at least Dec 2015.
Per several reports, the two executives are planning to plead guilty and will cooperate with the authorities.
Drug Pricing Heat on Generic Companies
While branded drugmakers have been under fire for quite a while for the high prices of drugs, generic drugmakers have also fallen under the ambit of drug pricing scrutiny with the DoJ conducting an investigation. The investigation, initiated a couple of years back, reportedly covers more than 12 companies and about 24 drugs.
In 2014, Sen. Bernie Sanders and Rep. Elijah E. Cummings had called on the Obama administration to address "staggering increases" in generic drug prices. In a letter to the Department of Health and Human Services (HHS), Cummings and Sanders had provided examples of dramatic price increases for generic drugs like albuterol sulfate (asthma, price shot up from $11 to $424 in less than a year) and doxycycline hyclate (antibiotic; the price for a bottle shot up to $1,849 from only $20).
The lawmakers had pointed out that the price hikes would not only affect consumers, hospitals and home health agencies, they would pressurize the budgets of Medicare, Medicaid, the Department of Defense and the Department of Veterans Affairs.
Sanders and Cummings had also written to Glazer, who was then the President and CEO of Heritage Pharmaceuticals, questioning the 8,281% increase in the average price for doxycycline hyclate from Oct 2013 to Apr 2014.
Cause for Concern?
Quite a few generic drugs (cheaper copy-cat versions of branded drugs that have lost exclusivity) have witnessed steep price increases -- according to a U.S. Government Accountability Office (GAO) report, more than 300 established generic drugs had an extraordinary price increase (at least 100%) from 2010 to 2015 with these increases moderating generic drug price declines. Considering that generics account for 89% of prescriptions dispensed in the U.S. (according to the new 2016 Generic Drug Savings and Access in the U.S. report, compiled by the QuintilesIMS Institute on behalf of the Generic Pharmaceutical Association (GPhA)), the DoJ antitrust probe will remain an overhang.
With the first charges being filed, several generic drugmakers are feeling the heat. While Teva Pharmaceutical Industries Limited TEVA declined 1.8% on the news, Impax Laboratories, Inc. IPXL and Lannett Company, Inc. LCI lost 3.4% each and Endo International plc ENDP 3.8%. Mylan N.V. MYL , which had its own set of woes related to the drug pricing controversy (EpiPen), was down 1.6%.
Most of these companies have underperformed their respective industries year-to-date (YTD). However, despite the EpiPen pricing controversy which hit the stock, Mylan outperformed the Zacks categorized Medical-Generic Drugs industry with shares declining 30.3% YTD. Mylan is a Zacks Rank #3 (Hold) stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Medical - Generic Drugs Industry Price Index
Drug pricing is an issue that has been under intense political, media and public scrutiny for more than a year now and President-elect Donald Trump's recent comment regarding rising drug prices ensures that drug pricing will remain in focus.
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